GST UPDATE

????Desk of CA. Praveen Sharma Series- 483????

Navigating GST Implications for Charitable and Religious Organizations

The introduction of the Goods and Services Tax (GST) has brought about significant changes in the fiscal responsibilities of charitable and religious organizations in India. Contrary to the pre-GST era, not all services offered by these entities are now automatically exempt from tax. This shift has a profound impact on organizations whose primary missions include advancing education, promoting public health, conducting religious activities, and fostering social welfare. Even though these institutions may engage in activities that indirectly generate revenue, the GST law assesses the taxability of services based on specific criteria related to the nature of the services provided.

Under GST, the taxability of a transaction hinges on the concept of 'supply,' defined as the act of making goods or services available to fulfill a requirement. For a transaction to qualify as a supply under GST, it must involve a clear exchange between a supplier and a recipient, which includes a consideration (payment) in the course of business. The Comprehensive Goods and Services Tax Act (CGST Act) elaborates on this, stating in Section 2(17) that the term 'business' encompasses a wide range of activities, including trades, professions, and similar undertakings, irrespective of the pursuit of profit. This broad definition implies that non-profit activities could also fall under the umbrella of business transactions if they fulfill certain conditions, thereby becoming liable for GST.

An illustrative example of this is when an organization donates items with its logo for use in educational programs, which the GST regime classifies as a supply, making it taxable. Furthermore, amendments to the CGST Act have expanded the definition of supply to include transactions between an entity and its members, even if there's no profit motive, provided there's consideration involved.

Despite these broad stipulations, the government has carved out exemptions for charitable and religious trusts through specific notifications, recognizing the societal value of their services. Notification No 12/2017, for example, exempts services offered by entities registered under Section 12AA of the Income-tax Act, as long as these services are categorized as charitable activities. This exemption covers a wide array of services, including healthcare, religious advancement, educational initiatives, and environmental conservation, provided these activities strictly align with the definitions provided in the notification.

It's important to note, however, that these exemptions have a narrower scope compared to the broader definitions of charitable purposes under the Income Tax Act. This discrepancy necessitates a careful evaluation of activities by charitable and religious organizations to ensure their eligibility for GST exemptions.

The GST framework also delineates the tax implications for various forms of income received by these organizations. General donations, for instance, are not considered a taxable event under GST, as they do not meet the definition of a business transaction involving a supply of services. Similarly, interest income and certain types of rental income enjoy exemptions under specific conditions. Yet, the provision of certain services, such as the sale of publications or conducting educational and residential camps, may still attract GST, depending on the nature of the transaction and the organization's registration under Section 12AA of the Income-tax Act.

In conclusion, charitable and religious organizations must tread carefully in the GST landscape, balancing their mission-driven activities with the complexities of tax liabilities. While exemptions provide some relief, particularly for services directly tied to their charitable purposes, the onus is on these entities to understand the nuances of GST regulations, ensuring compliance and maintaining their focus on societal welfare. Organizations whose service transactions exceed the Rs 20 lakh threshold are required to register for GST, but they may still benefit from exemptions if their activities are aligned with the government's specified charitable activities. This intricate interplay between tax liability and exemptions underlines the need for these organizations to be vigilant and informed about the evolving GST regime.

Read more: https://www.edatabook.com/c-detail/3888

Check Draft reply of GST Notice and Appeal format in our EdataBook

Stay tuned and Save my number for any query +91-9871530610.

CA. Praveen Sharma 

https://www.linkedin.com/in/capraveensh