The implementation of the Goods and Services Tax (“GST”) will have a great impact on the Indian economy, with the number of persons having to register increasing and more activities getting covered in the tax net. Nevertheless, while the economic impact has been extensively discussed in the media & Government platforms, few have observed the social consequences of GST, particularly with regards to its impact on charities and non – profit organizations.
Charities are a social cause that is often undertaken by unselfish volunteers who are doing the work that the Government should be doing. Such work and activities should be fully encouraged and supported by the authorities. Rather, the intended implementation of GST will create many compliance related issues for NGOs as they might also be subjected to GST.
The purpose of this article is to throw light on the impact of Goods and Services Tax (GST) on NGOs, which has come into force with effect from 1st July, 2017.
1) As per section 2(6) of The Central Goods and Services Tax Act, 2017(“CGST”), “aggregate turnover” means the aggregate value of all taxable supplies, exempt supplies, exports of goods or services or both (zero rated supplies), and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis. Further, exempt supply means all supplies which attract nil rate of tax or which may be exempted by way of a notification and includes a non-taxable supply.
Hence, while determining the threshold limit for registration in GST, all supplies i.e., taxable supply, exempt supply, nil rated supply, non-taxable supply, zero rated supply, would have to be considered for calculation of aggregate turnover. As compared to the earlier law whereby only taxable services was considered for the threshold limit, in the current provisions even exempt supplies have been included in determining the threshold limit.
All NGOs making a taxable supply of even a single rupee and having exempt supply, the aggregate turnover of which crosses ₹ 20,00,000, would require to get registered as per section 22(1) of CGST.
2) “Supply” has been defined in section 7 of CGST, and includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
3) “Business” is defined in sec 2(17) CGST, and includes a vocation, whether or not for a pecuniary benefit and also includes activities incidental thereto, and is immaterial of the volume, frequency, and continuity or regularity of such transaction. Thus, though an NGO may be carrying on a vocation and not having any monetary gain from the activity, might be considered as a business for the purpose of this Act. Whether an NGO which is carrying out charitable activities be considered as doing business needs to be analysed.
4) The definition of a “Person” as per sec 2(84) of CGST, includes a society as defined under The Societies Registration Act, 1860 and also trusts.
5) Section 2(30) defines “Composite supply” to mean a supply consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. The issue are the words “two or more taxable supplies, or any combination thereof”. Whether only two taxable supplies can be composite supplies or even a taxable supply and an exempt supply can be considered a composite supply needs to be analysed.
6) Section 2 (31) – “Consideration” includes payment in money or “otherwise”. Therefore, “payment in kind” is also covered. Further, it includes “in response to or for the inducement of” the supply of goods or services or both. It also states that the payment may be by the recipient or by any other person and excludes central and state subsidy.
7) Section 2(47) – “Exempt Supply” includes nil rated supplies. Would this imply that exempt supplies are taxable supplies but are nil rated. If this analogy is taken further, then “composite supply” would get a wider meaning and many combinations of taxable and exempt supplies where the principal supply is the exempt supply would get exemption and fallout of the tax net.
8) In the earlier VAT law, an educational institution was not considered as a “dealer”. However, no such benefit is available to educational institutions in GST. As per sec 2(8) of The Maharashtra Value Added Tax Act, 2005, an educational institution carrying on the activity of manufacturing, buying or selling goods, in the performance of its functions for achieving its objects, shall not be deemed to be a dealer. Any transaction of sale in relation to education carried out by these institutions was not liable to VAT.
Thus, many educational institutions carrying on education services and also selling certain material in the course of providing education were not required to register (eg: sale of badges, calendars, books etc. by schools to its students). However, no such exclusion or benefit has been given to educational institutes in the GST regime.
There are certain categories of persons who would be compulsorily required to register under GST, immaterial of the turnover. Any NGO providing inter-state taxable supply would have to be registered [sec 24(i) of CGST].
Similarly, any NGO who is liable to pay tax under reverse charge, would also have to get themselves registered irrespective of the turnover [sec 24(iii) of CGST].
As per Rule 18 of CGST Rules, 2017, NGOs registered under this Act shall have to display their Certificates of Registration in a prominent location at all places of business.
Further, all NGOs with a taxable supply and having offices in more than one state would be required to register in each of the state. Any supply of taxable services or goods provided by one branch to another branch of the same NGO, even if without consideration would be considered as a supply between distinct persons and be liable to GST and an invoice for the same will have to be raised. E.g. If the Delhi branch of an NGO is sending goods to its Mumbai Branch then the branches would have to take registration immaterial of the amount of turnover.
Place of Supply
The place of supply of goods or services will determine the tax to be charged i.e. Central Goods and Services Tax/State Goods and Services Tax or Integrated Goods and Services Tax. The place of supply as per section 12 of IGST for various activities of NGOs would be as follows:
|Sr. No.||Section||Service provided||Place of Supply|
|1.||Sec 12(2)||Educational Institution||
a. If to a registered person then location of such a person.
b. If to an unregistered person, then, the location of the recipient where the address of the recipient exists, else the location of the supplier.
|2.||Sec 12(3)||Renting of premises||Location of the immovable property.|
|3.||Sec 12(4)||Hospital||Where service is actually performed.|
|4.||Sec 12(5)||Training services||
a. If to a registered person then location of such a person.
b. If to an unregistered person, then location where such services are actually performed.
|5.||Sec 12(6)||Cultural and other shows||Place where event is actually held.|
|6.||Sec 12(7)||Sporting, scientific, cultural and artistic events||
a. If to a registered person then location of such a person.
b. If to an unregistered person, then location of the supplier.
As per Notification No. 12/2017 (CGST Rate) and 9/2017 (IGST Rate) dated 28th June, 2017, 81 services have been classified as exempt services and therefore no GST is charged on the supply of these services. Most of the services which were in the negative list of services (66 D of Finance Act, 1994) have now been included in the exemption list of services. However, the notification for exemption states “exempts the supply of services” leading to the question that if goods are supplied along with the services, would the same be considered exempt.
Services given in exemption notifications of CGST & IGST directly impacting charitable trusts
1) Sr. No. 1
Service by an entity registered under section 12AA of the Income-tax Act, 1961 by way of charitable activities.
This exemption was available in the service tax legislation and the same has been continued without any modification.
2) Sr. No. 10
Construction related services
In the service tax legislation, services provided by way of construction, completion, repair, , to an entity registered under 12AA of The Income Tax Act, 1961 and meant predominantly for religious use by general public was exempt from service tax. These services are now taxable under the GST laws resulting in an increase in costs to the extent of GST charged on these services.
3) Sr. No. 12
Services by way of renting of residential dwelling for use as residence.
The exemption is only for renting of residential dwellings for use as residence. If the residential dwellings are rented and used for commercial purposes then the same would be liable to tax.
4) Sr. No. 13
Services by a person by way of conduct of any religious ceremony and renting of precincts of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961.
The term “religious place” has been defined in the said notification. It means a place which is primarily meant for conduct of prayers or worship pertaining to a religion, meditation, or spirituality;
The same exemption was available in service tax. However, a condition has been added to the above exemption. In the service tax regime there was a blanket exemption for renting of precincts a religious place meant for general public.
In GST the benefit of this exemption is conditional to the amount of rent that the NGO charges per day/month for the premises. The conditions being:
• Rooms given on rent should be charged at less than ₹ 1,000 per day.
• Renting of premises, community hall, or open area should be for less than ₹ 10,000 per day
• Renting of shops or other spaces for business or commerce should be for less than ₹ 10,000 per month.
5) Sr. No.14
Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent.
What is covered in this exemption is only residential or lodging services. Boarding has not been included in the above exemption. Further services include by hotel, inn, guesthouse, club or campsite “by whatever name called”. This would mean that any NGO providing lodging services with a declared tariff less than ₹ 1,000/- would get the benefit of this exemption eg. hostels, old age homes, dharamshalas etc. However, there would be an issue on the boarding services supplied along with the lodging, Whether this activity would get covered in the meaning of composite supply as per sec 2(30) of The CGST Act,2017 needs to be analysed.
The Press release dated 13-7-2017 issued by Press Information Bureau (Ministry of Finance) services of lodging/ boarding in hostels provided by educational institutions which are providing pre-school education and higher secondary education or education a qualification recognized by law, is fully exempt from GST. Annual subscription / fees charged as lodging/boarding charges by such educational institutions from its students for hostel accommodation shall not attract GST.
6) Sr. No. 66
a) By an educational institution to its students, faculty and staff
b) To an educational institution, by way of transportation of students, faculty and staff; catering: security or cleaning or house-keeping services; services relating to admission to, or conduct of examination up to higher secondary school or equivalent.
Provided that nothing contained in entry (b) shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.
Further education institution has been defined in the notification. It means an institution providing services by way of-
(i) Pre-school education and education up to higher secondary school or equivalent;
(ii) Education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
(iii) Education as a part of an approved vocational education course;
The provision to this exemption was inserted recently on 8th March, 2017 vide notification.no 10/2017, in the service tax legislation. Thus all educational institutes providing post qualification courses would be liable to pay GST on the input services as defined in clause ‘b’ of the notification, received by them.
The exemption notification is for “supply of services. “Goods” are not referred to in the notification. What needs to be examined is whether the benefit of this exemption can be extended to sale of items related to entry in the school. Eg: Sale of badges, ties, uniforms having the specific logo of the school?
7) Sr. No. 74
Services by way of health care services by a clinical establishment, an authorised medical practitioner or para-medics and transportation of a patient in an ambulance.
“Clinical establishment” has been defined to mean a hospital, nursing home, clinic, and similar institutions by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, etc. in any recognised system of medicines in India, and
An authorized medical practitioner includes a medical professional having the requisite qualification to practice in any recognised system of medicines in India as per any law for the time being in force. Eg. Ayurveda, Homeopathy etc.
Certain services which were exempt earlier have now made taxable. These services are listed in notification no. 11/2017 dated 28th June, 2017 of CGST (Rate).
1) Sr. No. 21
Earlier selling of space for advertisement in print media was exempt under service tax but now it is taxable @ 5% under GST. Thus, all NGOs publishing souvenirs, receiving advertisements for the souvenirs would now be a taxable supply.
2) Sr. No. 26
In the service tax regime, job work process in printing and textile processing, were exempt from service tax. This exemption is now removed and the service is now liable to tax @ 5%.
Services which are under reverse charge ie. the recipient of the service would be liable to make payment of GST [section 9(3) of CGST] and notification no. 13/2017 dated 28th June, 2017:
a) Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road, then whole of the tax be paid on reverse charge basis by the recipient of such services, subject to the limit based exemption available in the exemption notification.
b) Service provided by advocates to any business entity (whose aggregate turnover is in excess of Rupees twenty lakhs), located in taxable territory then whole of the tax be paid on reverse charge basis by the recipient of such services.
c) Services provided by an author, artist or the like to a publisher or a producer located in the taxable territory then whole of the tax to be paid on reverse charge basis by the recipient of the such services.
Eg : An author writing a book for an NGO which is in the activity of publishing books. In such a case, the NGO would be liable to pay GST and not the author.
If an NGO is liable to pay tax under reverse charge then it will have to compulsorily take registration under sec 24(iii) of CGST. The government vide notification. no 8/2017 dated 28th June, 2017 has exempted intra state supplies of goods or services received from an unregistered supplier from the applicability of the provisions of reverse charge where the aggregate value of supplies do not exceed ₹ 5,000/- in a day. This is intended to bring relief to the tax payer.
However, the control mechanism for determining the value of inward supplies from unregistered person exceeding of ₹ 5,000/- in a day would be a challenge for NGOs having multiple divisions.
Issue of Invoices, Bills of Supply and other documents
All registered suppliers have to issue a tax invoice for taxable supplies and bill of supply for exempt supplies containing all the prescribed particulars. Whenever tax is required to be paid under reverse charge the registered person needs to issue an invoice (where supply is received from an unregistered person) & also make a payment voucher containing the prescribed particulars.
NGOs have been subjected to multiple compliances in the last few years. From a regime of filing one return of income tax and two service tax returns every year, now a charitable trust will need to file close to 50 returns in a financial year. This will be a challenging proposition for many NGOs. For an NGO to continue doing the noble and charitable activities awareness of GST and compliance thereof will be a major challenge and will also result in a substantial increase in costs.