There have been two forms of Indian Taxation System which would function previously in India: Direct Tax and Indirect Tax. The Direct Tax referred to taxes that were withdrawn from the individual’s salary or wages without any intermediary with both him and the government. Whereas an Intermediate paid indirect tax as a store owner from whom the person purchased XUZ products. Indirect Taxes include – Excise duty, VAT, Service Tax, Custom Duty etc. All of these branches had their own tax rate and many times it differed within them also. Now that the GST Bill has been passed by the government all of these Indirect Tax come under a single umbrella known as GST – Goods and Services Tax. What is important to note here is that there is no more difference in the tax rate across different states, the whole nation is to pay a unified tax and thus is under a Unified Common Market.
Under GST, charities will come be subject to pay Goods and Services Tax. This means that GST will be applicable on some of the services and goods supplied by a charitable trust or an NGO. There have been some requirements for being excluded from the Goods and Services Tax by a charitable trust or an NGO. Under Section 12AA of the Income Tax Act, a charitable trust or NGO should be registered and the services rendered by the charitable trust or NGO seems to be for a charitable purpose.Goods sold by a charitable trust may be charged. The charitable trust must pay the GST rate applicable when the supply is purchased.
The Goods and Services Act also specifies the criteria to be called a charitable activity. They are:
- Counseling of terminally ill persons or counseling for physically disabled
- Counseling for people affected with HIV or AIDS
- Counseling for alcohol-dependent persons
- Promoting of religion, spirituality, or yoga
- Spreading public awareness on health, family planning
Promoting educational programs or skill development relating to:
- Physically or mentally abused persons
- Orphaned, homeless, or abandoned children
- Rural area residents over the age of 65
If any charitable trust or an NGO does not meet at least two of the criteria, then GST will be applicable and the entity must register under GST.
If an NGO performs educational activities, yoga camps, or other programs that are not free to participants, it will be deemed to be a commercial operation and will therefore be responsible for GST. Also, the contribution obtained with such an operation would’ve been liable for GST taxation. Facilities rendered by means of teaching or training in arts and culture related leisure activities, or sports by a charitable entity will be exempt from GST.
Where trusts run schools, colleges or other educational facilities primarily for neglected people, orphans, street children, physically or mentally abused persons, inmates or persons over 65 years of age residing in rural areas, such activities shall be deemed to be charitable activities and the proceeds of such supplies shall be completely exempted from GST.
The following form is predominantly a non-profit organization registered Money Donations: Once given, the NGO’s irrevocable income becomes irrevocable, because there is no consideration for the donor in return. There should not be any GST on a donation, in our opinion, because consideration is absent. Grants including Govt grants, CSR grants, grants from philanthropic organizations to NGOs for different implementation of various projects