GST Updates & Clarifications
This
is further to our Blogpost dated: 2nd
July 2017 titled “GST & it’s Impact on Charitable
organizations/NGOs”
is further to our Blogpost dated: 2nd
July 2017 titled “GST & it’s Impact on Charitable
organizations/NGOs”
There
are still a number and queries that we continue to receive from
within the sector and hence the need to address some of these issues
in this blogpost.
are still a number and queries that we continue to receive from
within the sector and hence the need to address some of these issues
in this blogpost.
The
most common question that is still asked is: “We are registered
under 12AA of Income tax and therefore tax exempt. Why should GST be
applicable to us?”
most common question that is still asked is: “We are registered
under 12AA of Income tax and therefore tax exempt. Why should GST be
applicable to us?”
To
reiterate Income tax is a ‘Direct Tax’ and GST is an ‘Indirect
Tax’, besides also being a separate legislation.
reiterate Income tax is a ‘Direct Tax’ and GST is an ‘Indirect
Tax’, besides also being a separate legislation.
Income
tax is paid directly by the assesse on income whereas GST is paid
indirectly by the consumer and charged to the consumer by the
supplier of goods or services.
tax is paid directly by the assesse on income whereas GST is paid
indirectly by the consumer and charged to the consumer by the
supplier of goods or services.
In
certain cases, the consumer is required to register under GST and pay
GST on behalf of the unregistered supplier of goods and services
under what is called ‘Reverse Charge Mechanism’ (RCM).
certain cases, the consumer is required to register under GST and pay
GST on behalf of the unregistered supplier of goods and services
under what is called ‘Reverse Charge Mechanism’ (RCM).
GST
is charged only on ‘business activities’. Where the NGO provides
goods or services in furtherance to its charitable objects, GST is
not applicable. For example, if a company or a corporate foundation
enters into a ‘CSR grant agreement’ with an NGO, the latter is
merely furthering its charitable objectives and cannot be deemed as
carrying out ‘business activities’ as the company or corporate
foundation’s commercial vendor of service.
is charged only on ‘business activities’. Where the NGO provides
goods or services in furtherance to its charitable objects, GST is
not applicable. For example, if a company or a corporate foundation
enters into a ‘CSR grant agreement’ with an NGO, the latter is
merely furthering its charitable objectives and cannot be deemed as
carrying out ‘business activities’ as the company or corporate
foundation’s commercial vendor of service.
We
reiterate that a ‘grant’ is in the nature of ‘gift’ (albeit
with various stipulations) and therefore neither TDS nor GST should
be charged on grants.
reiterate that a ‘grant’ is in the nature of ‘gift’ (albeit
with various stipulations) and therefore neither TDS nor GST should
be charged on grants.
Taxable
person under GST
person under GST
A
‘taxable person’ under GST,
is a person who carries on any business
at any place in India and who is registered or required to be
registered under the GST Act. Any person
who engages in economic activity including trade and commerce is
treated as taxable person.
‘taxable person’ under GST,
is a person who carries on any business
at any place in India and who is registered or required to be
registered under the GST Act. Any person
who engages in economic activity including trade and commerce is
treated as taxable person.
‘Person’
here includes individuals, HUF, company, firm, LLP, an AOP/BOI, any
corporation or Government company, body corporate incorporated under
laws of foreign country, co-operative society, local authority,
government, trust,
artificial juridical person.
here includes individuals, HUF, company, firm, LLP, an AOP/BOI, any
corporation or Government company, body corporate incorporated under
laws of foreign country, co-operative society, local authority,
government, trust,
artificial juridical person.
While
the definition of ‘taxable person under GST’ includes a trust, as
long as the trust is not engaged in economic activity including trade
and commerce, it cannot be treated as taxable person under GST!
the definition of ‘taxable person under GST’ includes a trust, as
long as the trust is not engaged in economic activity including trade
and commerce, it cannot be treated as taxable person under GST!
GST
registration is mandatory for any business
whose turnover in a financial year exceeds Rs.20 lakhs (Rs.10
lakhs for North Eastern and hill states). Further, if turnover
is only supply of exempted goods/services which are exempt under GST,
registration is not necessary.
registration is mandatory for any business
whose turnover in a financial year exceeds Rs.20 lakhs (Rs.10
lakhs for North Eastern and hill states). Further, if turnover
is only supply of exempted goods/services which are exempt under GST,
registration is not necessary.
Interstate
and intrastate turnover of goods and services
and intrastate turnover of goods and services
Today
several NGOs make and sell their products (usually made by their
beneficiaries such as the physically or mentally challenged,
marginalized women etc.) or charge fees for various services. It is
important to understand when and where registration under GST becomes
mandatory.
several NGOs make and sell their products (usually made by their
beneficiaries such as the physically or mentally challenged,
marginalized women etc.) or charge fees for various services. It is
important to understand when and where registration under GST becomes
mandatory.
-
If
the NGO’s total intrastate (i.e. only within the state) turnover
from taxable supply of goods and services is below Rs.20 lakh during
the fiscal year (Rs.10 lakh in hill states), then GST is not
applicable. -
If
the NGO sells goods or provides services to anyone outside it’s
state, the NGO must register under GST. In such cases, it is
immaterial whether the total turnover of goods or services is below
the threshold limit of Rs.10 or Rs.20 lakh.
GST
would be applicable on all fee based services including membership
fees, training or workshop fees, provided the aggregate fee receipts
during the fiscal year are below the threshold limit and confined to
the state where the NGO is registered.
would be applicable on all fee based services including membership
fees, training or workshop fees, provided the aggregate fee receipts
during the fiscal year are below the threshold limit and confined to
the state where the NGO is registered.
GST
on Sponsorship by companies
on Sponsorship by companies
While
grants and donations are exempt under GST, sponsorship where the
company sponsors an NGO event and the name and or logo of the company
is widely and prominently displayed would attract GST.
grants and donations are exempt under GST, sponsorship where the
company sponsors an NGO event and the name and or logo of the company
is widely and prominently displayed would attract GST.
Sponsorship
includes naming an event after the sponsor, displaying the sponsor’s
company logo or trading name, giving the sponsor exclusive or
priority booking rights, sponsoring prizes or trophies for
competition; but, to reiterate, does not include any financial or
other support in the form of donations or gifts, given by the donor
subject to the condition that the service provider (NGO) is under no
obligation to provide anything in return to such donor/s.
includes naming an event after the sponsor, displaying the sponsor’s
company logo or trading name, giving the sponsor exclusive or
priority booking rights, sponsoring prizes or trophies for
competition; but, to reiterate, does not include any financial or
other support in the form of donations or gifts, given by the donor
subject to the condition that the service provider (NGO) is under no
obligation to provide anything in return to such donor/s.
No
General Exemption to NGOs from GST
General Exemption to NGOs from GST
There
is no general exemption from GST for goods or supplies purchased by
NGOs. Hence, if the NGO buys computers for office use or it’s
programs or grains or vegetables for its staff or program kitchen,
there is no GST exemption.
is no general exemption from GST for goods or supplies purchased by
NGOs. Hence, if the NGO buys computers for office use or it’s
programs or grains or vegetables for its staff or program kitchen,
there is no GST exemption.
Reverse
Charge Mechanism (RCM)
Charge Mechanism (RCM)
If
an NGO is registered under GST, it is also required to pay GST under
reverse charge on services or goods received from unregistered
vendors. This would include contractors, consultants, caterers,
shopkeepers, small traders etc., if these vendors are not registered
under GST.
an NGO is registered under GST, it is also required to pay GST under
reverse charge on services or goods received from unregistered
vendors. This would include contractors, consultants, caterers,
shopkeepers, small traders etc., if these vendors are not registered
under GST.
Casual
supplies (e.g. stationery, books, refreshments) up to Rs. 5,000 in a
day from small vendors are excluded from reverse charge.
supplies (e.g. stationery, books, refreshments) up to Rs. 5,000 in a
day from small vendors are excluded from reverse charge.
For
NGOs registered under GST, reverse charge is deductible from GST
payable as Input Tax Credit.
NGOs registered under GST, reverse charge is deductible from GST
payable as Input Tax Credit.
List
of Exempted Services under GST
of Exempted Services under GST
The
list is quite long and therefore we shall highlight here just a few
relevant exempt services.
list is quite long and therefore we shall highlight here just a few
relevant exempt services.
-
Services
by an entity registered under section 12AA of the Income Tax Act,
1961 (43 of 1961) by way of charitable activities; -
Services
by an educational institution to its students, faculty and staff; -
Services
to an educational institution, by way of transportation of students,
faculty and staff; catering, including any mid-day meals scheme
sponsored by the Government; security or cleaning or house-keeping
services performed in such educational institution; services
relating to admission to, or conduct of examination by, such
institution; up to higher secondary; -
Services
by an artist by way of a performance in folk or classical art forms
of music, or dance, or theatre, if the consideration charged for
such performance is not more than one lakh and fifty thousand
rupees: Provided that the exemption shall not apply to service
provided by such artist as a brand ambassador; -
Service
by an unincorporated body or a non- profit entity registered under
any law for the time being in force, to its own members by way of
reimbursement of charges or share of contribution –
As a trade union; For the provision of
carrying out any activity which is exempt from the levy of GST; or
Up to an amount of five thousand rupees per month per member for
sourcing of goods or services from a third person for the common use
of its members in a housing society or a residential complex; -
Services
of public libraries by way of lending of books, publications or any
other knowledge-enhancing content or material; -
Services
by way of training or coaching in recreational activities relating
to, Arts
or culture. or sports by charitable entities registered under
section 12AA of Income Tax Act, 1961; -
Health
care services by a clinical establishment, an authorized medical
practitioner or para-medics; services provided by way of
transportation of a patient in an ambulance.
“Charitable
activities” as defined under GST
activities” as defined under GST
Services
by an entity registered under section 12AA of the Income Tax Act,
1961 (43 of 1961) by way of charitable activities is exempt under
GST. However, under GST the scope of “charitable activities” is
narrow and restricted.
by an entity registered under section 12AA of the Income Tax Act,
1961 (43 of 1961) by way of charitable activities is exempt under
GST. However, under GST the scope of “charitable activities” is
narrow and restricted.
“Charitable
activities” means activities relating to:
activities” means activities relating to:
(i)
Public health by way of:
Public health by way of:
(A)
care or counseling of
care or counseling of
(I)
terminally ill persons or persons with severe physical or mental
disability;
terminally ill persons or persons with severe physical or mental
disability;
(II)
persons afflicted with HIV or AIDS;
persons afflicted with HIV or AIDS;
(III)
persons addicted to a dependence-forming substance such as narcotics
drugs or alcohol; or
persons addicted to a dependence-forming substance such as narcotics
drugs or alcohol; or
(B)
Public awareness of preventive health, family planning or prevention
of HIV infection;
Public awareness of preventive health, family planning or prevention
of HIV infection;
(ii)
advancement of religion, spirituality or yoga;
advancement of religion, spirituality or yoga;
(iii)
advancement of educational programmes or skill development relating
to:
advancement of educational programmes or skill development relating
to:
(A)
abandoned, orphaned or homeless children;
abandoned, orphaned or homeless children;
(B)
physically or mentally abused and traumatized persons;
physically or mentally abused and traumatized persons;
(C)
prisoners; or
prisoners; or
D)
persons over the age of 65 years residing in a rural area;
persons over the age of 65 years residing in a rural area;
(iv)
preservation of environment including watershed, forests and
wildlife;
preservation of environment including watershed, forests and
wildlife;
“Clinical
establishment” means a hospital, nursing
home, clinic, sanatorium or any other institution by, whatever name
called, that offers services or facilities requiring diagnosis or
treatment or care for illness, injury, deformity, abnormality or
pregnancy in any recognized system of medicines in India, or a place
established as an independent entity or a part of an establishment to
carry out diagnostic or investigative services of diseases.
establishment” means a hospital, nursing
home, clinic, sanatorium or any other institution by, whatever name
called, that offers services or facilities requiring diagnosis or
treatment or care for illness, injury, deformity, abnormality or
pregnancy in any recognized system of medicines in India, or a place
established as an independent entity or a part of an establishment to
carry out diagnostic or investigative services of diseases.
Noshir
H. Dadrawala
H. Dadrawala
CAP with FMSF will be having a workshop on GST in Mumbai on 13th September 2017. Please email connect@capindia.in for more details