Is Sponsorship taxable under GST?

Central Board of Indirect Taxes & Customs (CBIC) vide Circular No. 116/35/2019-GST Dated: 11th October, 2019 has clarified that there shall be no levy of GST on the service of display of name or placing of name plates of the donor in the premises of charitable organizations receiving donation or gifts from individual donors. Though the circular refers only to individual donors, one could assume that the same principle could perhaps also be applied in the case of a corporate or institutional donor.

The Circular can be read or downloaded at: http://www.cbic.gov.in/resources//htdocs-cbec/gst/circular-cgst-116.pdf

Sponsorship is taxable under CGST

Vide Notification No. 13/2017 dated 28^th June, 2017, the Central Government had notified that “Services provided by way of sponsorship to any ‘body corporate’ or partnership firm” by “any person” to “any ‘body corporate’ or partnership firm located in the taxable territory” the whole of central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on Reverse Charge basis by the recipient of the such services.

In other words, “sponsorship” is a taxable service under CGST levied under Reverse Charge Mechanism (RCM)

Taxable Person

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.

However, ‘Person’ under GST 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.

CBIC provides relief

CBIC has now clarified that if individual donors provide financial help or any other support in the form of donation or gift to institutions such as religious institutions, charitable organizations, schools, hospitals, orphanages, old age homes etc., and the recipient institutions place a name plate or similar such acknowledgement in their premises to express their gratitude or when the name of the donor is displayed in recipient institution premises, in such a manner, which can be said to be an expression of gratitude and public recognition of donor’s act of philanthropy and is not aimed at giving publicity to the donor in such manner that it would be an advertising or promotion of his business, then it can be said that there is no supply of service for a consideration (in the form of donation) and therefore, there would be no GST liability on such consideration.

CBIC provides examples

CBIC provides examples of two cases where there would be no taxable supply:

1. “Good wishes from Mr. Rajesh” printed underneath a digital blackboard donated by Mr. Rajesh to a charitable Yoga institution.
2. “Donated by Smt. Malati Devi in the memory of her father” written on the door or floor of a room or any part of a temple complex which was constructed from such donation.

CBIC explains that in each of these examples, it may be noticed that there is no reference or mention of any business activity of the donor which otherwise would have got advertised.

Thus, where all the three conditions are satisfied namely:

1. the gift or donation is made to a charitable organization,
2. the payment has the character of gift or donation and
3. the purpose is philanthropic (i.e. it leads to no commercial gain) and not advertisement, GST is not leviable.

Conclusion

To reiterate, CBIC’s circular covers donations or gifts received by charitable organizations from individual donors only. It does not refer to donations or gifts or grants received from non-individuals / institutions / companies.  

However, if the all three conditions are satisfied, the same principle could also be applied in the case of a company providing a donation or grant (including CSR grant) to a charitable organization for a philanthropic purpose (not leading to any commercial gain or advertisement) and the recipient organization merely acknowledging the support provided by the company by way of acknowledging the donation / grant (including CSR grant) and expressing gratitude.