Registration of Charitable and Religious Trust

GST is a tax leviable on supply of goods or services or both except the supply of alcoholic liquor for human consumption. Implementation of GST has been seen as a great tax reform that will unify the entire nation, as far as taxation is concerned. GST will have social consequences on charities and the non-profit organizations. It becomes important to understand what is a charitable purpose and its related provisions.

This article aims to explain the key constituents of GST and its implications over religious and charitable trusts.All services provided by such entities are not exempt. In fact, there are many services that are provided by such entities which would be within the ambit of GST.

How is charitable purpose defined by the act?

Charitable purpose includes

• Relief of poor
• Education
• Yoga
• Medical relief
• Preservation of environment
• Preservation of monuments or places or objects of artistic or historic interest
• The advancement of any other object of general public utility

What are the criteria for a charitable trust to be exempted from GST?

For charitable trust to be exempted from GST, it

must be registered under Section 12AA of the Income Tax Act, and the services provided by the charitable trust or the NGO must be for a charitable cause mentioned above.

GST implication on different activities carried on by the trust

• GST on management of educational institutions by charitable trusts
  If trusts are running schools, colleges or any other educational institutions specifically for abandoned, orphans, homeless children, physically or mentally abused persons, prisoners or persons over age of 65 years or above residing in a rural area, such activities will be considered as charitable activities and income from such supplies will be wholly exempt from GST.

• Import of services
  If charitable trusts receives any services from provider of services located in non-taxable territory, for charitable purposes, such services received are not chargeable to GST under the reverse charge mechanism.

• Services by and to Education Institutions (including institutions run by Charitable trusts)
  If the trust is running school for the purpose which is not coming within the scope of charitable activities income from such activity will not be exempt. If such school or other educational institution gives property owned by such institution on rent to others, no exemption will be available for such services
  Supply by and to educational institutions, the following services received by eligible educational institution are exempt:
  • Transportation of students, faculty and staff of the eligible educational institution.
  • Catering service including any mid-day meals scheme sponsored by the Government.
  • Security or cleaning or house-keeping services in such educational institution.
  • Services relating to admission to such institution or conduct of examination.

• GST on arranging yoga and meditation camp by charitable trusts
  • Charitable trusts organise yoga camps or other fitness camps and they generally are not free for participants, as trusts charge some amount from the participants in the name of accommodation or participation.
  • If trusts are arranging residential or non-residential yoga camps by receiving donation or other charges from the participants, these will not be considered charitable activities (as it is different from advancement of religion , spirituality or yoga).
  • Since donation is received for participation, it will be considered commercial activity and it will definitely be covered under the GST.
• GST on running of public libraries by charitable trusts
  No GST will be applicable if charitable trusts are running public libraries and lend books, other publications or knowledgeenhancing content/material from their libraries

• GST on hospital managed by charitable trusts
  • Gst is not levied on healthcare services at clinical establishment, an authorised medical professional or paramedics.
  • Health care services means any service by way of diagnosis or treatment or care for illness injury,deformity,abnormality or pregnancy in any recognised system of medicines in India,services by way of transportationof the patient to and from a clinical establishment,but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.Therefore, all treatment or diagnosis or care for illness, injury, deformity, abnormality or pregnancy by a clinical establishment is covered. Such services provided by doctors and paramedics either provided as an employee (clinical establishment) or in their individual capacity is exempt.
  • Transportation of patients to and from a clinical establishment is also exempt
    So, if charitable trusts run a hospital and appoint specialist doctors, nurses and provide medical services to patients at a concessional rate, such services are not liable to GST.
    If hospitals hire visiting doctors/ specialists and these deduct some money from consultation/visit fees payable to doctors and the agreement between hospital and consultant doctors is such that some money is charged for providing services to doctors, there may be GST on such amount deducted from fees paid to doctors.

• GST on supply of goods by Charitable Trusts
  There is no exemption for supply of goods by charitable trusts. Thus any goods supplied by such charitable trusts for consideration shall be liable to GST. For instance, sale of goods shall be chargeable to GST.

• GST on services provided to charitable trusts
  Services provided to charitable trusts are not out of ambit of GST . All services other than those specifically exempted provided to charitable trusts will be subject to GST.

Takeaway

The provisions relating to taxation of activities of charitable institutions and religious trusts have been borrowed and carried over from the erstwhile service tax provisions. There have been detailed provisions stated by the act in respect of religious and charitable trusts. Special advisory services are provided by the professionals at the Legal Window. Services can be availed from them to avoid any non compliance.