GST

Impact of GST on NGO

Impact of GST on NGO

After the implementation of GST for NGO, the two taxes which have been combined are, tax on goods is VAT and the tax on services is Service Tax. It is considered as a significant tax reform if we look, which provides one nation and one tax facility.

The implementation of GST has a significant impact on organizations like which are non-profit. These are non-governmental organizations like trust, societies etc.

GST for NGO has been brought in its ambit. This means goods and services shall be taxable in GST.

According to GST what is taxable is business. Any trade, manufacture, commerce, profession, vocation, whether or not it is for pecuniary benefit would have to pay GST. Considering this, the pecuniary benefit cannot be the sole judgment basis for deciding the term business. The charitable and philanthropic activities can be covered under GST as a business. However, what is exempted has to be checked under the GST in the category of NGO.

GST for Ngo

In NGO –GST is applicable on the taxable goods and services. An exemption is available in GST when it is covered in the definition of Section 12AA of Income Tax Act, 1961.

Eligibility for Exemption

  1. Entities covered in Section 12AA
  2. Such services are by way of charitable activities.

Section 12AA

An NGO as per Income Tax Act, 1961 is defined in Section 12AA. It says that any institution which is established for the charitable purpose or any trust can avail the exemptions under the IT Act, 1961. To take benefit of GST, it has to fulfill the Registration under IT Act, 1961 and accordingly in GST Law.

It is an exclusive list of the activities which are exempted the Act, the activities which fall in the category of exemption are as per section 12AA, are listed as below:

  1. Public Health services for
    • Terminally ill persons, with severe physical or mental disability.
    • Persons suffering from AIDS/HIV.
  2. Spreading public awareness on family planning preventive health measure.
  3. Promotion of religion, holistic awareness, spirituality, or yoga.
  4. Educational programs to abandoned or orphan children, physically or mentally abused or prisoners or residents above the age of 65 years.
  5. Organization spreading awareness about environment preservation, protection, wildlife conservation, etc.
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As per the notification of Ref: Notification No. 12/2017 Central Tax Rate: All general exemptions do not apply to the NGO.

The Exemptions which fall within the general category of exemptions for charitable purposes are:

  • Training and coaching activities- recreational activities, such as art, culture, sports in section 12AA of IT Act, 1961[1].
  • Health care.
  • Public library.

Is GST Registration mandatory for an NGO?

Is GST Registration mandatory for an NGO?

Yes, it depends on the income of NGO.

This question of Registration of NGO in GST is decided using the term Income. The Income is used here differently for the NGO. 

  1. General Rule- Threshold limitation
    Every statute provides the minimum amount on which the taxable person is required to pay tax.

In case of GST, the threshold limit is 20 lakhs. This means, if any taxable NGO has an aggregate turnover of less than 20 lakhs, it is not required by them to get the NGO registered under the statute.

For this SECTION 2(6) of Central Goods and Services Act, 2017 has defined the term Aggregate Turnover. The term Aggregate Turnover means the taxable supplies, exempted supplies, export of goods and services at inter-state to be computed all over India.

In order to get registered under GST by NGO-

  • The NGO shall be making taxable supply of goods and services. Those supplies which are outside the purview of Section 12AA.
  • Aggregate Turnover is more than 20 lakhs.

This article is with respect to the states where threshold limit is Rs.20, 00,000/- or more. The other states like Mizoram, Assam, Arunachal Pradesh, the threshold limit is Rs. 10, 00, 000/-.

  1. Compulsory Registration
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If the aggregate turnover is less than Rs20, 00,000/- then also the Registration of NGO is to be done:

  • There is an inter-state taxable supply of goods and services.
  • Reverse charge payment by NGO- such as services of lawyer taken by the NGO, while making payment, the payment of GST has to be done.
  • Occasional supply of goods or services by NGO, in states having no fixed place of business.
  • NGO making a sale of goods at E-commerce websites, where tax is collected at source.
  1. No registration required
  • An NGO which is exclusively dealing in supply of goods and services, which are outside the purview of GST Law.
  • They are not to be registered.

Various notifications for exemptions for application of GST for Ngo

Notification No-12/2017

a. Educational institutions

Educational services which has been exempted under certain conditions. This is a service under various services are provided and received by the NGO.
The exemption notification contains the activities provided by the institution to:

  1. Its students, faculty, and staff.
  2. Entrance examinations to students for which entrance fees is taken.
  3. Under this exemption notification those services provided by the education institution are exempted for the purpose of tax:
    • Providing transportation to students
    • Catering, including mid day meals to students provided under CG/SG scheme
    • Security, cleaning, housekeeping services performed
    • Services like admission or examination
    • Supply of online educational journals.

b. Charitable trust

If the charitable trust is providing the services like residential or non-residential yoga camps by receiving the donation, it will be a taxable service of the trust under GST. It is a different activity from the exemption given like spirituality, yoga etc. since donation is received for the participation which is a commercial fees for the services of charitable trust.

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c. Health care facilities

If there are clinical establishments which provide authorized medical services like transportation of patients to medical hospitals, it shall not be taxable. As the medical services is the priority of the government. Also veterinary services by the charitable trust are not taxable.

d. Donations received

The donations received by the non-profit organizations/ charitable trust/ NGO are not taxable in the government’s hands. It can be seen that the contributions are not part of the definition of business, and there is no supply of services embedded within it.

e. Interest income

The interest income received by the Ngo by extending loans or deposits is not exempted. If the Income has been received by the Ngo under savings/ recurring deposits/ fixed deposits is exclusively exempted.

f. Training or recreational activities

Training/ coaching provided by the institution in dance, music, art, literature or any sports shall be exempted under GST.

g. Participation in events

If the organization takes part in the events like drama, theater, plays, for which it takes some fees, it shall be covered within the ambit of GST.

Conclusion

The impact of GST for NGO is widely spread. Section 12AA has talked about the exemptions provided in GST for NGO. There is a list of exemptions provided via notifications laid by the legislature. This all shows how the legislature wants to bring the services within the ambit of taxability of GST. It also wanted to exclude the benefits and useful provided by NGO, where they have got the threshold limit. This limit has clearly defined the Income to be computed for NGO. The computation has become much simple because of the exclusive list given by the legislature which describes the only goods and services which are exempted.

It can be said, levying GST for Ngo has clarified the grounds on which NGO can be taxable or not.

Read our article:The Implication of GST under MSMEs

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