Taxability of charitable trust
Charitable trusts, religious trusts and Non-Governmental Organizations (NGO) are entities, the objectives of which are not to make profit or enhance their revenues but to work towards the greater good of the society. Due to this, they are eligible for multiple exemptions and relaxations as far as taxes are concerned.
In terms of the GST law, the CGST Act, 2017 includes trusts in the definition of ‘persons’ under section 2(84). Therefore, by virtue of their status as a trust, they are not excluded from the taxability under GST. However, the exemption Notification no. 12/2017- Central Tax dated 28 June 2017 (said Notification) vide its entry no. 1 provides an exemption to all entities registered under section 12AA of the Income Tax Act, 1961 from GST to the extent they provide ‘charitable activities’.
Notably, charitable activities mean the following:
1. Public health by way of:
A. Care or counseling of
- Terminally ill persons or persons with severe physical or
- Mental disability;
- Persons afflicted with HIV or AIDS;
- 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;
2. Advancement of religion, spirituality, or yoga;
3. Advancement of educational programmes or skill development relating to:
- Abandoned, orphaned, or homeless children;
- Physically or mentally abused and traumatized persons;
- Prisoners; or
- Persons over the age of 65 years residing in a rural area;
4. Preservation of the environment including watershed, forests, and wildlife.
Therefore, the Government has provided exemption from GST to trusts if:
- They are registered under section 12AA of the Income Tax Act, 1961; and
- They are engaged in ‘charitable activities’ as explained above.
Thus, it is clear from the above that any activities rendered by a trust which do not form a part of charitable activities would come under the ambit of GST, and such revenue, even if booked by a trust, will be subject to GST.
Further, the vide entry no. 13 of the said notification also exempts services by a person by way of:
- Conduct of any religious ceremony;
- Renting of precincts of a religious place meant for the general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961 or a trust or an institution registered under sub-clause (v) of clause (23C) of section 10 of the Income-tax Act or a body or an authority covered under clause (23BBA) of section 10 of the said Income Tax Act:
Provided that nothing contained in entry (b) of this exemption shall apply to:
- renting of rooms where charges are one thousand rupees or more per day;
- renting of premises, community halls, Kalyan mandapam or open area, and the like where charges are ten thousand rupees or more per day;
- renting of shops or other spaces for business or commerce where charges are ten thousand rupees or more per month.
Therefore, any amount which is recovered for conducting any religious activities, for any religion, is exempt from GST. Moreover, the renting income for rooms, mandap, shops to the general public is also exempt, as long as it does not exceed the prescribed threshold. Nonetheless, any other activities which are conducted in the religious precincts apart from religious ceremonies such as photography, tour charges, etc. will be taxable under GST.
Similarly, vide entry no. 80 of the said Notification, the following services by way of training and coaching in recreational activities are exempt from GST:
- Arts or culture, or
- Sports by charitable entities registered under section 12AA of the Income Tax Act.
Therefore, any training with respect to arts, culture, sports given by a charitable entity will be exempt from GST. This could include various activities like dance, music, painting, sports, etc.
Procurement of goods and/or services
Import of services
Any services imported by a charitable institution registered under section 12AA of the Income Tax Act for the purpose of rendering charitable activities would be exempt from IGST. An exception to this is Online Information and Database Access or Retrieval (OIDAR) services imported by a charitable institution.
Services provided to a charitable institution, unless specifically made exempt, are taxable under the GST law. In this blog, we have covered various such exemptions wherever applicable.
Management of Educational Institutions
Any schools, colleges, other educational institutions which are operated by a charitable trust for the benefit of abandoned, orphaned, or homeless children, physically or mentally abused and traumatized persons, prisoners; or persons over the age of 65 years residing in a rural area would be exempt from GST.
A similar exemption also exists for services rendered by and to an educational institution (which may or may not be a charitable institution. The said exemption will only be applicable if the education institution is covered under the given definition and for specified services which include transportation of students, faculty, and staff, catering services including mid-day meals sponsored by the Government, etc.
On operating public libraries
Any income derived from operating public libraries by a charitable institution has been made exempt vide entry no. 50 of the said Notification.
Service provided to Charitable institutions
Any services rendered by a taxable person to a charitable institution is not exempt from SGT unless a specific exemption prevails.
The above are some of the key activities which have been summarized from the perspective of taxability of charitable institutions. Considering the noble causes served by a charitable institution, the Government has tried to provide them the necessary stimulus wherever possible. Nonetheless, charitable institutions should always bear in mind that their status as charitable institutions does not grant them a blanket exemption. Rather, the activities that they conduct need to be specifically exempt for them to avail of the exemption benefit. You can also check out our blog related to the impact of GST on the retail sector.