All you need to know about Charity and Mutuality under GST

Indian culture always gives equal importance to benevolence as well as socializing. Both these concepts are deeply rooted in our households. Our topic of discussion today revolves around these two concepts. We will discuss Charity and Mutuality under GST. Charity means doing something for helping a needy without expecting anything in return. Mutuality means making an association etc. and contributing funds for common purpose/entertainment / expenditure etc.

Are services provided by Charitable Trusts taxable?

As per GST law, the taxation of any supply depends on the basic criteria. The basis are-

• Supply/service is given for a consideration or not
• It is done in the course of furtherance of business.

Going by above discussion it seems that activities done by charitable trust are exempt from tax. The definitions of the terms- Business, Consideration, Taxable Person, and Supply are relevant for determining taxation. On reading then together and in correlation of each other, the result will show that the supplies by a charitable trust are taxable.

This conclusion is obviously not consistent with motives and purpose of these charitable trusts. So, government gave specific notifications to give exemptions to the supplies/services given by a charitable trust. Now, let us discuss these notifications.

Categories of services provided by Charitable and Religious entities

The notification no.12/2017-Central Tax (Rate) dated 28^th June, 2017 was announced. According to it “Services by an entity registered under Section 12AA of Income Tax Act, 1961 by way of “charitable activities” are exempt from whole of the GST. The definition of “Charitable Activities” is as follows:-

• Public Health
• Advancement of Religion, Spirituality or Yoga
• Advancement of Educational Programs or Skill development
• Preservation of Environment including watershed, forests and wildlife.

Now, the notification also clarifies that all services provided by these trusts are not exempt. Now, we will understand that what the taxable and non-taxable services by these trusts are.

Taxable and Non-/Taxable Services/Supplies on the basis of type of organization

Charity under GST-Other Relevant Points

Now, in this part we will discuss certain other aspects of Charity and Mutuality under GST-

• Import of Services- As per notification, a charitable trust need not pay GST under Reverse Charge Mechanism for imports. However, such import should be for purpose of providing charitable activities.
  The tax however will be applicable in OIDAR services. OIDAR stands foronline information and database access or retrieval services. However, compliance is not on charitable trust.
• GST on services provided to Charitable Trust- Unless covered under any specific exemption, all services provided to Charitable Trust will be liable to tax.
• GST on supply of goods by Charitable Trust- All goods ,other than those specifically exempt, supplied by a charitable trust in exchange of consideration even a donation are liable to tax.
• Services by and to Educational Institutions- Services provided by an educational institution to its students, faculty and staff are exempt. Following services if provided to an educational institute are exempt-
  • Transportation of students, faculty or staff.
  • Catering service including any mid-day meal scheme sponsored by the government.
  • Security or cleaning or house-keeping services in such educational institutions.
  • Services relating to admission to such institution or examination.

For this purpose, educational institution means the institution that provides following services-

• Pre-School education and education up to higher secondary or equivalent.
• Education for an approved vocational course or for obtaining a qualification recognized by any law.

Meaning of Mutuality

Until now, we have discussed the concept of Charity under GST. Now, as our topic is Charity and Mutuality under GST, we will discuss the concept of mutuality under GST as well. First of all let us understand the meaning of mutuality.

The doctrine of mutuality means contributing the funds for a common purpose or activity. There are no two people involved here. On one side there are participators and on other side is the association or club.

Now, the taxation of mutuality has been an age old debate. There have been debates on the topics as to

• If these transactions can be considered as business?
• Are these really sale transactions as there are no two separate people involved.
• Can it be said that association or club is acting as a pure agent?

Therefore, two put a full stop on these different theories and questions, government introduced an amendment. Let us see what the amendment-is

GST on Mutuality

The new amendment is introduced in Sec.7 (1) of the CGST Act, 2017. The special fact about this amendment is that once notified it will be applicable retrospectively from 01.07.2017. This means since the inception of GST. As per amendment following provisions are introduced-

• The activities or transactions by a person other than an individual to its members or constituents are liable to GST. The mode of payment can be cash, deferred payment or other valuable consideration.
• It is also clarified that association and its members will be treated as two separate persons for all purposes under the law.

However, there is an exemption for certain activities under mutuality-

When an unincorporated body or a non-profit entity provides services to its members. The members in turn may reimburse the expenses or Share a contribution. In these cases, the exemption is available-

• The association is a trade union.
• Provides service for any activity which is exempt from the levy of service tax.
• Where the service is provided for common use of its members in a housing society or a residential complex up to a monthly amount of Rs.7500/- per member.

Conclusion

So, this was our discussion about Charity and Mutuality under GST. The crux of the above provisions is that exemption or relaxation is given only for primary activities that involve charity and mutuality. All the activities that are ancillary to these primary activities are brought under the ambit of tax. The retrospective amendment in case of mutuality can bring a lot of litigation and opposition from the associations or clubs. Despite this we can say that Charity and Mutuality are really old concepts and have evolved a lot with time. This write-up was mainly to highlight the impact and applicability of GST on these concepts. Hope it was a helpful read.