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 28th 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:-
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
Category of Supply
Care and counselling of
Terminally ill persons with severe physical or mental disability.
Persons affected with HIV/AIDS
Persons addicted to drugs or alcohol
Public awareness of preventive health, family planning or prevention of HIV infection.
Following are also exempt-
Health care services by a clinical establishment.
Authorised medical professional or paramedics.
Services for transportation of a patient in ambulance.
Receipts from renting of shops, auditorium etc. on rent.
Supplying foods and beverages, lodging to attendants.
Services other than those specifically exempt.
Religion, Spirituality or Yoga
Conducting a religious ceremony.
Renting of precincts for general public.
For Rooms- Rental should be less than Rs.1000/day.
For Halls etc. – Rental should be less than Rs.1000/day
For Shops etc. – Rental should be less than Rs.10, 000/month.
Arranging Yoga and meditation camps. Fees for the same will be exempt.
Where rent received for rooms, halls, shops etc. exceeds the exempt amount.
Collection of parking charges.
Money taken for allowing advertisements on the premises.
Any other services other than specifically exempt.
Educational program and Skill Development
Providing education or skill development to
Abandoned, orphaned or homeless children.
Physically or mentally abused or traumatized persons.
Persons aged 65 years and above residing in a rural area.
Services like training, dance, music, painting, literary activities drama etc.
No GST is on activities of public libraries.
Services other than specifically exempt
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-
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.
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.
CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system.
His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.
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