Shocking Impact of GST on Public Trusts (Charitable and Religious Trusts)

The impact of GST on Public Trusts has increased the tensions of corrupted organizations that played with the hearts of people by breaking their belief in them.  These changes have not affected those trusts which only aimed at charity work and social welfare. Earlier the public trusts were exempted from taxable liabilities if they get registered u the section 12AA of the Income Tax Act, 1961. However, in the current situation, they also have to fall under the charitable activities under the GST. In this blog, we will talk about the impact of GST on Public Trusts (Charitable and Religious trusts). So, before starting with the main topic we will see, what is GST? what is trust under Indian law? and what is Charitable and Religious Trust?

What is GST?

A person who carries any business at any place all over India and who is have registered or falls under the categories of registration of GST is a ‘Taxable Person’. The term ‘person’ also includes Company, Firm, LLP, Trust, Artificial juristic person, Government corporations, Local authorities and many more. Charitable and Religious Trust falls under the public trust which is one kind of trust. As per section 12AA of the Income Tax Act, 1961 if a public trust gets registration under this section it will get an exemption from paying tax. But with the implementation of GST things are different for these trusts also. 

The taxability of anything is foundbased on various laws related to taxation. The tax put on goods and services sold for domestic consumption is GST (Good and Services Tax). Under GST the definitions of terms, like business, taxable person, supply and consideration are relevant for determining taxation. 

Trust under Indian Law

A trust is a kind of legal relationship in which the person holding a certain right gives that right to another person or entity who must keep and use it solely for the benefit of others. As per section 3 of the Indian Trust Act, 1882, trust is definedas, ‘a duty annexed to the ownership of the property which is arising out of a confidence reposed in, accepted by him for the benefits of another or of both another and the owner’. Trust can be of two types:

• Public Trust: The trust which works for the benefit of the public at large or where the beneficiary of the trust is not capable of ascertainment. Charitable and Religious Trust falls under this kind of trust. Charitable and Religious Trust Act, 1920, the Religious Endowment Act, 1963, etc., governs these trusts, but the Indian Trust Act, 1882, does not governthe public trust. 
• Private Trust: The trust which works for the benefit of one or more people is a private trust. Indian Trust Act, 1882, governs private trusts.

What is Charitable and Religious Trust?

In simple words, Charitable and Religious trusts are organizations that work for the betterment of society and do service tothe public at large. Their sources of income or say the operation is generally donations, contributions made by others. Charitable trust’s main objective is providing charity to the person who is in need and also providing voluntary bits of help. Religious trust is trusts which work for promoting activities related to particular customs, religions or beliefs.

If the Charitable and religious trusts get registered under section 12AA of the Income Tax Act, 1961 there are exempted from paying tax.   

Impact of GST on Public Trusts (Charitable and Religious Trust)

Implementation of GST has replaced the multiple tax system of both central and state governments. It has been beneficial to many sectors, at the same time it had a social consequence on charities and non-profit organizations. Under GST charitable and religious trusts have to pay tax on some of the services and goods supplied by them.

Section 2(17) of CGST Act, 2017 (The Central Goods and Services Act, 2017) clearly states that profit-making is not an essential condition for an activity to become a business. So, activities without the aim of profit-makingare also a business. If the supply is made without any kind of consideration for purpose of business is liable to pay GST. 

Section 7 of the Act in which a new clause under the definition of supply was added after amendment, says that ‘the activities or transactions involving the supply of goods and services by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable’. 

In simple, if any goods and services are sold or provided for consideration in return by any public trusts, then it becomes taxable although their aim is non-profit making.

Exemption to charitable and religious trust is available only if it comes under these conditions:

• Charitable and Religious trusts which get registration under section 12AA of the Income Tax Act, 1961.
• Services provided by trusts which fall under the meaning of Charitable activities.

 If NGOs or Charitable and religious trust do not meet any of the above conditions, GST will be applicable and that entity will have to get registration under GST.

Activities that are charitable under GST

 These are certain goods and services which are charitable activities as per GST:

• Public health services like counselling of terminally ill person, disabled person, HIV or AIDS-affected people. Moreover, people depended on drugs or alcohol.
• Advancement of Religion, spirituality or yoga.
• Advancement of educational programs or skill development related to, abandoned, orphaned or homeless children; prisoners; physically as well as mentally abused and traumatized persons; persons above the age of 65 residing in the rural area.
• Preservation of the environment which includes, forests, wildlife and watershed.

Impact of GST on Public Trusts, while conducting any events and training program, etc. 

If the events, training programs, yoga camps and other programs conducted by the charitable and religious trust are free of cost then they are exempted from GST. When the participant is charged it becomes a commercial activity and will be liable to pay GST for those events.  

If charitable or religious trusts do any of the things mentioned below then they will have to pay GST: 

• When any of the trust rent out rooms are charging more than Rs. 1,000 a day
• If open area charged more than Rs. 10,000 a day.
• Rent out shops at more than Rs. 10,000 a month.
• The goods sold by these trust is taxable and will have to pay the GST rate applicable while purchasing the supply.

Conclusion

It is clear from the above discussion that, the person who carries any business at any place all over India. Charitable and Religious Trust falls under the public trust which is one kind of trust. If any goods and services are sold or provided for consideration by these organizations, then that is taxable although their aim is non-profit making as per sections 2 (17) and 7 of The Central Goods and Services Tax, 2017. If charitable and religious trust falls under the categories of charitable activities under GST and has also got registration under section 12AA of Income Tax Act 1961, will be exempted from taxable liabilities.