Goods & Services Tax (GST) in IndiaGST on Charitable and Religious Trusts

OVERVIEW

Charitable and Religious Trusts are primarily the organizations which function towards the betterment of society and serve the public at large. They mostly exist in the forms of either Non-Governmental Organisations or Places of Worship Trusts for various faiths.

The source of operation for these Trusts is mostly through contributions, donations, etc. The actions and causes of work for these Trusts are based on the idea of faith, which is why their work is always for the greater good.

Therefore, the tax system allows certain benefits for them, in order to promote their services and help them enhance their contribution to the people and society.

THE CONCEPT OF CHARITABLE AND RELIGIOUS TRUSTS IN INDIA

Trusts, which exist with an objective of ‘Charitable Purposes’ and provide voluntary services are called Charitable Trusts. They are generally non-profit based organizations and their primary purpose is to aid and benefit the society at large by providing services and helping people.

The term ‘Charitable Purposes’ can include several acts like helping the poor, promotion of yoga and education, medical aid, volunteering for environmental protection and conservation of heritage and advancement of things which are of generic benefit for all.

On the other hand, Religious Trusts are involved in the activities of furthering a particular faith, religion or belief. Religious Trusts are not defined under the Income Tax Act, 1961 (hereinafter referred to as the IT Act) and their creation is essentially governed by the personal law of the concerned religion.

The Religious Trusts do however provide similar services and involve in activities, the nature of which resembles to that of Charitable Trusts, like providing poor with food and shelter, medical facilitation, education, etc.

These are together termed as ‘Religious and Charitable Trusts’.

Further, the process through which these trusts are created is based on the bifurcation of category of trusts, i.e., Public Trusts and Private Trusts. Private Trusts are governed by the provisions of the Indian Trusts Act, 1882 (hereinafter referred to as the Trusts Act) and Public Trusts are governed by both, the Trusts Act and the Public Trusts Act of the particular State in the territory which it is situated.

Charitable and Religious Trusts are covered under the category of Public Trusts. There is no Central Act for its application in all the States but several states like Bihar, Madhya Pradesh, Odisha, etc. have formulated their own Acts which prescribe conditions and process for the creation and administration of Public Trusts.

IMPLICATION OF GOODS AND SERVICES TAX ON CHARITABLE AND RELIGIOUS TRUSTS  

With the introduction of the Goods and Services Tax  (hereinafter referred to as GST), the taxability of various products and services have witnessed changes. Considering the ambit of the Central Goods and Services Act, 2017 (hereinafter referred to as the CGST Act), it is important to note that the CGST Act does not define or gives meaning to the term “Trust”. However, as per Section 7 of the CGST Act, GST is applicable on any transaction which falls within the meaning and scope of the term “Supply”.

Activities and services covered under the scope of Section 7 of the CGST Act and within the meaning of Supply are very much taxable under GST, unless exempted particularly under some Notification issued by the Government or relevant Government Authority. The activities conducted for Charitable and Religious purposes does come under the meaning of Supply, making them taxable under the law of the land.

However, there is a very prevalent confusion regarding the activities of these Trusts being in nature of business or not, i.e., these Trusts work without profit motive and hence, it could be interpreted as not falling within the nature of business. But Section 2(17) of the CGST Act defines business wherein sub-clause (a) clearly states that

“business include any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for pecuniary benefit”. 

Even the Appellate Authority for Advance Ruling Maharashtra (hereinafter referred to as AAAR) in In Re Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra (MAH/AAAR/SS-RJ/14/2018-19) has held that,

“a trust whose main objective is the advancement of religion, spirituality or yoga can be said to be in businesses and thus fall under the purview of GST. Sale of products by such institutions would attract GST”.

This makes it clear that activities which are not carried out for profit motive, such as charitable and religious activities, are still included under business and are taxable in general.

However, there are certain specific exceptions which have been given to religious and charitable activities under Section 12AA of the IT Act and various other Government Notifications issued over time.

EXEMPT SERVICES AND ACTIVITIES OF CHARITABLE AND RELIGIOUS TRUSTS UNDER TAXATION LAWS

Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (hereinafter referred to as the Notification), mandated exemptions from imposition of CGST on supply of services by the Trusts. The supply of services by the trusts which have inter alia been exempted vide aforementioned Notification are as follows:

1. Charitable Activities of an entity registered under Section 12AA of the IT Act

   Exemption to services provided by entity under Section 12AA of the IT Act, 1961 vide the Notification has been granted; in terms of the whole of GST vide entry no. 1 of the Notification. Therefore, services by any entity registered under Section 12AA of the IT Act, 1961 by the way of charitable activities, will be exempt from GST.

   As aforementioned, exemptions are granted to charitable trusts only if the below mentioned conditions are satisfied:

   “a. Entities must be registered under Section 12AA of the Income Tax Act, and;

    b. Such services or activities by the entity are by the way of charitable activities.”

   Thus, it becomes necessary that the activities undertaken comply with the characteristics and requisites of “charitable activities” defined under Clause 2(r) of the Notification as:

   “Charitable activities” means activities relating to:

   (1)Public Health by way of:

   (a)Care or Counselling of

   (i)Terminally ill persons or persons with severe physical or mental disability;

   (ii)Persons affected with HIV or AIDS;

   (iii)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 education programs or skill development relating to:

   (a)Abandoned, orphaned or homeless children;

   (b)Physically or mentally abused or traumatized persons;

   (c) Prisoners; or

   (d)Persons over the age of 65 years residing in rural area’

   (4)Preservation of environment including watershed, forests, wildlife.”

2. GST on Educational Institutions managed by Charitable Trusts (Entry No. 66 of the Notification) 

   It includes services provided by an educational institution to its students, faculty and staff by way of transportation, catering, security, cleaning, admission services, etc. However, this provision does not apply to an educational institution other than the one providing services by way of pre-school education and higher secondary school or equivalent.

3. Organizing any religious ceremony (Entry No. 13(a) of the Notification)

   Services provided by any person by way of religious ceremony are also considered charitable activities and is exempted from being taxed.

4. Renting of religious precincts (Entry No. 13(b) of the Notification) 

   The religious precinct need to be rented for the use of general public and it should be owned or managed by an entity registered as a charitable or religious trust under Section 12AA or Section 10 Clause 23C Sub-clause 5 of the IT Act.

5. Training in recreational activities (Entry No. 80 of the Notification)

   These activities must be related to art or culture or sports and the training should be provided by the charitable entities registered under Section 12AA of the IT Act.

6. Charitable trusts receiving donations (Circular No. 116/35/2019-GST dated 11.10.2019

   The donations received by Charitable Trusts re are exempted from GST but if it is not within the given structure, then it will be taxed.

7. Services imported by Charitable Trusts (Entry No. 10 of the Notification)

   Services received by charitable trusts from a service provider located outside India, is exempted and no GST will be charged on the trust for this import.

8. GST on Arrangement of Yoga and Meditation camps by Charitable Trusts (Section 12AA of the Income Tax Act)

   Services provided by way of spirituality or yoga, religion or the fee charged for yoga or meditation camps are also exempted for the advancement of religion.

9. GST on Public Libraries being run by Charitable Trusts (Entry No. 50 of the Notification)

   As books lead to knowledge enhancing, the service of lending books or publications is exempted.

10. GST on Hospitals being managed by Charitable Trusts (Entry No. 74 of the Notification) 

    The services provided by any authorised medical professional or paramedics, or by any clinical establishment in India or under the control of any Religious or Charitable Trust are also exempted.

11. GST on Services being provided to Charitable Trusts (Entry No. 13 of the Notification)

    GST covers the services provided to the Charitable Trusts other than those specifically exempted under the CGST Act, which are activities which fall under the religious ambit, like, for organising religious ceremonies and not for personal purpose.

12. Services provided by the Central Government, State Government, Union territory or a local authority (Entry No. 4 to 7 of the Notification)

    The services by way of function related to municipality under Article 243W of the Constitution of India or services entrusted to Panchayat under Article 243G of Constitution of India and excluding the services related to Department of Posts, service in relation to aircraft or a vessel, transport of goods or passengers or any other services provided to business entities is exempted.

13. Services by way of transfer of a going concern (Entry No. 2 of the Notification)

    These services are exempted as a whole or any part thereof.

14. Pure Services provided to the Central Government, State Government or Union territory or local authority or a Governmental Authority in relation to any function entrusted to Panchayat under Article 243G of the Indian Constitution (Entry 3 of the Notification)

    The exemption is not applicable to service related to works contract or other composite supplies involving supply of any goods provided to the government in relation to functions entrusted to Panchayat under Article 243G and Municipality under Article 243W of the Constitution of India.

AMLEGALS REMARKS

It is significant to note that there are several other domains in which Charitable and Religious Trusts work, apart from the ones listed above, and the taxability of those are to be dealt with on a case-to-case basis in particular. The IT Act along with the Notification has broadened the areas of services which are exempted from being taxed.

The main objective of the Government behind these exemptions is to facilitate trade and also promote religion, charity and knowledge and the activities related to it. Apart from the abovesaid exemptions, there are numerous other exemptions provided which can be dealt with on case-to-case basis.

Even though, various charitable activities have been exempted from being taxed, there are certain exceptions provided to these exemptions which will be taxed and shall be kept in mind. The criteria to determine whether or not an activity of Charitable and Religious Trusts will be taxable under Section 12AA of the IT Act is as follows:

1. Check whether or not the activities are falling within the scope of Charitable and Religious activities according to CGST Act.
2. If not, check if there exists any specific exemption is in place under the GST law related to the taxability of the activities in question.
3. If no such specific exemption is in place, then the activities shall be taxed under GST only if there is no other condition which makes it fall out of the definition and scope of Supply as per Section 7 of the CGST Act.

 –Team AMLEGALS assisted by Mr. Aryan Srivastava and Ms. Mansi Jain (Interns)

For any query or feedback, please feel free to connect with chaitali.sadayet@amlegals.com or aditi.tiwari@amlegals.com.