India’s indirect tax system underwent a significant revision in 2017 by implementing the Goods and Services Tax (GST). Although it attempted to simplify the tax system, its effects on different industries, especially charity trusts and non-profit organisations, have been contentious. This article examines how the GST Exemption on NGOs affected nonprofit organisations and charity trusts, highlighting the difficulties and opportunities that have arisen due to this change in fiscal policy.
Understand how the GST will affect charitable trusts and NGOs. NGOs and charitable trusts may be eligible for GST exemption if they meet specific criteria. The following services offered by charity trusts and NGOs are free from GST, according to GST regulations:
- Services provided by a business granted authorisation under Section 12AA of the Income Tax Act 1961.
- Activities supporting public services include sanitation, education, and public health.
- Provided to the UN or another international organisation.
- Services provided include coaching or instruction for pastimes involving the arts, cultures, or sports.
What Is a Charitable Activity Under GST Exemption on NGOs?
The GST defines a charity activity as an activity carried out by a trust or an institution registered under section 12AA of the Income Tax Act, 1961 and engaged in public health or sanitation, education advancement, or any other goal of general public utility. Activities that aid the less fortunate, increase education, or advance any other aspect of a public good are also seen as charity.
GST Registration Requirements for NGOs and Charitable Trusts
An NGO or charity trust must have GST Registration if its combined yearly revenue exceeds 20 lakhs. An NGO or charitable trust that provides services in more than one state must register for GST regardless of their annual revenue. GST Exemption on NGOs and charity trusts have two options for registration if their yearly revenue is less than 1.5 crores: they can use the composition scheme or the standard plan.
The Challenges Faced by GST Exemption on NGOs and Charitable Trusts
Charitable trusts and NGOs (Non-Governmental Organisations) play a critical role in tackling societal issues and advancing development in various fields. However, their efficiency and sustainability frequently require assistance. The following are some of the typical difficulties NGOs and charitable trusts encounter:
- Compliance Burden:
NGOs and charitable trusts that had previously taken advantage of various exclusions under the former tax system now face new compliance requirements due to the implementation of GST. Administrative duties and costs have significantly increased due to the need to comprehend and abide by the intricate GST requirements.
- Financial Strain GST Exemption on NGOs:
As a result of their limited funding sources, many NGOs and charitable trusts rely primarily on donations and grants to function. The financial stability of services and goods has been impacted by rising expenses brought on by GST inclusion. Their capacity to assist the disadvantaged and marginalised groups in society has been harmed.
- Ambiguity in Exemptions:
While NGOs and philanthropic groups are eligible for several exemptions and concessions under the GST, the ambiguity around their eligibility and the administrative requirements sometimes must be clarified and corrected. These organisations’ ability to efficiently carry out their charitable activities has been hampered by this, interfering with their ability to operate smoothly.
Positive Impacts and Opportunities:
Life, society, and the economy have several advantages and opportunities. These may result from technological developments, societal shifts, environmental initiatives, etc. Here are a few instances:
- Input Tax Credit:
NGOs and charity trusts can claim input tax credits on various products and services used for their activities. This has reduced the burden of additional taxes and increased their financial viability.
- Increased Transparency:
The introduction of GST has ushered in greater openness and accountability in the financial operations of GST Exemption on NGOs and charitable trusts. This has improved their standing with donors and the government, opened the door for more excellent governance, and helped these organisations run more efficiently.
- Streamlined Fund Management:
Many NGOs and charitable trusts were forced to redesign their financial management systems due to the introduction of GST, which encouraged the adoption of digital accounting and auditing procedures. This results in better documentation, more effective funding distribution, and increased financial accountability.
Eps for Mitigating the Adverse Impact:
It takes a systematic strategy and rigorous context analysis to reduce the adverse effects of numerous processes or events. Here are some broad procedures that can be taken to lessen adverse effects, while exact tactics may change based on the circumstance:
- Increased Awareness:
Educating NGOs and charitable trusts on the complexities of GST compliance is imperative. These organisations might find it easier to negotiate the complexities of the taxation system with workshops, seminars, and instructional programmes focusing on GST legislation and its ramifications.
- Collaboration and Networking:
The issues provided by implementing the GST Exemption on NGOs can be addressed jointly by NGOs and charitable trusts by fostering collaboration and networking. This would enable knowledge sharing and the identification of best practices.
- Advocacy and Policy Dialogue:
Advocating for more streamlined and straightforward GST legislation for the non-profit sector can be accomplished by participating in lobbying campaigns and productive conversations with lawmakers. As a result, policies may be created that are more suited to the operations of these organisations and their charitable endeavours.
List of Services Provided by Charitable Trust or NGO – GST Exemption on NGOs
In India, non-governmental organisations (NGOs) or charity trusts were typically excluded from the Goods and Services Tax (GST) on their primary charitable endeavours. Here is a list of standard services offered by charity trusts or NGOs that were free from GST Exemption on NGOs:
- Clinical centres that have government approval provide healthcare services.
- Higher education institutions with government sanctions offer educational services.
- Services provided by groups recognised by Section 12AA of the Income Tax Act of 1961.
- Trusts provide services to the UN or other international organisations.
- Services are provided through career training or skill development.
- Services provided include coaching or instruction for pastimes involving the arts, cultures, or sports.
- Services made available to armed forces or paramilitary outfits.
- Services provided for animal care or veterinary treatment.
List of Services Provided by Charitable Trust or NGO – Taxable From GST
Charitable trusts and non-governmental organisations (NGOs) frequently receive tax breaks and exemptions, such as the Goods and Services Tax (GST), in many nations, including India. These organisations do offer some particular services, nevertheless, that might be subject to GST. The GST Exemption on NGOs’ applicability may change based on the type of service being given and the specific exclusions offered by the tax authorities. The following is a list of services that could be subject to GST:
- Provided through the leasing of real estate.
- Services are provided via the leasing of moving equipment.
- Food and drink are provided at canteens or messes run by NGOs or philanthropic organisations as a form of service.
- The provision of services through the holding of exams or entrance exams.
- Services are made available by sponsoring events like sporting or cultural activities.
Conclusion
GST Exemption on NGOs has had a mixed bag of effects on NGOs and charity trusts in India, posing both difficulties and opportunities. Although there have been significant financial and compliance burdens, the availability of input tax credits and the improvement in operational openness have provided some relief. For these organisations to continue making significant contributions to society, stakeholders must work cooperatively to create an environment that supports their growth and survival.
