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December 9, 2020 4:08 am

Impact of GST on Churches and NGOs

ABY ALEXANDAR
ABY ALEXANDARDirector, Courses and Publications, Christian Institute of Management
Aby Alexandar is the Director of Courses and Publications at Christian Institute of Management. After completing his doctoral research in Human Resources Development, he taught commerce in St John’s College, Agra and, later, joined CIM in 2007. He is married to Mable and the couple is blessed with two sons, Jonathan and Joshua. Dr Aby is actively involved with Chennai Tyrannus Hall and the St. Thomas Evangelical Church of India, Chennai.
    GST is the new buzzword! From local tea shops to television news channels to twitterati – all are discussing about GST. People are trying to weigh how much impact it will have on their home budgets, corporate profit and loss account and the national GDP. The churches,  missions and NGOs are equally anxious to know how it is going to impact their ministries. The following introductory article, though not  exhaustive, attempts to decode GST through the lens of an NPO.    

    What is GST?

    GST which stands for Goods and Services Tax, is a revolutionary tax reform undertaken by the Govt. of India which came into effect from 1 July 2017. The numerous indirect taxes (like service tax, central excise, VAT, Entry Tax) are subsumed into one single tax, avoiding cascading tax effect (tax on tax) which is expected to be a win–win situation for all, from manufacturer to consumer. Though years of fierce negotiations between the center, states and other stakeholders have diluted the original intent of the act, it is a good beginning towards "One nation, One tax, One market".

    In its current form, there are three taxes under GST - Central GST (CGST), State GST (SGST) and Integrated GST (IGST). The first two are applicable in case of supply of goods or services within a state and an equal share of tax goes to the center as well as the state (e.g., for a Service Tax of 18%, both the center and the state will receive 9% tax share). IGST will come into the picture in case of inter-state supply. GST is governed by the GST council which is chaired by the Central Finance Minister and consists of state finance ministers among others. Depending upon the classification as determined by the GST council, different rates are applicable for different goods (0%, 5%, 12%, 18% and 28%).

    Goods

    S.2 (52) of CGST Act defines Goods as “Goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

    Services

    The same act defines services under S.2 (102) as “Services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

    Implication of GST on Charitable Activities

    With the tsunami of articles, WhatsApp images and discussions around, you might be confused whether your ministry would come under GST. Let’s try to find out. It would be worthwhile to look at the scope of GST to find out if your ministry is liable to be registered under GST.

    S.22 of the CGST Act states: (1) in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees. (10 lakhs in case of special category states) (2) Every person who, on the day immediately preceding the appointed day, is registered or holds a licence under an existing law, shall be liable to be registered under this Act with effect from the appointed day.

    It means if your ministry is involved in the ‘supply’ of goods or services as defined by the act and if your aggregate turnover (including exempted goods and services) is more than Rs.20 lakhs during a financial year, or if you are already registered under any of the acts as on 30 June 2017 which got subsumed into GST, you will fall within the ambit of GST Act and need to register.

    For example, if your organisation is involved in training and receives Rs.15 lakhs for regular trainings and Rs.10  lakhs for an approved vocational course, though the latter is an exempted service (discussed later), you  would still fall under the ambit of GST as your aggregate turnover is more than Rs.20 lakhs.    For the purposes of this Act, the expression “supply”  includes––   (a) all forms of supply of goods or services or both...  made or agreed to be made for a consideration by a  person in the course or furtherance of business;   (b) import of services for a consideration whether or not  in the course or furtherance of business;   (c) the activities specified in Schedule I, made or agreed  to be made without a consideration; and   (d) the activities to be treated as supply of goods or  supply of services as referred to in Schedule II.  

    It means if your ministry (the definition of person includes trusts and societies too) is involved in any activity that includes a ‘supply’ of goods or services for a consideration (fees), you will come under GST. It indicates that if you provide your services without any charge, you may not fall under GST.

    Services exempted from GST  If you charge for your services, there is still a chance you might not fall under GST. On 28 June 2017, the Govt. exempted 81 services from GST through a notification (under CGST). Your ministry may be under the exempted  list. Let’s look at some of them.  Organisations having 12AA  The very first service in the list is ‘Services by an entity registered under section 12AA of the Income Tax Act,  1961 (43 of 1961) by way of charitable activities’.  Does it mean all organisations having 12AA are exempted from GST? Unfortunately NO! It is because the definition of ‘charitable activities’ given in the notification is narrow in scope. What is it?
    “Charitable activities” means activities relating to   (i) public health by way of care or counseling of   terminally ill person or persons with severe physical or mental disability;   persons afflicted with HIV or AIDS;   persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or   public awareness of preventive health, family  planning or prevention of HIV infection;   (ii) advancement of religion, spirituality or yoga;   (iii) advancement of educational programmes or skill  development relating to,  abandoned, orphaned or homeless children;   physically or mentally abused and traumatised  persons;  prisoners; or  persons over the age of 65 years residing in a rural  area;   (iv) preservation of environment including watershed, forests and wildlife; 
    That’s it! By this definition, most of the religious  bodies are exempted unless they fall under any other provisions. However, many of the charitable organisations which charge for their services are still under the scope of GST. 
    Renting of Precincts of a Religious Place Services by a person by way of   (a) conduct of any religious ceremony;  (b) renting of precincts of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA.  However this exemption will not be applicable if:  The rent of the room is Rs.1000/- or more per day  The rent of premises/hall/open area is Rs.10,000/- or  more per day  The rent of shops or other spaces for business or commerce is Rs.10,000/- or more per month.  Educational Institutions  The services  (a) by an educational institution to its students, faculty  and staff;   (b) to an educational institution, by way of   (i) transportation of students, faculty and staff;   (ii) catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;   (iii) security or cleaning or housekeeping services performed in such educational institutions;   (iv) services relating to admission to, or conduct of  examination by such institution up to higher secondary. Do you provide educational services? If so, check if  your service falls under the definition provided in the notification, which is  Educational institution means an institution providing services by way of (i) pre-school education and education up to higher secondary school or equivalent;   (ii) education as a part of a curriculum for obtaining a  qualification recognised by any law for the time being in force;   (iii) education as a part of an approved vocational education course. Health Care Services  Similarly the services by way of (a) health care services by a clinical establishment, an authorised medical practitioner or paramedics; (b)  services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above.  The “health care services” is defined as any service by  way of diagnosis or treatment or care for illness, injury,  deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical  establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of  body affected due to congenital defects, developmental abnormalities, injury or trauma. If your ministry does not fall under these exemption, you are advised to go through the whole list of 81 services provided in the notification to make sure that you are not covered.   It is to be noted that donations received by a ministry will not attract GST. 

    Registration under GST

    If your organisation is covered under the ambit of GST, you need to apply for registration within 30 days from the date on which you become liable for registration. All those who are registered under the Act will be provided with a unique GST Identification Number (GSTIN). Even if your services do not come under the purview of GST, you need to know the provisions of GST, as the vendors you deal with, renting of your office building and the like may have GST implications. Thus kindly refer to the GST website (http://www.gst.gov.in/) and also consult your Chartered Accountant.

    The ‘Good and Simple Tax’, as GST is described, is not that simple! The GST council is coming up with different notifications day by day, confusion is increasing and it would take a while for the dust to settle down. The intent of the Govt. is to cover as many areas as possible. It will have many implications for NPOs. We need to keep a tab on the developments and discern its impact for our ministry and comply with it. Let’s not try to avoid GST, but rather submit to the governing authorities as instructed by Paul in Romans 13:1.

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