Sunday, 2 July 2017

GST & it’s Impact on Charitable organizations / NGOs

Date of Effect: Goods & Service Tax (GST) has been rolled out in India on 1st July 2017.

What is GST: It is an indirect tax applicable throughout India which has replaced multiple cascading taxes levied by the Central and State governments.

GST now incorporates various indirect taxes under one law. This includes Central levies such as Customs Duty, Excise Duty, Central Sales Tax and Service Tax and State levies such as Value Added Tax (VAT), Luxury Tax, Electricity Duty, Entertainment Tax and Entry Tax & Octroi.

 Why is GST referred to as an Indirect tax: When one pays Income tax on salary or business income it is a direct tax. Indirect taxes such as the erstwhile Service Tax and VAT (now both under GST) are taxes that are charged by the vendor of goods or services to the consumer and paid to the government of India. In other words, while the onus of charging the tax is on the provider of service or goods, the burden of payment is indirectly on the consumer.

What are the GST rates: Under GST, goods and services are taxed at the following rates, 0%, 5%, 12%, 18% & 28%? There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.

Exemption: Education, Healthcare, Residential accommodation, Hotel/Lodges with tariff below Rs. 1,000/- are in the exempt category.

Should all NGOs register under GST: No. However, if your NGO is already registered under VAT or Service Tax you may consider registering under GST, if turnover in terms of goods or services of your organization is more than Twenty Lakhs Rupees.

Until now the threshold limit under Service Tax was Rs. 10 Lakhs and Rs. 5 Lakhs under VAT, whereas under GST the limit is now Twenty Lakhs Rupees. This is of advantage to NGOs and of course even small traders and manufacturers.

Thus, those NGOs which have not found the need so far to register under VAT or Service Tax are not likely to require registration under GST either. In fact, with the threshold having been raised four times for VAT and doubled in case of Service Tax it should come as a relief to many NGOs.

Should NGOs which receive CSR Grants register under GST: No. Grants are in the nature of a gift, albeit, with various terms and conditions. Neither GST nor TDS should be deducted on grants or donations.

However, GST would apply to sponsorship and advertisements where benefit is accrued by the sponsor or advertiser.

Are all services rendered by charitable organizations exempt under GST: Services by an entity registered under section 12AA of the Income Tax Act, 1961 by way of charitable activities is exempt.

“Charitable activities” for the purpose of GST may be defined as presently in notification No. 25/2012-ST. These include, healthcare services, ambulance service and “services rendered by an entity registered u/s 12AA of Income Tax Act 1961 by way of charitable activities”.

However commercial services for a consideration would be liable to GST if over Twenty Lakhs Rupees in a financial year.

What is ‘Reverse Charge’ under GST: The concept of reverse charge mechanism was already present under service tax. In the GST regime, reverse charge will be applicable for both services as well as goods.

GST has to be typically paid by the supplier of goods and services. But in some cases, the liability to pay the tax falls on the buyer or consumer. This reverse charge is, however, applicable only under certain circumstances. The most common instance is when a business or NGO buys goods or services from a supplier who is not registered to pay GST.

Reverse charge under GST simply means the liability to pay GST is by the recipient of goods/services instead of the supplier.

What precautions should an NGO take to avoid ‘Reverse Charge’: Ensure that your NGO hires only the services of an agency registered under GST and buys goods from an agency registered under GST.

To clear your doubts or queries with regards to GST please write to us at

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