Exemptions

Applicability of GST for NPOs

Vide CGST Notification No. 12/2017(Rate), dated 28/06/2017, Serial No. 1, Services by way of charitable activities by an Entity registered under section 12AA of the Income-tax Act, 1961, have been exempted.

This is a very important exemption provided by the Government and will immensely help many organizations. However, the organization must be registered under specific clause of the Income Tax Act. Many religious and charitable trusts do not get themselves registered to avoid any head-ache of filing, etc. under Income Tax Act. They will ultimately loose the exemption provided by this notification.

Also, exemption is only for ‘Charitable Activities’. As per definition given in the relevant Notification:

“(r) “charitable activities” means activities relating to –

(I) Public health by way of,-

(A) Care or counseling of

  • (I) terminally ill persons or persons with severe physical or mental disability;
  • (II) Persons afflicted 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;

  • (I) advancement of religion, spirituality or yoga;
  • (II) Advancement of educational programs or skill development relating to,-
    • (A) Abandoned, orphaned or homeless children;
    • (B) Physically or mentally abused and traumatized persons;
    • (C) Prisoners; or
    • (D) Persons over the age of 65 years residing in a rural area;
  • (III) Preservation of environment including watershed, forests and wildlife;”

As per this definition, charitable activity mainly covers some health related activities, educational related activities, environment preservation activities and activities related to advancement of religion, etc. However, care has to be taken before considering any activity as charitable under this definition. Not all educational or health related activities are covered under this definition.

Exemptions to educational services

Some educational services are exempted while others are not. CGST Notification No. 12/2017 (Rate), dated 28/6/2017 as amended via CGST Notification No. 2/2018 (Rate), dated 25/01/2018, Serial No. 66 reads as:

“Services provided,-

  • a) By an educational institution to its students, faculty and staff;
  • (aa) by an educational institution by way of conduct of entrance examination against consideration in the form of entrance fee;
  • (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, Union Territory;
  • (iii) Security or cleaning or house-keeping services performed in such educational institution;
  • (iv) Services relating to admission to, or conduct of examination by, such institution;
  • (v) Supply of online educational journals or periodicals;

Provided that nothing contained in sub-items (I), (ii) and (iii) of item (b) shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.

Thus, there are two types of exemptions in this entry. Services provided by the educational institution and services received by educational institution. However, before that we need to understand what an ‘educational institution’ is. As per CGST Notification No. 12/2017(Rate), dated 28/06/2017:

“(y) “educational institution” means an institution providing services by way of,-

  • Pre-school education and education up to higher secondary school or equivalent;
  • Education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force;
  • Education as a part of an approved vocational education course;”

Services provided to educational institutions

Now, let’s come to the other side. Purpose of giving exemption to educational institutions is to reduce the cost of education so that it is affordable to all. However, if services received by educational institutions are liable to tax then it will beat the purpose of exemption. So, many services received by them have also been exempted.

However, there is something interesting to this side of exemption. Services like transportation, catering, house-keeping, security, etc. are exempted only if they are provided to institutions providing education up-to high-secondary schools and not all. While services of admission and examination received by all institutions are exempt.

Exemptions to renting services

As per CGST Notification No. 12/2017(Rate), dated 28/06/2017, Serial No. 12 “Services by way of renting of residential dwelling for use as residence” are exempt; while, renting of commercial property, wedding halls, space, or renting of any space given for hoardings, etc. will attract GST at 18% rate. However, for renting service, there is another exemption entry at Serial No. 13 for NPEs, which reads as follows:

“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 of the Income-tax Act, 1961 (hereinafter referred to as the Income-tax Act), or a trust or an institution registered under sub clause (v) of clause (23C) of section 10 of the Income-tax Act or a body or an authority covered under clause (23BBA) of section 10 of the said Income tax Act:

Provided that nothing contained in entry (b) of this exemption shall apply to,-

  • renting of rooms where charges are one thousand rupees or more per day;
  • renting of premises, community halls, kalyanmandapam or open area, and the like where charges are ten thousand rupees or more per day;
  • Renting of shops or other spaces for business or commerce where charges are ten thousand rupees or more per month.”

The exemption in GST is identical to the exemption entry in service tax; therefore, this clarification may also be applicable under GST regime.

Services by way of training or coaching in recreational activities As per Serial No. 80 of Notification No. 12/ 2017-Central Tax(Rate), dated 27-Jun-2017, the NPEs enjoys another exemption relating to training or coaching in recreational activities. The entry reads as under-

“Services by way of training or coaching in recreational activities relating to-

  • arts or culture, or
  • Sports by charitable entities registered under section 12AA of the Income-tax Act,”

Thus, training or coaching provided by NPEs in dance, music, art, literature, theatres, drama etc. or any of the sports will be exempt from GST.

Services by way of right to admission

Many NPEs indulge in exhibition, dramas, and sporting events etc. which have entry fees. If no exemption is given, all such organizations will come within the ambit of GST. So, in the Notification No. 12/2017-Central Tax (Rate), dated 28/06/2017, Serial No. 81 as amended by Notification No. 2/2018-Central Tax (Rate), dated 25/01/2018, following exemption is provided:

“Services by way of right to admission to-

  • (a) Circus, dance, or theatrical performance including drama or ballet;
  • (b) Award function, concert, pageant, musical performance or any sporting event other than a recognized sporting event;
  • (c) Recognized sporting event;
  • (d) planetarium,
    Where the consideration for right to admission to the events or places as referred to in items (a), (b), (c) or (d) above is not more than Rs. 500 per person.”
    So, if there is entry fee up-to Rs. 500/- at any of the events mentioned above, then they will be exempted from GST. Amount limit was Rs. 250/- which was increased to Rs. 500/- through amendment.

Import of Service by Npes

As per Serial No. 10 of Notification No. 9/ 2017-Integrated Tax (Rate), dated 28-Jun-2017, any service received from a provider of service located in non-taxable territory by any entity registered under section 12AA of the Income-tax Act, 1961 for the purposes of providing charitable activities shall be exempt from GST. Thus, the charitable entity is not liable to pay GST on import of services under reverse charge mechanism. However, “charitable activities” shall have the same meaning as defined under paragraph 2(r) of the said notification. It is also specified in this entry that exemption shall not apply to online information and database access or retrieval services received by such charitable entities.

Gst on residential programs or camps meant for advancement of religion, spirituality or yoga by religious and charitable trusts – reg.

“The services provided by entity registered under Section 12AA of the Income Tax Act, 1961 by way of advancement of religion, spirituality or yoga are exempt. Fee or consideration charged in any other form from the participants for participating in a religious, Yoga shall be exempt. Residential programs or camp meant for advancement of religion, spirituality or yoga shall be exempt. Residential programs or camps where the fee charged includes cost of lodging and boarding shall also be exempt as long as the primary and predominant activity, objective and purpose of such residential programs or camps is advancement of religion, spirituality or yoga. However, if charitable or religious trusts merely or primarily provide accommodation or serve food and drinks against consideration in any form including donation, such activities will be taxable. Similarly, activities such as holding of fitness camps or classes such as those in aerobics, dance, music etc. will be taxable”

It is accordingly clarified that taxability of the services of religious and charitable trusts by way of residential programs or camps meant for advancement of religion, spirituality or yoga may be decided accordingly.

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