GST on Charitable and Religious Trusts

Prepared by: National Academy of Customs, Indirect Taxes & Narcotics

The provisions relating to taxation of activities of charitableinstitutions and religious trusts have been borrowed and carriedover from the erstwhile service tax provisions. All services providedby such entities are not exempt. In fact, there are many servicesthat are provided by such entities which would be within the ambitof GST.
Notification No.12/2017-Central Tax (Rate) dated 28th June 2017exempts services provided by entity registered under Section 12AAof the Income-tax Act, 1961 by way of charitable activities fromwhole of GST vide entry No. 1 of the notification, which specifies that services by an entity registered under Section 12AA of Income-taxAct, 1961 by way of charitable activities are exempt from wholeof the GST. Thus as per this notification, exemption is given to thecharitable trusts, only if the following 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 way of charitableactivities.

Thus, it is essential that the activities must conform to the termcharitable activities which has been defined in the notification asunder 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 ormental disability;

(II) persons afflicted with HIV or AIDS;

(III) persons addicted to a dependence-forming substancesuch as narcotics drugs or alcohol; or

(B) public awareness of preventive health, family planning orprevention of HIV infection;

(ii) advancement of religion, spirituality or yoga;
(iii) advancement of educational programmes or skill developmentrelating 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;

(iv) preservation of environment including watershed, forests andwildlife.
This notification makes the exemption to charitable trusts availablefor charitable activities more specific. While the income from onlythose activities listed above is exempt from GST, income from the
activities other than those mentioned above is taxable. Thus, therecould be many services provided by charitable and religious trustwhich are not considered as charitable activities and hence, suchservices come under the GST net. The indicative list of such servicescould be renting of premises by such entities, grant of sponsorshipand advertising rights during conduct of events/functions etc.
This is also borne out from the fact that in so far as renting outof religious precincts is concerned, there is a limited exemptionavailable to such entities. Activities not covered by the specificexemption would be taxable. Entry No.13 of notification no.12/2017-Central Tax (Rate) dated 28th June, 2017, provides the followingexemption to entities registered under Section 12AA of the IncomeTax Act:
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 orreligious trust under section 12AA of the Income-tax Act, 1961(hereinafter referred to as the Income-tax Act) or a trust oran institution registered under sub clause (v) of clause (23C)of section 10 of the Income-tax Act or a body or an authoritycovered under clause (23BBA) of section 10 of the said Income-tax Act:
Provided that nothing contained in entry (b) of this exemptionshall apply to:

(i) renting of rooms where charges are one thousand rupeesor more per day;

(ii) renting of premises, community halls, kalyanmandapamor open area, and the like where charges are ten thousandrupees or more per day;

(iii) renting of shops or other spaces for business or commercewhere charges are ten thousand rupees or more per month.

Thus, the law gives a limited exemption to renting of only religiousprecincts or a religious place meant for general public by the entityregistered under Section 12AA of the Income Tax Act. As per clause
(zc) of the said notification, the term general public means thebody of people at large sufficiently defined by some common qualityof public or impersonal nature.
The term religious place as per the clause (zy) of the saidnotification means a place which is primarily meant for conductof prayers or worship pertaining to a religion, meditation, orspirituality. Dictionary meaning of precincts is an area withinthe walls or perceived boundaries of a particular building or place,an enclosed or clearly defined area of ground around a cathedral,church, temple, college, etc.
This implies that if immovable properties owned by charitable trustslike marriage hall, convention hall, rest house for pilgrims, shopssituated within the premises of a religious place are rented out,income from letting out of such property is wholly exempt from GST.But if such properties are not situated in the precincts of a religiousplace meaning thereby not within walls or boundary walls of thereligious place, income from such letting out will lose this exemptionand income from it will be liable to GST.
Income from a religious ceremony organised by a charitable trust isexempt as per the above notification. So the income from Navratrifunctions,other religious functions, and religious pooja’s conductedon special occasions like religious festivals by persons so authorizedfor this purpose by the charitable or religious trust are exempt fromGST.
But a careful perusal of this exemption shows that all income fromsuch a religious ceremony is not exempt (services other than byway of conduct of religious ceremony are not exempt). Therefore,
the nature of income is an essential factor for ascertaining whetherit will be taxable or exempt. If income loses its religious nature, itis definitely chargeable to GST. For example, if with regard to
Ganesh Utsav or other religious functions, charitable trusts rent outtheir space to agencies for advertisement hoardings, income fromsuch advertisement is chargeable to GST, as this will be consideredas income from the advertisement services. Further, if donationfor religious ceremony is received with specific instructions toadvertise the name of a donor, such donation income will be
subject to GST. But if donation for religious ceremony is receivedwithout such instructions, it may not be subject to GST.
Similarly, entry No.80 of notification no.12/2017-Central Tax (Rate),provides the following exemption to an entity registered underSection 12AA.
Services by way of training or coaching in recreational activitiesrelating to:

(a) arts or culture, or
(b) sports by charitable entities registered under section 12AA ofthe Income-tax Act.

Thus, services provided by way of training or coaching in recreationalactivities relating to arts or culture or sports by a charitable entitywill be exempt from GST.
GST on management of educational institutions by charitable trusts
If trusts are running schools, colleges or any other educationalinstitutions specifically for abandoned, orphans, homeless children,physically or mentally abused persons, prisoners or persons overage of 65 years or above residing in a rural area, such activitieswill be considered as charitable activities and income from suchsupplies will be wholly exempt from GST.
Meaning of the word rural area defined in said notification is ruralarea means the area comprised in a village as defined in landrevenue records excluding the area under any municipal committee,municipal corporation, town area committee, cantonment boardor notified area committee or any area that may be notified as anurban area by the Central Government or a State Government.
Import of Services
Also as per the entry no. 10 of Notification no.9/2017-IntegratedTax (Rate) dated 28.06.2017, if charitable trusts registered underSection 12AA of Income-tax Act receives any services from provider
of services located in non-taxable territory, for charitable purposes,such services received are not chargeable to GST under the reversecharge mechanism.
Services by and to Education Institutions (including institutions runby Charitable trusts)
If the trust is running school for the purpose which is not coveredabove (i.e. not coming within the scope of charitable activitiesas defined in the notification), income from such activity will notbe exempt under notification no. 9/2017-Integrated Tax (Rate) or12/2017-Central Tax (Rate), but will be exempt under entry 66 ofnotification no.12/2017-Central Tax (Rate). Entry 66 provides forexemption w.r.t supply by and to educational institutions and onlythe following services received by eligible educational institution areexempt:

(1) Transportation of students, faculty and staff of the eligibleeducational institution.

(2) Catering service including any mid-day meals scheme sponsoredby the Government.

(3) Security or cleaning or house-keeping services in such educationalinstitution.

(4) Services relating to admission to such institution or conduct ofexamination.

If such school or other educational institution gives property ownedby such institution on rent to others, no exemption will be availablefor such services. Therefore, all services received by educational institutions managed by charitable trusts (for other than charitableactivities, as defined) except those services mentioned above aretaxable.
GST on arranging yoga and meditation camp by charitable trusts
Charitable trusts organise yoga camps or other fitness camps andthey generally are not free for participants, as trusts charge someamount from the participants in the name of accommodation or
participation. If trusts are arranging residential or non-residentialyoga camps by receiving donation or other charges from theparticipants, these will not be considered charitable activities (asit is different from advancement of religion , spirituality or yoga).Since donation is received for participation, it will be consideredcommercial activity and it will definitely be covered under theGST. Similarly, if charitable trusts organise fitness camps in reiki,aerobics, etc., and receive donation from participants, such income
that comes under health and fitness services and will also betaxable.
GST on running of public libraries by charitable trusts
No GST will be applicable if charitable trusts are running publiclibraries and lend books, other publications or knowledge-enhancing content/material from their libraries. This activity isspecifically excluded by way of entry No. 50 of Notification No.12/2017- Central Tax Rate (and is applicable for everyone, includingcharitable trusts); which means services by private libraries are notexempt. Thus, if donors of public library remain open to all and if itcaters to educational, informational and recreational needs of itsusers and finance for such libraries can be provided from donation,subscription, from special fund created for this purpose or fromcombination of all such sources, it will be called public library andno GST will be applicable on such services.
GST on hospital managed by charitable trusts
Entry no. 74 of Notification No. 12/2017-Central Tax Rate (applicable toall persons including charitable trusts) exempts healthcare servicesat clinical establishment, an authorized medical professional or
paramedics. As per clause (zg), health care services means anyservice by way of diagnosis or treatment or care for illness, injury,deformity, abnormality or pregnancy in any recognized system ofmedicines in India and includes services by way of transportationof the patient to and from a clinical establishment, but does notinclude hair transplant or cosmetic or plastic surgery, except whenundertaken to restore or to reconstruct anatomy or functions of bodyaffected due to congenital defects, developmental abnormalities,injury or trauma. Therefore, all treatment or diagnosis or care forillness, injury, deformity, abnormality or pregnancy by a clinicalestablishment is covered. Such services provided by doctors andparamedics either provided as an employee (clinical establishment)or in their individual capacity is exempt. Transportation of patientsto and from a clinical establishment is also exempt. The clinicalestablishment, as per clause (s),means a hospital, nursing home,clinic, sanatorium or any other institution by, whatever name called,that offers services or facilities requiring diagnosis or treatment or
care for illness, injury, deformity, abnormality or pregnancy in anyrecognized system of medicines in India, or a place established asan independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases.
So, if charitable trusts run a hospital and appoint specialist doctors,nurses and provide medical services to patients at a concessional rate,such services are not liable to GST. If hospitals hire visiting doctors/
specialists and these deduct some money from consultation/visitfees payable to doctors and the agreement between hospital andconsultant doctors is such that some money is charged for providing
services to doctors, there may be GST on such amount deductedfrom fees paid to doctors.
GST on services provided to charitable trusts
Services provided to charitable trusts are not out of ambit of GST.All services other than those specifically exempted provided tocharitable trusts will be subject to GST.
GST on supply of goods by Charitable Trusts
There is no exemption for supply of goods by charitable trusts. Thusany goods supplied by such charitable trusts for consideration shallbe liable to GST. For instance, sale of goods shall be chargeable toGST.