Here’s A Guide To 5 Common GST Myths For NGOs And Charities

The GST is a taxation system for all goods and services in India that has caused quite a bit of confusion among people. There are several misconceptions about the applicability of GST to the non-government organisations (NGOs) and charitable trusts in the society, particularly with respect to the law for exemptions.

The personnel involved in such kind of institutions must understand the law properly; otherwise, you might be penalised for misinterpreting the law or non-compliance.

In this post, we provide a concise explanation of the GST law for NGOs and charities and discuss the 5 most common myths that they must understand.

Myth #1: What Do You Mean By The Term ‘Charitable Activities’?

You might have heard that GST has some exemptions for educational institutions that are applicable to the students, teaching and non-teaching staff. Services like transportation and the Government mid-day meals scheme are exempted. As such, there is a notion in the social sector that all the charitable activities accomplished by any NGO are exempted from GST.

While an exemption is definitely applicable in some cases, it does not hold true everywhere.

You will find a separate GST law where the terminology’ charitable activities’ has a clear definition. The exemption is granted for the NGOs come under the category mentioned in the law.  You may seek professional advice from organisations like Khatabook to understand the rules in terms of your charity.

So, when will you be allowed the exemption? The list of activities is below.

• All Public Health Services for severe physical or mental disability, affected by HIV or addiction from drug or alcohol are exempted from GST registration.
• Aside from that, you will also be eligible if you promote spiritual or religion, educational or skill development programs.
• Your whole work should be aimed at the poor, homeless, orphans, abandoned children, prisoners and other such underprivileged class.

Myth #2: NGOs Are Not Liable For GST Registration

If in a financial year, the income of your NGO is less than 20 lakhs, then you aren’t liable for registration under GST. However, this is a myth for the reason that the term ‘income’ is not applied for NGOs as we understand it commonly.

There are some other conditions besides this 20 lakhs rule where you have to pay GST even if the total earning of your NGO is below 20 lakhs in a financial year. For instance, if the NGO supplies goods, which is taxable between two different states or union territories, the NGO supplies occasional goods or services that are taxable. For example, if your NGO has a stall in a fair for selling the products made by the homeless people, you are bound to pay GST.

Therefore, if you haven’t already, your NGO or charitable trust needs to apply for a GST certificate as soon as possible. You only need to mention the services or business of your trust during online registration. Once the application is acknowledged and other required inputs have been provided, your GST certificate will be generated from time to time.

Myth #3: There Is No Difference Between The Terms Used For Normal Environment And NGO GST Law

What you understand about a certain term in the society is not same when used for any charitable organisation. In GST, the term ‘Person’ is different from how we use it commonly because most of the NGOs are registered as ‘society’ or ‘trust’. By considering all the terms as interchangeable, you might end up with a taxation error.

You must take care when providing information about your organisation and keep in mind the correct terminology when computing it. Follow the gst invoice format in excel download for filling up the necessary details. It must include the taxable supplies, exempt supplies, inter-state supplies, and exports of the goods or services.

Myth #4: Interest On Fixed Deposit Is Not Counted For The Upper Limit Of 20 Lakhs

It is quite obvious that you will receive donations from the individuals or companies which you will use for the welfare of the trust. You deposit these donations in the bank, and interest is earned from there.

But there is a misconception that this interest will not come under GST provision. As such, you might not include it while filling the forms regarding your earnings for tax calculation.

You must be careful about the notification number 12/2017 dated 28th June 2017, where the list is given about the specific exemptions. According to it, you are not liable to pay GST if your NGO renders services of extending deposits and receives considerations on those services as interest.

Myth #5: You Don’t Need To Pay GST For Scrap Selling

Sale of scrap is a fundamental activity that is not confined within the charitable trusts. You might consider this as a by-product of your goods which will not be counted while computing GST for your organisation.

In this context, you must understand that GST is a taxation system based on the transactions. Here, every single transaction is treated as an independent entity and consequently determines whether tax is to be applied to it or not. The objective of the NGO is irrelevant here.

So from the above explanation, scrap selling will fall under taxable supplies when calculating GST. As an NGO, you must include it while computing the aggregate annual turnover of 20 lakhs for GST.

Summing Up

The popular belief that the charitable trusts will not come under the GST system is incorrect. Your entity must be registered under the Income Tax Act and must provide the supplies or services for charitable activities. Any other service that is non-charitable is liable for tax under the GST system.

Similarly, for the purchases of goods, standard GST is applicable. There is no separate law for charitable organisations on purchases or collection of supplies.

To conclude, your NGO or charitable trust must register for GST online as per the law. If you are not familiar with the entire process, you can contact organisations like Khatabook to learn how to download gst certificate from the internet.