The implementation of the Goods and Services Tax (GST) will no doubt have a great impact on the Indian economy, as it will effectively result in an increase in taxes across the board.
Nevertheless, while the economic impact has been extensively discussed, few have observed the social consequences of the GST, particularly with regards to its impact on charities and the non-profit organisations.
Charities will be subject to GST
Charities are a social cause that is often undertaken by unselfish volunteers who are doing the work that the government should be doing but is not. Such work and activities should be fully encouraged and supported by the authorities. Rather, the intended implementation of GST will create many obstacles and complexities for charities.
Under the GST system, only cash donations “without any benefits and advantages” to the donor is not considered as a taxable and hence not covered under the GST regime. However, cash donations are liable to GST if there is any advantage or benefits to the donor, with benefits and advantages are defined as:
1. Promoting and Advertising or the donor’s or sponsor’s name or its products;
2. Naming any event after the donor or sponsor;
3. Displaying the sponsor’s or donor’s name on shirts worn by a team.
This raises many issues as such practices are common in India, particularly where corporate sponsors are concerned.
Donations in kind
For the time being, a donation in kind is subject to additional limitations. For sponsorship in kind “without any advantages and benefits” to the donor, only goods that do not exceed a specified limit over a year are considered a “business gift” and consequently exempt from GST. However, if the sponsored goods total exceeds the specified limit in a financial year, it would be liable to GST.
For donation in kind that is reciprocated with “benefits and advantages” to the donor, such as coffee mugs, T-shirts, Bags bearing the donor’s corporate logo, then GST must be accounted based on the fair market value for providing advertising space.
Charities looking to organise fundraising activities would be exempt from the scope of GST on their supplies. However, the organiser not only to furnish a list of supplies utilised in the fundraising event to the CBDT for prior approval but also maintains full records or accounts of the supplies used. This simply means extra operational costs for organising such events.
Proceeds from other activities
It is often the case that charitable institutions and non-profit organisations are engaged in other activities to supplement their income for operational expenses. However, all such will be subject to GST, even if the proceeds are used for wholly for charitable purposes.