GST Implication on The Foreign Contribution for Charitable Purposes in India

GST Implication on The Foreign Contribution for Charitable Purposes in India

 

Introduction  

Under GST laws there is no specific section or provision that defines and governs “Foreign Contribution” for the purpose of charitable activity. The Foreign Contribution (Regulation) Act 2010 governs the Foreign contribution that is received in India and the term Foreign Contribution is explicitly defined under the act, which means that “donation, delivery or transfer of, inter alia, currency (whether Indian or foreign) by a foreign source”.  Under this Article we are going to discuss about what are charitable activities, and GST implication on Foreign Contributions in charitable activity.

Foreign Contribution

As discussed above foreign contribution is defined under Foreign Contribution [Regulation] Act 2010 (FCRA), which inculcates donations received from any foreign company, foreign Government, citizen of foreign nationals or any foreign trust or foundation.

As per Section 11 of the FCRA , no person shall accept the foreign contribution from any foreign source until and unless such person obtains a certificate of registration or prior permission of the Central Government. Any contribution received in contrary to this will be punishable under this act.

Hence it is concluded that the institution or individuals who have received the certificate or have Prior permission of the government, can only receive Foreign Contribution and it will be governed under such Act.

GST Implication on the Charitable Activity in India

Central Government passed a notification No.12/2017-Central Tax (Rate) dated 28th June 2017, where under entry No. 1 they have exempted services provided by the entity registered under section 12AA of the Income Tax Act from paying GST. But the following conditions have to be fulfilled by the entity to claim exemption from paying any GST.

  1. Entities must be registered u/s 12AA of the Income Tax Act 1961.
  2. Entities must engage in charitable activities.

Under notification the government has elaborately explained charitable Activities.

Charitable Activities includes activities related to

  1. Public health that covers the care and counselling of HIV-Aids patients and mentally and physically ill patients, public Awareness for the HIV- AIDS.
  2. Advancement of religion, spirituality or yoga;
  3. Advancement of educational programmes or skill development of orphans, prisoners , persons over the age of 65 years in rural area, mentally and physically abused individuals
  4. Preservation of the environment.

As per entry No. 80 of notification no.12/2017-Central Tax (Rate), entity which is registered under 12AA and providing services related to the coaching or training in the field of art & culture and sports are also exempted from GST.

In Circular No. 116/35/2019-GST Government of India mentioned that if there is no reference or advertisement of the business activity of the donor and if all the three conditions are fulfilled namely: gift or donation made to the charitable trust, and the payment has a character of the donation and the purpose is philanthropic not for the commercial gain and not advertisement, in those cases GST will not be leviable. 

Through these notifications, the government grant an exemption to the charitable trust who are registered under Section 12 AA of the Income Tax Act and are engaged in charitable activities. The Government of India ensures that the only activities that are listed above are exempted from GST. The income that arises out of the other activities that are not mentioned under the list will attract GST. For instance granting of advertising right to a person for the publicity or any kind of publication of the trust, granting of any admission to event function, celebration shows against any kind of admission, ticket or fare that is collected from the Public by the charitable trust will attract GST.

In the recent case of Jayshankar Gramin Vs Adivasi Vikas Sanstha Sangamner [TS-604-AAR(MAH)-2021-GST], The Maharashtra Authority for Advance Ruling (MH AAR) held that Charitable trust will be liable to pay GST at a rate of 18 percent on the services rendered on grants and for non-philanthropic donations received by the charitable trust, until the activity is covered under charitable Activity defined by the Government under the Notification No.12/2017-Central Tax (Rate)

Analysis

As discussed earlier Foreign Contribution (Regulation) Act [FCRA] governs the foreign contribution received in India, the GST Implication for such contribution depend on the nature of the activities conducted by the Charitable institutions. If the foreign contribution received is utilized for activities defined as a charitable activity under Notification No.12/2017-Central Tax (Rate) it will be exempted from GST. In the contrary to the notification, if any donation received without having any Philanthropic purpose then the transaction will attract 18 percent of GST as it will be considered as supply u/s 7 of CGST Act. When the purpose is not philanthropic then it is deemed to be for commercial gain and the donation will be regarded as a consideration for Supply of good or services that are provided by Charitable trust to donor for which donor is having  commercial gain. Consequently such transaction will attract 18 percent GST.

Therefore, Charitable Trust receiving Foreign Contribution must carefully assess the nature of their activities and ensure compliance with both FCRA and GST regulations to determine their tax liability.

 

Authored by: 

Ishika Sharma (Legal Intern)

4th year student, BBA LLB,

UPES Dehradun

 

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