IMPACT OF GST ON NGO & CHARITABLE TRUST?
INTRODUCTION
The impact of GST on NGOs and charitable trusts has been mixed. On the one hand, GST has led to some simplification and rationalization of the tax regime for these organizations. For example, the registration threshold for NGOs and charitable trusts has been increased from Rs. 10 lakh to Rs. 20 lakh, which will benefit many small organizations. Additionally, the GST rates for many goods and services used by NGOs and charitable trusts, such as medical equipment and educational materials, are lower than the rates for other goods and services.
ADVANTAGES
Streamlined Tax Structure: GST replaced multiple indirect taxes like VAT, service tax, and excise duty with a single tax. This simplification reduces the compliance burden for NGOs and Charitable Trusts, making it easier for them to manage their tax obligations.
Input Tax Credit (ITC): Under GST, NGOs and Charitable Trusts can claim ITC on goods and services they purchase for their activities. This can lead to cost savings as they can offset the GST paid on inputs against the GST collected on their services.
Exemption for Charitable Activities: GST provides an exemption for certain charitable activities, such as providing healthcare services and educational services. This helps NGOs and Charitable Trusts continue their social welfare work without the additional burden of GST.
Transparency and Accountability: GST promotes transparency in financial transactions. This can be advantageous for NGOs and Charitable Trusts as it can help build trust among donors and stakeholders.
DISADVANTAGES
Compliance Challenges: While GST aims to simplify taxation, compliance can still be complex and time-consuming for NGOs and Charitable Trusts, especially smaller organizations. They may require professional assistance to navigate GST rules effectively.
Cash Flow Issues: NGOs and Charitable Trusts often rely on donations and grants for their operations. GST, being a transaction-based tax, can lead to cash flow issues, as they need to pay GST on services even before receiving payments from donors.
Increased Administrative Costs: Complying with GST regulations, including filing returns and maintaining detailed records, can increase administrative costs for these organizations. This diverts resources away from their core charitable activities.
Lack of Clarity on Taxability: Some activities and transactions related to NGOs and Charitable Trusts may not have clear guidelines on taxability under GST. This ambiguity can lead to disputes and litigations.
Impact on Fundraising: The additional tax burden imposed by GST may discourage some donors from contributing to NGOs and Charitable Trusts, reducing their ability to raise funds for their causes.
Transition Period Challenges: The transition from the previous tax regime to GST was a challenging process for many organizations, and NGOs and Charitable Trusts were no exception. It required adjustments in accounting, reporting, and compliance practices.
Here are some additional points to consider:
- NGOs and charitable trusts that are registered under section 12AA of the Income Tax Act, 1961 are exempt from GST on most of their activities.
- NGOs and charitable trusts that provide training or coaching in recreational activities relating to arts and culture, or sports are also exempt from GST.
- NGOs and charitable trusts that are engaged in the business of selling goods or services will be liable to pay GST on those goods or services, even if they are not for profit.
- NGOs and charitable trusts that are required to register for GST will be able to claim input tax credit on the GST paid on goods and services that they purchase for their charitable activities.
Here are some tips for NGOs and charitable trusts to manage the impact of GST:
- Get informed about the new tax regime and understand your obligations.
- Assess your current operations and identify any areas where you may be affected by GST.
- Take steps to comply with the new requirements, such as registering for GST and collecting GST from your suppliers.
- Claim input tax credit on the GST paid on goods and services that you purchase for your charitable activities.
- Work with your accountant or tax advisor to ensure that you are complying with the GST laws.
CONCLUSION
The new compliance requirements under GST can be a challenge for NGOs and charitable trusts, but there are also some advantages, such as the increased registration threshold and lower GST rates. Ultimately, the impact of GST on these organizations will depend on how they adapt to the new tax regime.o.
HOW AURIGA ACCOUNTING HELP YOU
GST Compliance and Reporting: Auriga Accounting firms can help these organizations understand GST rules and ensure they are in compliance with all GST regulations. This includes filing GST returns, maintaining proper records, and managing documentation.
GST Registration: Auriga Accounting can assist in the GST registration process, helping NGOs and Charitable Trusts determine whether they need to register for GST and guiding them through the application process.
Input Tax Credit (ITC) Optimization: Auriga Accounting help these organizations maximize their ITC claims by ensuring that they correctly account for GST on their purchases and expenses. This can lead to cost savings and better cash flow management.
Exemption and Deduction Analysis: Charitable activities often have specific exemptions and deductions under GST. Auriga Accounting can help identify these exemptions and ensure that the organization is taking full advantage of them.
Cash Flow Management: Managing cash flow is crucial for NGOs and Charitable Trusts. Auriga Accounting can help with forecasting and budgeting to ensure that the organization has the necessary funds to meet its GST obligations.
Record Keeping and Documentation: Maintaining accurate and detailed records is essential for GST compliance. Auriga Accounting can help set up robust record-keeping systems and assist in maintaining organized documentation.
Tax Planning and Advisory: Auriga Accounting can provide strategic tax planning services, helping NGOs and Charitable Trusts make informed decisions to minimize their tax liabilities while staying within the bounds of the law.
Audit Support: In case of GST audits or assessments by tax authorities, accounting firms can provide support, helping organizations gather the required documentation and respond to queries effectively.
Training and Capacity Building: Auriga Accounting can also offer training and capacity-building programs for the NGO’s finance and accounting teams to enhance their understanding of GST regulations.
Regular Updates: Tax laws and regulations are subject to change. Auriga Accounting can help NGOs and Charitable Trusts stay updated on any changes to GST laws and ensure they remain compliant.
