Analysis on taxability on charity / charitable trust under old and current provisions of Service Tax

                  

1. Provisions for Charity / Charitable trust before 1.7.2012:
As per section 65(105)(zzze) services provided to its member by any club or association in relation to provision of services, facilities or advantages for a subscription or any other amount would be taxable service.
Further, as per section 65(25aa) “Club or association” means any person or body of persons providing services, facilities or advantages, primarily to its members, for a subscription or any other amount, but does not include—any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature.


Our comment:
Based on above, any activity which is in nature of charitable or religious nature would be exempt from service tax without any value limit. If any services provided by charitable trust which are not in nature of charitable or for public service, such services would be liable to tax for charitable trust.
2. Provisions for Charity / Charitable trust after 1.7.2012
As per point 4 of Mega exemption notification 25/2012-Service Tax:
If charitable trust registered with income tax authorities under section 12AA the Income Tax Act, 1961 and carry out one or more of the following ‘specified charitable activities’ then such activities would be exempt from service tax:
(i) Public health by way of -

(a) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or

(b) public awareness of preventive health, family planning or prevention of HIV infection;

(ii) advancement of religion or spirituality;
(iii) advancement of educational programmes or skill development relating 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 and wildlife; or
(v) advancement of any other object of general public utility up to a value of,-

(a) eighteen lakh and seventy five thousand rupees for the year 2012-13 subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during 2011-12;

(b) twenty five lakh rupees in any other financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year;

Our comment:

• If a registered charity u/s 12AA of Income tax act is doing any activity falling explicitly in any of the specified charitable activities at ‘i’ to ‘iv’ of the above, it is exempt from service tax without any value limit.
• For charitable activities mentioned at ‘v’ above, it is exempt up to a value of 18,75,000 for F.Y. 2012-13 and Rs. 25,00,000 in subsequent financial year if the total value of such services had not exceeded twenty five lakh rupees during the preceding financial year. However, this later exemption is available only if the activities are meant for general public. General public is defined in the notification as ‘body of people at large sufficiently defined by some common quality of public or impersonal nature’.
• Hence, an act by a charitable trust for consideration would be a service and taxable unless otherwise exempted. The concept ‘activity for a consideration’ involves an element of contractual relationship wherein the person doing an activity does so at the desire of the person for whom the activity is done in exchange for a consideration. An activity done without such a relationship i.e. without the express or implied contractual reciprocity of a consideration would not be an ‘activity for consideration’
• Examples on activity of charity would be taxable:
  • Conditions in a grant stipulating merely proper usage of funds and furnishing of account also will not result in making it a provision of service.
  • Donations to a charitable organization are not consideration unless charity is obligated to provide something in return.

3. Taxability of Donations received for specific purpose
If any donation are received with obligation to utilization for specific purpose by trust would not amount to donation received for consideration. Such donations are not received for obligation to provide something to donor. Hence, receipt of such donation would not be liable for service tax.

4. Taxability of donation received for display or advertises the name of the donor in a specified manner:
If any donation has been received by charitable trust with obligation to display or advertise name of donor in specified manner e.g. name of college would be of donor, it would amount to ‘activity for consideration’. Such consideration would liable for service tax to trust.