EXEMPTION FOR CHARITABLE ACTIVITIES

[Dr. Sanjiv Agarwal]

Exemption to Services by an Entity Registered under section 12 AA of the Income Tax Act, 1961 by way of Charitable Activities.

“Charitable activities” as defined in clause (k) of definitions in the Notification No. 25/2012-ST dated 20.06.2012 means activities relating to –

(a) public health by way of –

(I) care or counselling 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

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

(b) advancement of religion or spirituality

(c) advancement of educational programmes or skill development relating to,-

(I) abandoned, orphaned or homeless children;

(II) physically or mentally abused and traumatized persons;

(III) prisoners; or

(IV) persons over the age of 65 years residing in a rural area;

(d) preservation of environment including watershed, forests and wildlife; or

(e) advancement of any other object of general public utility up to a value of twenty five lakhs rupees in a financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year.

For the purpose of this exemption, ‘general public’ means the body of people at large sufficiently defined by some common quality of public or impersonal nature. (defined in Clause ‘q’ of definitions in the notification)

As per Oxford Dictionary, charitable means connected with a charity or charities; Helping people who are poor or in need.

For this purpose, rural area means the area comprised in a village as defined in land revenue records, excluding –

(i) the area under any municipal committee, municipal corporation, town area committee, cantonment board or notified area committee; or

(ii) any area that may be notified as an urban area by the Central Government or a State Government.

If a registered charity is doing any activity falling in negative list of services or otherwise exempt, he is not required to pay service tax on that activity. In case, where his activity is covered explicitly in any of the specified charitable activities at ‘a’ to ‘d’, he is exempt from service tax without any value limit. For charitable activities mentioned at ‘e’ he is exempt up to a value of twenty five lakhs rupees in a financial year if the total value of such services had not exceeded twenty five lakhs rupees during the preceding financial year. However, if his activity is not for general public as defined in the notification, he is not eligible for exemption and required to pay service tax on such activities. General public is defined in the notification (clause q) as ‘body of people at large sufficiently defined by some common quality of public or impersonal nature’.

To claim this exemption, following two tests are important -

(a) services should be provided by an entity registered u/s 12AA of Income Tax Act, 1961, and

(b) services should be charitable activities.

Both the above conditions must be complied with.

It may be noted that services provided to charitable organization for religious purposes for religious use by general public are also exempt under S. No 13(b) of mega exemption Notification.

 

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Discussions to this article

[Aliasgar Tambawala]

To the best of my knowledge, Service tax has been made applicable on all services unless they are covered in the Negative list or they are specifically exempt under Notification No.25/2012-ST dated 20.06.12.

 

Clause 4 of Exemption Notification No.25/2012-ST dated 20.06.12. reads as under:

“4.      Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities;”

and for the purpose of Notification No.25/2012-ST dated 20.06.12, “Charitable activities” has been defined to include:

“(k) “charitable activities” means activities relating to -

     (ii) advancement of religion or spirituality;”

 

In this regards I would like to know whether the services provided by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) shall be by way of charitable activities or whether the proceeds of the services provided shall be used for charitable activities?

 

For instance, can the above-mentioned Exemption Notification be interpreted to cover Renting of commercial property by entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) under leave and license agreement to a licensee being a business entity and the licensee fees thereof being utilized for advancement of religion or spirituality?

[Bakul Gandhi]

Refer to Taxation of services- educational guide by the Department. Relevant extract that answers the query

7.5 Religious places/ceremonies (Details at Sr. No. 5 of Exhibit A3)

7.5.1 Is renting of precincts of a religious place taxable?

Yes. However, exemption is available only if the place is meant for general public. General public is also defined in the mega notification 25/2012-ST as the body

5.      Services by a person by way of-

     (a)     renting of precincts of a religious place meant for general public; or

     (b)     conduct of  any religious ceremony;

Definition -q)“general public” means the body of people at large sufficiently defined by some common quality of public or impersonal nature

Bakul N Gandhi

Practising Company secretary