Service Tax on NGOs, Service Tax

[Sunil Kumar]

Dear Sir,

Is service tax applicable on NGOs?

Apparently, it appears that service tax is applicable on NGO except those NGOs covered under mega exemption ST 25/2012.

But if we refer F.No.354/119/2010-TRU dated 16th August 2010, we find that service tax is not applicable to NGOs on broad terms.

My query is:

1. Is service tax applicable to NGOs?

2. If service tax applicable to NGO if NGO is complying branding and marking guidelines of the donor. The branding and marking guidelines of the donor requires strict compliance of the guidelines which includes putting logo and name of the donor on all equipment, banners, reports, etc. generated under the grant fund.Is is not advertising services.

3. With reference to notification no. 25/2012, what is the coverage of the term public health?

Regards,

Sunil Kumar, FCA

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

      As per para 2.2.7 of "Taxation of Services an Education Guide by CBEC​" in case research grant is given with counter obligation on the researcher to provide IPR rights on the outcome of research or activity undertaken with the help of such grants then the grant is a consideration for the provision of service of research. General grants for researches will not amount to a consideration.

       The above principle is applicable to NGOs. Circular No. 127/9/2010-ST dated 16.08.2010 and not F.No.354/119/2010- TRU dated 16th August 2010 a mentioned by you clarifies in para 2. as follows-

"The important point here is regarding the presence or absence of a link between 'consideration' and taxable service. It is a settled legal position that unless the link or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to service tax. Donation or grant-in-aid is not specifically meant for a person receiving such training or to the specific activity, but is in general meant for the charitable cause championed by the registered Foundation. Between the provider of donation/grant and the trainee there is no relationship other than universal humanitarian interest. In such a situation, service tax is not leviable, since the donation or grant-in-aid is not linked to specific trainee or training.

     In view of the above whether activity of NGO amounts providing a service to any person.  Then only it will be subjected to service tax.

    However, in my opinion, the activities described by you at point No. 2 will attract service tax provided putting logo and name of the donor on all equipment  amounts to manufacture in accordance with Section 2 (f) (iii) of Central Excise Act, 1944 which states that-

"manufacture" includes any process, -  

which, in relation to the goods specified in Third Schedule involves packing or re-packing of such goods in a unit container or labeling or re-labeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer."

[Naveed S]

For reply to query No 1 & 2  :-

Service tax is not applicable to NGO is they fall under the following category :-

4. Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities; (Noti. No. 25/2012).

For reply to query No. 3 :-

“charitable activities” means activities relating to –

(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;

Hence, so far as service tax relates, the scope and definition of Public Health is as above.

[Naveed S]

Clarification by the Board

(Taxation Guide – Guidance Note – 7 – Exemptions dated 20.06.2012)

“7.4.1 I am a registered charity. How do I know that activities provided by me are charitable activities?

You are doing charitable activities if you are registered with income tax authorities for this purpose under section 12AA the Income Tax Act, 1961 and carry out one or more of the specified charitable activities. Following are the specified charitable activities:-

(a)  public health by way of-

(I)  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

(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 lakh rupees in a financial year subject to the condition that total value of such activities had not exceeded twenty five lakh rupees during the preceding financial year.

7.4.2 What is the tax liability of a registered charity on their activities?

If a registered charity is doing any activity falling in negative list of services or is otherwise exempt, it is not required to pay service tax on that activity. In case, where its activity is covered explicitly in any of the specified charitable activities at 'a' to 'd' of the answer to 7.4.1, it is exempt from service tax without any value limit. For charitable activities mentioned at 'e', it is exempt up to a value of twenty five lakh rupees in a 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 quality of public or impersonal nature'.”