Charitable Activities has not been defined by Section 65B of the Finance Act, 1994.However, its definition as provided in Notification No 25/2012-ST, dated 20.06.2012is as follows:“Charitable Activities” means activities relating to(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.
Provisions relating to Negative List
No activity carried out by Charitable Institutes or Non-profit organization has been included in the negative list.
Provisions relating to exemptions
Small Service Provider
Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.
Import of Technology
Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.
To Foreign Diplomatic missions and their personnel
Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.
Services by TBI or STEP
Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted
Services provided to SEZ
Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.
Item No. 4 of the Notification No. 25/2012-ST, dated 20-6-2012 provides exemption to charitable sector:
“4. Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities;”
To claim exemption under this item, the following two conditions should be satisfied:
Entity should be registered under section 12AA of Income-tax Act, 1961
The organizations registered under section 12AA of the Income-tax Act, 1961 are only entitled to avail the benefit of the exemption from payment of service tax. The application for registration is required to be made under section 12A of the Income–tax Act, 1961. The Commissioner of Income-tax shall call for such documents or information as he thinks necessary in order to satisfy himself about the activities of the trust.
Further, the exemption from service tax will start from the date of registration under section 12AA of the Income-tax Act, 1961.
Services must be provided by way of charitable activities in order to claim exemption under item No. 4 of the Notification No. 25/2012-ST, dated 20-6-2012.
Provisions relating to Valuation and Abatement
Most of the activities carried out by a Charitable Organizations are exempt from the payment of service tax. However, in case Charitable Organizations carries out any activity which is taxable, the value of such taxable service will be determined as per section 67 and hence, gross amount charged by the service provider for the services rendered will be considered as a value of taxable services.
Provisions relating to Cenvat Credit
The Credit is available to the service provider or the manufacture of the duty or tax paid on ‘capital goods’, ‘inputs’ and ‘input services’. No Cenvat Credit is available against exempt services. If the service provider is providing both the services i.e. exempt services as well as taxable services, then, in such a case, he will have to comply with the provisions of rule 6 of Cenvat Credit Rules, 2004.
Provisions relating to point of taxation
If the service provider is providing only those services which are exempt from the payment of service tax, then, the determination of point of taxation is not of much importance. But, if he provides the taxable services, then the point of taxation will be determined as per Point of taxation Rules, 2011. No specific rule has been provided in case of Charitable services and accordingly, Rule 3 shall apply. For detail, please refer Chapter 13 of this book.
Provisions relating to Place of Provision of Service Rules, 2012
The Place of Provision of Service Rules, 2012 contains different rules for different nature of services. No specific rule has been provided in case of Charitable services and thus, Rule 3 providing for determination of place of provision on the basis of location of service recipient shall be applicable. For detail, please refer Chapter 15 of this book.
Provisions relating to reverse charge
None of the clauses of Notification No. 30/2012-ST dated 20-6-2012 relates to service provided by the Charitable Organizations. Hence, the service tax is payable by the service provider, only if, services are not exempt.
FAQs from Education Guide issued from Department relating to Charitable sector
The following questions have been compiled from the clarifications from the clarifications provided by the government vide Master Circular D.O.F. No 334/1/2012-TRU dated March 16, 2012 and Taxation of Services – An Education Guide dated 20.06.2012 for the convenience of the readers:
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 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;
(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.
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 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’ of the answer above, he is exempt from service tax without any value limit. For charitable activities mentioned at ‘e’ of the answer above, he 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, 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.
Related Circulars and Notification
Circular No. 96/7/2007-ST, DATED 23-8-2007The issue is whether any club or association that enjoys exemption under the provisions of Income-tax Act on the ground of being a public charitable institution gets automatically excluded from levy of service tax under section 65(105)(zzze) read with section 65(25a) of the Finance Act, 1994.
Exemption under the Income-tax Act on the ground of being a public charitable institution is of no consequence to levy of service tax. Levy of service tax is entirely governed by the provisions contained in the Finance Act, 1994 and the rules made thereunder.
The definition of ‘charity’ and ‘charitable’ as defined in Black’s Law Dictionary may be kept in mind. ‘Charity’ is defined as ‘aid given to the poor, the suffering or the general community for religious, educational, economic, public safety, or medical purposes’, and ‘charitable’ as ‘dedicated to a general public purpose, usually for the benefit of needy people who cannot pay for the benefits received’.
The officer concerned should examine the matter on a case-by-case basis, and the decision should be made after taking into account all material facts and statutory provisions.
Circular NO. 127/9/2010-ST, DATED 16-8-2010
A representation has been received seeking clarification whether donations and grants-in-aid received from different sources by a Charitable Foundation imparting free livelihood training to the poor and marginalized youth, will be treated as ‘consideration’ received for such training and subjected to service tax under ‘commercial training or coaching service’.
2. The matter has been examined. 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.