GST Implications on Donation Received

Every business conducts charitable activities or gives donations to charitable trusts/institutes. Moreover as per the Companies Act 2013 the companies whose net worth, net profit and turnover exceeds the prescribed threshold are mandatory required to undertake the Corporate Social Responsibility (CSR) Expenses. In respect of donations given by the businesses, generally a question arises about the GST implications about these donations. In this article we will make a detailed discussion about the GST leviability on the donations received by the Charitable trusts/ Institutes.

As we know that GST is leviable on supply of goods or services or both except on supply of alcoholic liquor for human consumption. Hence for a transaction to be covered under the scope of GST, firstly it should fall within the scope of supply. Further as per section 7 of CGST Act 2017 the definition of supply includes all forms of supply of goods or services or both made or agreed to be made for a consideration by a person in the course or furtherance of business.

Thus as per section 7 for a transaction to be treated as supply;
1. The Consideration should be involved (except the activities specified in schedule I) and
2. It should be done in the course or furtherance of business

The term ‘Consideration’ is defined u/s 2(31) of the CGST Act, 2017 which is laid down as under:

“consideration” in relation to the supply of goods or services or both includes–
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;”

In respect of donations, the prima facie it appears that there is no consideration involved, however it may not be correct in every case. The consideration can be involved in case of donations and the same would be clear from our further discussions.

An important feature of consideration is quid pro quo (something for something). Donations received by the charitable organisations are treated as consideration only if there exists, quid pro quo, i.e., there is an obligation on part of the recipient of the donation or gift to do anything.

Generally, institutions such as religious institutions, charitable organisations, schools, hospitals, orphanages, old age homes etc. receive financial help or any other support in the form of donation or gift from the individual donors. In order to express gratitude towards such help/support, the recipient institutions place a name plate or similar such acknowledgement in their premises. When the name of the donor is displayed in recipient institution’s premises, in such a manner, which can be said to be an expression of gratitude and public recognition of donor’s act of philanthropy and is not aimed at giving publicity to the donor in such manner that it would be an advertising or promotion of his business, then it can be said that there is no supply of service for the payment in the form of donation.

In other words, there is no obligation (quid pro quo) on part of the recipient of the donation or gift to do anything (i.e. supply a service). Therefore, there is no GST liability on such payment made.

For example Mr. A who is the owner of Publishing House, at Delhi, donated some money to the Charitable Trust in the memory of his late father. The Charitable Trust constructed a room in the school run by it from such donations and wrote “Donated by Mr. A in the memory of his father” on the door of the room so constructed.

In the above example, the way the name of Mr.A is displayed on the door of the room constructed in the school run by Charitable Trust, it is only an expression of gratitude and public recognition of Mr. A’s act of philanthropy and is not aimed at advertising or promoting his business. As there is no reference/mention of his publishing house which otherwise would have got advertised. Thus, the money donated by Mr.A is not leviable to GST.

However, if Charitable Trust had written on the door of the room constructed from the money donated by Mr. A in the school run by it - “Donated by Mr. A who is the owner of Publishing House, at Delhi along with his complete business address”. 
Then in the above situation,  since the name of Mr.A ‘s Publishing House has been displayed on the door of the room constructed in the school run by Charitable Trust, it might be aimed at advertising or promoting his business. There is a direct mention of his publishing house which is being advertised. In such a case, it is a supply of service by Charitable Trust for a consideration received in the form of donation.

In the service tax regime there was a Circular 127/09/2010 – ST dated 16.08.2010 in this respect wherein it was clarified that unless there is a direct link between the donor and the specific beneficiary, a grant or donation cannot be taxed as there is no relationship other than universal humanitarian interest. The relevant extract from the said circular is provided as under:

“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.”

Also in GST regime the CBIC has also issued the Circular No. 116/35/2019 in this respect, wherein it was clarified that for exemption from GST three conditions are required to be fulfilled:

(i) Gift or Donation is made to a charitable organisation.

(ii) The purpose is philanthropic (i.e. it leads to no commercial gain).

(iii) There is no advertisement for the donor.

This Circular also states that in case of a donation, there should be no obligation in the nature of quid pro quo on the part of the recipient of the donation or gift for ‘supply of service’. The ‘supply of service’ apparently does not include the philanthropic purpose (mutually agreed upon) for which the donation was made without any commercial gain to either the donor or the donee.

Conclusion: GST would be levied on the donation received by the charitable trust if the name of the donor is displayed in such a manner that it can promote the business of the donor. However, if the name of the donor is displayed in a manner that it only expresses the gratitude for the donation, then no GST would be levied on such donation received.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.