Do Section 8 companies have to register for GST?

Gst for section 8 company – A Section 8 company is primarily created to further non-profit objectives such those related to business, commerce, the arts, charity, education, religion, environmental protection, social welfare, sports research, and so forth.

A Section 8 Company must have at least two directors in order to be formed. A Section 8 Company is also not needed to have a minimum amount of paid-up capital. In India, a non-profit organisation may be incorporated as a non-profit corporation under Section 8 of the 2013 Company Act or registered with the Registrar of Societies.

Any earnings made by this business, if any, go toward achieving its goals rather than being paid out as dividends to shareholders. A Section 8 Company was the same as a Section 25 Company under the previous Companies Act of 1956. Section 25 of the 2013 Companies Act has been renamed Section 8 to reflect this change.

GST Registration for Section 8 Company

Please take note that a Section 8 firm must register with GST if it is subject to the GST Act when it comes to GST registration. There are many businesses on the market that provide Section 8 firms with company registration in addition to GST registration. The price is between 10,000 and 25,000. A trust, for instance, would not require as much money to register as a Section 8 business would. The reason is that a Section 8 firm needs additional clearance from the central government in addition to several other procedures.

Impact of GST on Section 8 companies

The GST Act impacts Section 8 companies in two ways:

  1. As Suppliers of Goods and Services

Under the GST Act, “every person who conducts any business in India and is registered or obliged to be registered under the GST Act” is referred to as a “taxable person.” Anyone who engages in economic activity, such as trade and commerce, is taxable.

In this sense, “persons” include individuals, HUFs, businesses, firms, LLPs, an AOP/BOI, any corporation or government company, a body corporate formed under the laws of another nation, cooperative societies, local governments, trusts, and artificial juridical persons.

A trust, society, or Section 8 corporation may fall under the GST definition of a taxable person, but if they are not engaged in economic activity like trade or commerce, they cannot be recognised as taxable people under the GST. However, the GST Authority of Advanced Ruling (AAR) for Maharashtra has ruled that supplies, which include goods and services given for a fee by nonprofit organisations, are subject to GST.

The ruling additionally establishes that charitable organisations must register for GST if their yearly revenue from the sale of goods and services exceeds 20 lakh. As a result, if a nonprofit sells goods like stationery or honey, and its revenue from these sales surpasses 20 lakhs in any financial year, it must register under GST. A nonprofit that offers a service, like classes for young women on digital literacy, is also accountable under GST.

If a company’s income from the supply of goods and/or services reaches 20 lakhs in any financial year, GST will be applied to their products or services regardless of whether the company is charitable. The cost of paying the GST will fall on the customer. However, it raises the accounting and regulatory costs for the organisation.

 

Exception

Certain “charitable operations,” as defined by the GST Act, are exempt from this indirect tax regardless of the size of their fee-based sales. Sadly, the GST Act’s definition of “charitable activities” is quite narrow and limited, only embracing activities related to:

  1. Public health through:

(A) counselling and care of -.

– those with a serious physical or mental disability or those who are terminally ill – people with HIV or AIDS, as well as those who abuse alcohol or other habit-forming substances.

(B) public awareness of family planning, HIV prevention, and other preventative health measures;

  1. Religion, spirituality, or yoga advancement
  2. promotion of educational initiatives or the development of expertise in the fields of:

(A) children who have been abandoned, orphaned, or are homeless

(B) those who have been physically or emotionally mistreated and have been traumatised

(C) detainees or prisoners

(D) people over the age of 65 who live in rural areas

  1. Environmental protection, including watershed, forests, and animals.

Therefore, a nonprofit is exempt from imposing GST on the services it provides if it charges a fee for counselling services to terminally ill individuals and makes more than 20 lakhs from these services in a given financial year. However, GST registration is still required in order to claim this exemption.

  1. As the Consumers of Goods and Services

Nonprofit organisations registered under Sections 12A or 12AA of the Income Tax Act of 1961 may be recognised by the Income Tax Department as being “tax free.” However, the tax exemption is only applicable to the nonprofit’s direct taxation income. No exemptions from indirect taxes like the GST are offered by it. The organisation cannot show the landlord its 12A or 12AA certificate and claim GST exemption on the rent if it operates out of a commercial office building.

The so-called “tax-exempt” status of the nonprofit organisation (from direct tax) does not shield it from GST when buying goods like computers, laptops, tablets, or a car for its charity endeavours. GST is charged on all goods and services that nonprofit organisations obtain. Therefore, a nonprofit is just another regular customer or client to a seller of goods or a service provider.

Conclusion

Traditionally, Section 8 organisations have been perceived as special purpose vehicles (SPVs) that serve as tools and are the driving force behind helping the government carry out the duties they always intend to carry out for the welfare of society but are unable to do so for a variety of reasons.

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