Reimbursement of Expenses By Charitable Trust Is Not Liable To GST

Charitable trusts are organizations that engage in activities aimed at providing relief, protecting or advancing the welfare of the public or a significant section of it. One of the primary concerns for these trusts is the taxation of expenses incurred in the course of their activities.

In India, Goods and Services Tax (GST) is levied on the supply of goods and services. The GST Act provides for the reimbursement of expenses incurred by a taxable person in the course of business. However, there has been much debate as to whether charitable trusts are liable to pay GST on the reimbursement of expenses.

The answer to this question is no. The reimbursement of expenses by charitable trusts is not liable to GST, as such reimbursements are not considered to be a supply of goods or services.

What is the legal basis for this exemption?

The exemption of reimbursement of expenses by charitable trusts from GST is based on a specific provision under the GST Act. Section 7 of the GST Act defines what constitutes a supply of goods or services, and the exemption of reimbursement of expenses by charitable trusts falls outside this definition.

As per Section 7(1)(a) of the GST Act, a supply of goods or services must be made for a consideration. However, in the case of reimbursement of expenses, there is no supply of goods or services, and hence no consideration. Therefore, such reimbursements do not qualify as a supply of goods or services.

What kind of expenses are reimbursed by charitable trusts?

Charitable trusts incur various types of expenses in the course of their activities. These expenses include salaries and wages of employees, rent, electricity bills, office expenses, and other incidental expenses incurred in the course of running the trust.

While these expenses are essential for the functioning of the trust, they can also be a significant financial burden. Therefore, charitable trusts often reimburse these expenses to their employees or other parties on behalf of whom the expenses were incurred. The reimbursement of these expenses is not considered a supply of goods or services and hence exempt from GST.

How does this exemption benefit charitable trusts?

The exemption of reimbursement of expenses from GST provides significant relief to charitable trusts. These trusts operate on a not-for-profit basis and rely heavily on donations and grants. Any additional financial burden in the form of taxes would severely affect their ability to carry out their activities.

Moreover, the exemption of reimbursement of expenses from GST is in line with the broader objective of promoting and supporting charitable activities that benefit the public or a significant section of it. This exemption ensures that charitable trusts can carry out their activities without being subject to unnecessary taxation, allowing them to focus on their core objectives of serving the community.

Conclusion

The reimbursement of expenses by charitable trusts is not liable to GST, as such reimbursements are not considered to be a supply of goods or services. This exemption provides significant relief to charitable trusts and ensures that they can carry out their activities without being subject to unnecessary taxation.

Moreover, the exemption is in line with the broader objective of promoting and supporting charitable activities that benefit the public or a significant section of it. Therefore, it is essential to continue to recognize and support the activities of these trusts.