Taxes involve in selling NGO products

[Ashish Chadha]

Hi,

I have 02 questions related to the services which our organization is providing to NGOs as social service.

1. We are selling the products which are manufactured by registered NGOs through our organization website (based in Delhi). Please let us know what all taxes will be applicable to our organization as we are not making any profits on any of the product (VAT, Service Tax, etc.)
2. We are also taking online donations on behalf of NGO and forwarding the complete amount to their accounts. Do we have the authority to do the same, if yes then should we deduct any amount as taxes from the donated amount before transferring the same to NGOs account? .

I will wait for your reply.

Thanks & Regards

Ashish

[Ganeshan Kalyani]

Sir, before I answer your query please let us know what is the legal status of the NGO, whether it has got registered under VAT/CST ?

[Ashish Chadha]

Hi,

Thanks a lot for your prompt reply. To answer your question, I think 60% of them who are medium & big are registered under VAT/ CST but rest 40% don't know about these technicalities. So they are registered as NGO but not in VAT/ CST

[Ganeshan Kalyani]

Sir, the model in which you are operating the transaction is same as that of 'E-Commerce' (in short 'e-com' business. There are various model in e-com business. The one is providing a platform for the suppliers products like online website through which orders are received, sale takes place and collection is done by the e-com. In exchange to this activity a commission is charged by e-com, who is liable to pay service tax on such commission received.

Here in your present case the activity is similar to the above mentioned business model.

Further, as per Central Sales Tax Act, the person who receives goods from another assesse and does selling activity on his behalf it would be deemed to be an authorised agent of the main supplier of the goods and VAT is liable on such transaction.

Thanks.

[Ashish Chadha]

Hi,

Thanks a lot for the information. It will be of great help.

To conclude it means we are liable to pay CST or VAT for NGO products (whether they are registered or not) which we are selling on our Ecommerce website.

Also, please share your view on the donation part and how can we take rebate while filling income tax as we are into the selling of NGO products.

Thanks & Regards

Ashish Chadha

[Ganeshan Kalyani]

Sir, if an entity registered under Section 12AA of the Income Tax Act as a charitable institution and does any service for the betterment of General Public then such services are exempted from service tax. Referral Notification is 25/2012-ST. Your entity I guess is not registered as NGO nor it does undertake any activity as charity. Thus the activity of collecting of donations and transferring it to another entity is a service and service tax may be levied. But since there is no profit elements charging service tax would be questioned. Pure Agent concept may help you to some extent but litigation may crop up.

Further I am of the view that you will be subject to income tax queries. This is because the time period between collection of donations and transfer of money to NGO the funds lying in your account would yield some bank interest which would turn out to be your income.

Thanks.

[Ashish Chadha]

Hi Ganeshan,

Thanks a lot for the information. I think we need to work on our processes as we don't want service tax to be deducted from donations.

Once again thanks a lot.

[Ganeshan Kalyani]

Welcome Sir. Thanks.

AI Summary

VAT and CST liability may arise for e commerce intermediaries selling NGO products, with service tax and income implications.
Operating as an e commerce platform that receives orders, effects sales and collects payments exposes the intermediary to indirect tax obligations: commissions are subject to service tax, and where the intermediary receives goods and effects sales on behalf of suppliers it may be treated as an authorised agent, attracting VAT or CST regardless of the suppliers' VAT/CST registration. Collection and forwarding of donations by an entity that is not a recognised charitable institution can constitute a taxable service unless the activity qualifies as a pure agent or the collector benefits from a charitable exemption; temporary funds may yield taxable income such as bank interest.