Dear Dialogue Members,
Ours is a Corporate with over 51% of FDI. We also have a registered Foundation. We release project grants through these two sources to local NGOs. What kind of taxation is involved when we release money to NGOs? TDS and Service Tax.
Thanks & Regards,
R S Sharat
Many thanks for the clarifications. This would really help our finance team to accordingly.
Dear Sharatji,
It is stated that project grants are released through two sources, one corporate with 51% FDI and the corporate Foundation. FDI has no relevance in case of TDS and Service Tax. It may have some relevance for FCRA purpose only. (Refer to SRRF Dialogue earlier blogs on this). The issue as Srinivasan has also mentioned in his comments, is that can Project grant be treated as donation. Essential element of a donation is voluntary nature. Voluntary nature does not mean that you cannot ask an organisation to spend the funds on particular sector ‘education’ or ‘health’ etc. Sponsorship donations are even for the betterment of a particular child. Decision has also been taken that asking for a report of utilisation of a donation is not considered as service being received by the donor. It is more to satisfy that money has been properly used.
Thus on similar line, in my opinion, if a donor gives a project grant, essential nature of which is to support community / social work and if the donor is not receiving any benefit in return, than it can be stated that the nature of project grant is of donation, and therefore would not attract Service Tax.
TDS under S. 194C is attracted only on the underlying assumption that there is some profit element involved in the work being undertaken. Since a non-profit does not have any profit element, no TDS should be deducted under S.194C. Please note that TDS on interest/rent etc. is different, where element of income is inherent and for which NPOs should consider obtaining S.197 certificate.
Dear Mr Sharat
Since you are giving a donation in the form of grants, there is no TDS. Since they are not providing any service to you the service tax is also not applicable. However if ti a contract by which you want them to do a particular job/ service for you for your use or for the project which you may otherwise undertake the same would be construed as a contract and TDS under section 194C will be attracted.
Regards
srinivasan