GST on Electricity Supply - Everything You Need to Know

Goods and Services Tax (GST) is a comprehensive indirect tax with four slabs—5%, 12%, 18%, and 28%—that applies to the supply of goods and services in India. Under GST, goods include movable properties, crops, and actionable claims but exclude money and securities. Since electricity is a form of movable property, its supply is considered a supply of goods. Taxpayers often wonder whether electricity is subject to GST or exempted. In this article, you'll explore GST on electricity charges, its HSN code, and how it is treated under the GST framework.

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What is GST on Electricity Charges?

As mentioned, Electricity GST rate charges refers to the application of Goods and Services Tax on the supply of electricity, which is classified as a movable property under GST laws. However, electricity supply to consumers is currently exempted from GST, as it is treated as an essential service. On the other hand, ancillary services related to electricity, such as construction, installation, or maintenance of electrical infrastructure, may attract GST at applicable rates. Understanding the treatment of electricity under GST is crucial for taxpayers to differentiate between taxable and exempted aspects of electricity supply.

Also read: GST rates for goods and services

Benefits of Including Electricity in GST

 Here are the several benefits that come as a consequence of bringing electricity under GST:

• Input Tax Credit for Businesses: Charging electricity GST rate allows businesses to claim input tax credit, reducing their overall cost of production. This can help businesses, especially manufacturers, to lower operating costs.
• Enhanced Price Competitiveness: By availing of input tax credit, businesses can improve their price competitiveness in both domestic and international markets. This could lead to better profitability and market share.
• Simplification of Tax Structure: Including electricity in GST simplifies the tax structure by consolidating multiple state-specific charges. This removes the need for separate state-level levies, streamlining tax compliance for businesses.
• Shared Revenue Between State and Central Government: GST collected on electricity supply will be shared between the central and state governments, ensuring a more equitable distribution of revenue.
• Elimination of State-Specific Charges: With the inclusion of electricity under GST, previously imposed state-specific taxes and charges may be abolished, reducing the complexity of tax administration for businesses.

GST Tax Treatment on Electricity Supply

Here are the different instances where GST is applicable to electricity supply:

GST on Electricity Charges for Residential Properties

For residential properties, no GST is applicable on electricity charges. This is because rental services for residential properties are exempt from GST, and thus, electricity charges are not subject to tax, irrespective of how they are billed.

Electricity GST rate Charges for Commercial Spaces

When electricity supply is bundled with rental or maintenance services, it forms part of a composite supply. The GST rate applicable to the principal supply (rent or maintenance) is applied to the entire supply, including electricity, even if billed separately. In commercial spaces like malls and airports, electricity charges are typically bundled with rent or maintenance fees. As part of a composite supply, these charges attract GST at a rate of 18%, as the principal supply is the renting of immovable property or maintenance services.

Pure Agent Scenario in Real Estate

When real estate developers, RWAs, or property owners recover electricity charges at actuals from their tenants or residents, they are acting as pure agents. In such cases, no GST is levied on the electricity charges, as the amount collected is passed directly to the state electricity boards or DISCOMs.

What is the HSN Code for Electricity?

The HSN code for electricity is 2716. This code classifies electrical energy under GST laws for taxation and invoicing purposes

 Below is a table summarising the HSN code, description, and GST rate for electricity:

Conclusion

In conclusion, the GST treatment of electricity supply is primarily focused on its classification as a movable property, which is exempt from GST as it is considered an essential service. While the supply of electricity itself remains exempt, ancillary services related to electricity, such as installation, maintenance, and utility services, may attract GST depending on the nature of the supply arrangement.  By following the appropriate HSN code (2716) for electricity and knowing the applicable exemptions, businesses and consumers can ensure compliance with GST laws.

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FAQs

1. What is the GST rate on electricity supply? 

Electricity supply is exempt from GST and is not taxed. However, related services like installation and maintenance may attract GST.

2. Are ancillary services related to electricity taxed under GST?

Yes, services such as installation, maintenance, and construction of electrical infrastructure may attract GST at applicable rates.

3. Do businesses benefit from GST on electricity bill?

Yes, businesses can claim input tax credit (ITC) on GST charged for services related to electricity, reducing their overall production costs.

4. Is GST applicable on electricity charges for residential properties?

No, electricity charges for residential properties are not subject to GST as residential rental services are exempt from GST.

5. Is GST applicable on electricity utilized for commercial properties?

GST is applicable when electricity is bundled with rental or maintenance services for commercial properties, and it is considered a composite supply. The GST rate of 18% applies in such cases.

6. What happens when electricity is billed separately for commercial properties?

Even if electricity is billed separately, if it is bundled with rental or maintenance services, it will still be treated as part of a composite supply and attract GST at the rate of the principal supply.

7. How does the pure agent scenario apply to electricity charges?

When electricity charges are recovered at actuals from tenants by real estate developers or RWAs, no GST is levied as they are acting as pure agents.

8. What is the HSN code for electricity under GST?

The HSN code for electricity is 2716, which classifies electrical energy for taxation purposes under GST.

9. Do state-specific charges on electricity still apply after GST inclusion?

No, once electricity is included under GST, state-specific charges may be abolished, simplifying the tax structure.

10. Will GST on electricity bill affect residential consumers?

No, residential consumers will not be affected by GST on electricity bill as it is exempt from GST for residential properties.

11. What types of electricity-related services attract GST?

Services like installation, repair, and maintenance of electrical infrastructure related to electricity supply may attract GST depending on the arrangement.

12. Is GST applicable on electricity in malls or airports?

When electricity charges are bundled with rent or maintenance services in malls or airports, they are subject to 18% GST as part of the composite supply.