GSTR-6

GST on Services Supplied by the Government

GST on services supplied by the Government

It is a general assumption that supplies made by the Government are mostly exempted services or Goods and Service Tax is payable by the recipient under the Reverse Charge Mechanism. However, it is pertinent to note and understand that other than specified supplies, the Government is also liable to pay Goods and Service Tax under Forward Charge Mechanism.

The present article tries to clarify the entire Goods and Service Tax implication on services supplied by the Government.

Coverage of the term ‘Government’ and ‘Local Authority’

The term ‘Government’ is defined under section 2(53) of the Central Goods and Service Tax Act, 2017, which means the ‘Central Government’. Whereas, under the State Goods and Service Tax Act, 2017, it means the respective state.

Further, the term ‘Local authority’ is defined under section 2(69) of the Central Goods and Service Tax Act, 2017 which means the following-

  • A Panchayat.
  • A Municipality.
  • A Cantonment Board.
  • A Municipal Committee, a District Board, a Zilla Parishad, and any other authority legally entitled to or entrusted by a Central Government or any State Government with the control/ management of a municipal or local fund.
  • A Regional or a District Council.
  • A Development Board.
  • A Regional Council.

Analyzing GST on services supplied by the Government/ Local authorities

Services provided by the Government/ local authorities can possibly be bifurcated under the following three categories –

  1. Service provided is exempted under GST, or
  2. Service provided is taxable under GST and Government/ local authority is liable to pay tax under Forward Charge Mechanism, or
  3. Service provided is taxable under GST, however, the recipient of service is liable to pay tax under Reverse Charge Mechanism.

The above three categories are briefly explained in the below paras.

Services provided by the Government/ local authority which are exempted under GST

Notification No. 12/2017- Central Tax (Rate) dated 28th June 2017, covers the list and the same is summarized hereunder-

  1. Any activity in connection to a function entrusted to a municipality under article 243W of the Constitution.
  2. Any activity in connection to a function entrusted to a Panchayat under article 243G of the Constitution.
  3. All services provided by the Central Government or State Government or local authority except following services-
    1. Services provided by the post department [i.e., speed post, express parcel post, agency services, and life insurance] to any person other than the Central Government or the State Government or the Union territory.
    2. Transport of goods or transportation of passengers.
    3. Services relating to an aircraft or a vessel (inside/ outside the precincts of a port / airport.
    4. Any services (other than above) provided to the business entities.

It is very imperative to note here that the above list of services provided by the Government is taxable under all the circumstances.

  1. Services provided to a business entity with an aggregate turnover up to INR 20 Lakhs in the preceding financial year (INR 10 Lakhs in case of the special category state).

It is significant to note here that the aggregate turnover limit is not applicable to the list of services mentioned at point a to c above and services provided by way of renting of immovable property. In nut-shell, all such services are taxable.

  1. Services provided to another Central Government or State Government or local authority.
  2. Where the consideration of the services provided doesn’t exceed INR 5,000.
  3. Services provided to Government undertaking or Public Sector Undertaking by way of guaranteeing the loans taken by such undertaking/ public sector undertaking from the banking companies and financial institutions.
  4. Services provided by way of registration required under any law or services provided by way of testing, consumers or public at large, safety check/ certification relating to protection/ safety of workers, calibration, required under any law.
  5. Services provided by way of issuance of passport, driving license, visa, birth certificate, or death certificate.
  6. Services provided by way of tolerating non-performance of the contract for which consideration in the form of fine/ liquidated damage is payable to the Central Government or State Government or local authority.
  7. Services provided by way of assignment of right to use the natural resources to an individual farmer for cultivation of the plants and rearing of all life forms of animals.
  8. Services provided to Excess Royalty Collection Contractor by way of assigning the right to collect the royalty on behalf of the State Government on minerals dispatched by the mining lease holders.

Please note all the above services provided by the Government/ local authority is exempted under GST.

 Services provided by the Government/ local authority which is taxable under Reverse Charge Mechanism

Under the current case, the service is provided by the Government/ local authority, however, Goods and Service Tax is payable by the recipient of service under the Reverse Charge Mechanism.

Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017 covers the list of services on which Reverse Charge Mechanism is applicable. Sr. No. 5 and 5A covers the services provided by the Government/ local authority on which Reverse Charge Mechanism is applicable, the same is explained hereunder-

Category of servicePerson liable to pay GST

All services provided by the Central or State Government or local authority to the business entity, except the following-

·       Renting of immovable property.

·       Services provided by the post department [i.e., speed post, express parcel post, agency services, and life insurance] to any person other than the Central Government or the State Government or the Union territory.

·       Transport of goods or transport of passengers.

·       Services relating to an aircraft or a vessel (inside/ outside the precincts of a port / airport.

The business entity located in the taxable territory.
Services provided by the Central or State Government or a local authority by way of renting of immovable property to a registered person.Registered person.

Please note under above category of services, Goods and Service Tax is payable by the recipient of service under Reverse Charge Mechanism.

Services supplied by the Government/ local authority which is taxable under the Forward Charge Mechanism

When the services provided by the Government/ local authority don’t fall under the category of exempted service or reverse charge mechanism, such service falls under the current case. Accordingly, on such services, the Goods and Service Tax will be payable by the Government/ local authority under Forward Charge Mechanism.

Post by poonamgandhi

CA Poonam Gandhi is a Chartered Accountant and a Lawyer. With a wide practice experience and deep understanding of different laws and taxes, she has been an independent professional writer in the field of taxation, finance and laws.