FAQs on Government Services have recently been issued by CBEC providing much needed clarity regarding GST on Government Services. Previously, Government Services were taxable under Service Tax and on services provided by Government or Local Authority to business entities, the liability to discharge Service Tax was on business entity i.e., the service receiver making it imperative for every business entity to be aware of the services specifically exempted or excluded so as to arrive at the services provided by the Government or local authority that would be liable to service tax under reverse charge mechanism. This approach was contrary to the “ease of doing business” policy and many compliant assessees may turn out be non-compliant because of lack of clarity on services liable to tax under reverse charge mechanism.
GST seeks to answers all these questions assigning definitions and functions to Government, Local Authority and Municipalities. Moreover, it also seeks to answer the taxability of various services received from or provided to Government.
Government Services taxability under Service Tax
Which government services are taxable under GST?
Following services provided by/to government are taxable under GST:-
- Services provided by government to PSU for use of natural resources.
- Services provided by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than the Central Government, the State Government and Union Territory
- Services provided in relation to a vessel or an aircraft inside or outside the precincts of a port or an airport.
- Services provided in relation transport of goods and/or passengers
- Services provided in relation with supply of motor vehicles to government departments other than state transport undertakings.
- Supply of motor vehicle to Government Department.
- Any other services provided by CG/SG/UT/Local Authority to business entity.
- Services provided by corporations formed under Central or State Act or various Companies registered under Companies Act 1956/2013 or autonomous institute set up by state.
- Services provide by statutory body, corporation or an authority constituted under an Act passed by the Parliament or any of the State Legislatures.
- Services provided by police or security agencies of government to PSU/corporate entities or sports events
- Online information and database access or retrieval services received by Government or local authorities from non-taxable territory for any purpose including furtherance of business or commerce.
- Agency services provided by Department of Post e.g. distribution of mutual funds, bonds, passport applications, collection of telephone or electricity bill.
- Services provided by regulatory agency/body e.g. SEBI, CCI, PCI, FMC, CPCB etc.
** Local authority definition is very specific and do not include bodies which are merely described as a local body by local laws.
Which government services are exempt under GST?
Following services provided to/from government are exempt under GST
- Services provided by one department of CG/SG to another department of CG/SG notification No. 12/2017 of Central Tax (Rate), dated 28.06.2017
- Services by way of supply of motor vehicles meant to carry more than twelve passengers by way of giving on hire to a state transport undertaking.
- Pure services provided to CG/SG/UT/Local Authority.
- Transport services provided by government to passengers by way of railways (other than first class or second class), metro, monorail, tramway, inland waterways, public transport (other than especially for tourism purpose, in a vessel), metered cabs or auto rickshaw.
- Regulation of land use, construction of buildings and utility services when provided by governmental authorities.
- Fines and penalties imposed by government or local authority for violation of a statue, bye laws, rules or regulation.
- Services provided by Government or local authority to a business entity located in a special category state.
- Services provided by department of post related with basic mail services, transfer of money through orders, operations of saving accounts, issue of postal orders, pension payments etc.
- Services received for purpose other than commerce, industry or any other business or profession by the Government / local authority/ governmental authority from a provider of service located outside India.
Is Reverse Charge applicable to services supplied by government or local authorities?
Yes, Reverse Charge is applicable to supplies of goods or service or both provided by government and local authorities
However, in following cases liability to pay tax is on supplier i.e., Government or Local Authority : –
(i) Renting of immovable property;
(ii) Services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;
(iii) Services in relation to an aircraft or a vessel, inside or outside the precincts of an airport or a port;
(iv)Transport of goods or passengers.
Earlier we have also published our article related to the TDS Mechanism on the government departments. To read the same you can visit here.
Hope the information will assist you in your Business & Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.
Thanks & Best Regards,
Tax Team, Get Set Business Solutions
B-217, Pacific Business Park, Site-IV, Sahibabad Industrial Area,
Ghaziabad, UP, New Delhi-NCR area, India, 201010.
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