GST on Services Explained: Applicability, Rates, Registration, ITC & Compliance

The GST on services is a significant component of the GST regime in India. Individuals and entities providing taxable services may be obliged to levy GST, collect the tax and follow GST registration and ITC procedures.

What is GST on Services?

GST on services is the tax charged on the supply of services that are taxable as per the GST law. Examples of services are:

• Professional services
• Consultancy services
• Accounting services
• Legal services
• IT and software services
• Advertising services
• Repair and Maintenance services
• Transportation services
• Leasing services
• Hospitality services
• Other taxable services

Liable Party for Payment of GST on Services?

GST liability will be based on the applicable GST provisions.

In general, GST liability can apply to service providers when their aggregate turnover crosses the threshold limit applicable.

GST liability could depend upon:

• Nature of services
• Place of supply by the supplier
• Place of supply to the recipient
• Nature of supply
• Inter-state supply
• Reverse charge provisions
• Compulsory registration provisions

Thus, the business needs to identify its GST liability.

Tax may apply to the services provided by individuals or organizations depending on several criteria, such as the type of the service, place of supply, rate and others.

GST Registration for Service Provider

Where a service provider is obliged to register himself under GST, he needs to get registered under GST and obtain GSTIN.

Once registered, the business entity may be required to:

• Issue GST invoices
• Impose GST
• Maintain records under GST
• File GST returns
• Pay GST liability
• Reconcile GST transactions
• Claim GST ITC where eligible

GST Rate of Service

The GST rate of the service would depend upon the nature and categorization of the service.

Services may have varying GST rates depending on their type.

Hence, a service provider needs to first ascertain the nature and SAC of service to know its applicable GST rate.

Sometimes, the applicable GST rate would also depend on the conditions applicable.

What is SAC Code?

SAC means Service Accounting Code.

It is used for classifying services under GST.

Service providers need to correctly classify services into SAC for preparation of GST invoice.

GST Tax Invoice for Services

When providing services that are taxable, a GST service provider registered under the GST Act shall provide a GST tax invoice having all the necessary details.

The invoice could have the following details:

• Name of supplier
• Supplier’s GSTIN
• Name of recipient
• Recipient’s GSTIN, if any
• Invoice number
• Date of issuance of invoice
• Nature of service provided
• SAC
• Value of service that is taxable
• Applicable GST rate
• CGST
• SGST/UTGST
• IGST
• Total value of invoice
• Place of supply, if any
• Other necessary details

CGST, SGST and IGST on Services

The kind of GST applicable is decided by the nature and location of supply.

CGST and SGST

When making an intra-State supply, CGST and SGST/UTGST will be applicable.

IGST

When making an inter-State supply, IGST will be applicable.

Place of Supply of Services

Place of supply is a key element that influences the applicability of GST on services.

Rules concerning place of supply depend on the type of the service and the specific situation.

One should determine the following:

• Supplier’s location
• Recipient’s location
• Type of service
• Place of supply rule applicable

It is especially critical for transactions involving interstate or export activities.

GST on Export of Services

Services supplied to customers from outside India can be considered export of services provided all the conditions of export of services according to the GST rules are fulfilled.

Export of services can be zero-rated supplies under the corresponding conditions.

Companies engaging in export of services need to keep the relevant documentation and evidence regarding the type of the transaction.

GST on Services Under Reverse Charge

Under specified conditions the recipient rather than the supplier bears liability to pay GST under the Reverse Charge Mechanism (RCM).

When reverse charge is applied, the recipient has to comply with the following provisions:

• Liability for GST
• Tax payment
• ITC eligibility
• GST return filing
• Documentation

ITC on Services

A registered person can claim Input Tax Credit on GST paid on services intended or used in the course or furtherance of business under certain conditions and restrictions.

For instance, the following may be eligible:

• Professional services
• Accounting services
• Legal services
• Software services
• Advertising services
• Business consultancy services
• And other services related to the business activity

Nevertheless, the Input Tax Credit on services has to meet the GST conditions and not be blocked or restricted credit.

GSTR-1 and Services

Service suppliers who are liable to file GSTR-1 must provide information about the outward supplies made.

The information may comprise:

• B2B supplies
• B2C supplies
• Services export
• Credit note
• Debit note
• Amendments
• Any other relevant information about the outward supplies

Accuracy in filing the information is crucial since this will affect the recipient’s GST account and ITC.

GSTR-3B and Services

GSTR-3B is used to provide summary information related to the GST liability and Input Tax Credit of eligible persons.

A service supplier may have to report:

• Outward supplies that are taxable
• GST liability
• Reverse charge liability, if any
• Eligible ITC
• ITC reversals
• Tax liability
• Tax paid

Common GST Errors Related to Services

Some errors businesses must avoid include:

• Incorrect SAC
• Incorrect GST rate
• Incorrect GSTIN
• Incorrect place of supply
• Incorrect GST calculation
• Failure to levy GST when applicable
• Levy of GST when exempted
• Incorrect B2B / B2C supply
• Incorrect exports
• Incorrect reverse charge
• Incorrect ITC
• Difference between invoice and GST return

Documents and Records Necessary for GST on Services

Service providers need to keep certain documents like:

• Invoices for services
• Purchases invoices
• Agreements/contracts
• Work order
• Credit notes
• Debit notes
• Bank statements
• Expenses
• GST Returns
• GSTR-2B
• GST Payment Challans
• Customer details
• And other GST documents

Advantages of GST for Service Providers

Correct GST will allow businesses to:

• Keep proper records of taxes paid
• Prevent compliance issues
• Avail ITC wherever eligible
• File GST Returns correctly
• Have no discrepancies in Reconciliation
• Proper Invoicing
• Not attract any interest or late fees
• Compliance of the business

FAQs

Is GST charged on services?

GST may be charged on services that a business offers under the provisions of GST.

How is GST calculated on services?

GST is usually calculated using the GST rate on the taxable value of the services provided.

What is SAC in GST?

SAC stands for Services Accounting Code.

Can a service provider claim ITC?

Yes, a registered service provider may claim eligible ITC provided that certain conditions and requirements are met.

Is GST applicable to export of services?

Export of services could be considered zero-rated supply provided that certain conditions are fulfilled.

What is RCM on services?

RCM stands for Reverse Charge Mechanism. Under RCM, the recipient, rather than the supplier, is liable for payment of GST on some specific supplies.

Conclusion

GST on services is an important topic in GST compliance by businesses and professionals offering taxable services.

The right GST registration, right SAC code for the services, right GST rate, right place of supply, right GST invoice and claiming of eligible ITC are all essential for GST compliance by service providers.

GST compliance with proper record keeping and GST reconciliation could enable service providers to avoid compliance problems.

For GST Registration, GST Return Filing, GST Reconciliation, GSTR-1, GSTR-3B, GSTR-2B and other GST Compliance services, contact us at Elite Tax Plus.