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24 November 2021

Change in GST rate for services provided to Governmental Authority or Entity.

The CBIC vide Notification No. 15/2021- Central Tax (Rate) dated 18 November 2021 has increased rate of GST to 18% on works contracts supplied to the Governmental Authority or Entity with effect from the 1st January, 2022. Similarly, CBIC also vide Notification No. 16/2021- Central Tax (Rate) dated 18 November 2021 has withdrawn exemption from pure services/works contract services supplied to Governmental Authority or Entity. A gist of these amendments is detailed below for ease of understanding –

GST rate of following services to be increased from erstwhile 12% to 18%

  • Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, 2017, supplied to the Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, -
    1. a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958).
    2. canal, dam or other irrigation works.
    3. pipeline, conduit or plant for (i) water supply, (ii) water treatment, or (iii) sewerage treatment or disposal.
    4. a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession.
    5. a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment.
    6. a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the CGST Act, 2017.
  • Composite supply of works contract provided by a sub-contractor to the main contractor providing services listed above to the Governmental Authority, or a Government Entity.

  • GST rate of following services to be increased from erstwhile 5% to 18%

  • Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, 2017, involving predominantly earth work (that is, constituting more than 75% of the value of the works contract) provided to the Governmental Authority, or a Government Entity.
  • Composite supply of works contract provided by a subcontractor to the main contractor providing services mentioned above (earth work) to the Governmental Authority, or a Government Entity.

  • Exemption from payment of GST on following services has been withdrawn

  • Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.
  • Composite supply of goods and services in which the value of supply of goods constitutes not more than 25% of the value of the said composite supply provided to the Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.

  • Analysis

    As can be seen from above, GST rate on these services when provided to Governmental Authority or Government Entity (including sub-contractor’s services) has been enhanced from 01 January 2022 whereas it is pertinent to note that all these services mentioned above, if provided to Central Government, State Government, Union territory or a local authority will continue to remain taxable at the erstwhile rate (12%, 5% or Nil rated).

    Definition of ‘Governmental Authority’ & ‘Government Entity’ has been given in Notification No. 11/2017 – Central Tax (Rate) dated 28 June 2017 which reads as –

    "Governmental Authority" means an authority or a board or any other body,—

    • set up by an Act of Parliament or a State Legislature; or
    • established by any Government,

    with 90 per cent or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243W of the Constitution or to a Panchayat under article 243G of the Constitution;

    "Government Entity" means an authority or a board or any other body including a society, trust, corporation,

    • set up by an Act of Parliament or a State Legislature; or
    • established by any Government,

    with 90 per cent or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority;

    Therefore, all the Government contractors when providing these services to Central or State Government, Union Territory or Local Authority will continue to charge & collect tax @ 12%, 5% or Nil rated. However, if these services are provided to such Government department or corporations which are covered under the definition of Governmental Authorities or Entities, GST rate on the same has been increased to 18%.