Specific Rules for Determining the Place of Supply for Different Categories of Services

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Published Date:  11-02-2024   Author:   shradha-kabr
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Introduction

Identification of the place of supply of goods or services is paramount when determining the nature of the payable tax under GST (Goods and Services Tax). When the goods and services are supplied within the same state, CGST and SGST are applicable. If the supply is in a different state, IGST will be levied. However, deciding on the nature of the tax is not always a simple task.

An online training company offers services to different parts of the globe. A train sells goods while passing through different states. Therefore, the place of supply cannot be determined by a single provision in such instances.

To address these complexities, the IGST Act was initiated. The act lays specific rules to identify whether a trade is intra or inter-state. These regulations can be referred to as the place of supply rules. Let’s dig deep and learn about the different services, tax implications, compliance requirements, and more regarding place of supply. 

Place Of Supply For Different Services

The ‘Place of Supply of Goods’ can be divided into two distinct categories as per Section 10 of the IGST Act, 2017:

  1. a) Inter-State Supply
  2. b) Intra-State Supply (Local Supply)

Typically, the service recipient’s location determines the services’ place of supply. Suppose the services are rendered to an unregistered dealer, and their location is unknown. The place of service provision here will be based on the provider’s location.

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Specific regulations are present to ascertain the place of supply for the following services:

  • Services regarding immovable property
  • Admission to events
  • Restaurant services
  • Telecom services
  • Banking, Financial, and Insurance services
  • Transportation of goods and passengers

Also Read: What Are The Different Rules That Apply To The Place Of Supply Of Services?

GST On Specific Services

The Goods and Services Tax Council imposes the same 4-tier taxation structure on services as goods. The GST rates on services are –

  • 5%
  • 12%
  • 18% 
  • 28%

List Of Few Services At 5%

Service GST
Transportation of passengers in air-conditioned or first-class coaches 5% With ITC of input services
Goods transportation in a vessel  5% With ITC of input services
Tour operators supplying services 5% No ITC
Space for print media advertisement 5%
Leasing a motor cab with the fuel cost already incorporated into the fee billed to the service recipient. 5% No ITC
Air transportation of passengers in economy class 5% With ITC
Renting airplanes by a regular airline for planned flight operations 5% With ITC

List Of Few Services At 12%

Service GST
Food/drink supply in restaurants not having AC or central heating during any time of the year and absence of liquor license 12%
Passengers traveling by air in any other class apart from the economy 12%
Goods transportation by rail by any person other than the Indian Railway 12%
Chit fund services that foremen offer 12% With ITC
Lodging options encompass hotels, inns, guest houses, clubs, campsites, or other business establishments designed for residential or lodging purposes, with a room tariff ranging from Rs.1000 to less than Rs.2500 per room per day 12%
Building construction for sale 12%

List Of Few Services At 18%

Service GST
Foods/drinks supply in restaurants having a liquor license 18%
Food/drinks supply in outdoor catering 18%
Lodging options encompass hotels, inns, guest houses, clubs, campsites, or other business establishments designed for residential or lodging purposes, with a room tariff ranging from Rs.2500 to less than Rs.7500 per room per day 18%
Food /drinks at restaurants with AC/heating 18%
Services concerning circus, Indian classical dance including folk dance, theatrical performance, drama 18%
Supply of work contracts 18%

List Of Few Services At 28%

Service GST
Lodging facilities encompass luxury hotels with a 5-star rating, charming inns, welcoming guest houses, exclusive clubs, well-appointed campsites, or other business establishments designed for residential or lodging purposes. These accommodations are characterized by a daily room rent of Rs 7500/- and beyond per room. 28%
Gambling 28%
Entertainment events-amusement facilities, race courses, merry-go-round, water parks, theme parks, films, joy rides, casinos,  go-carting, ballet, sporting events like IPL 28%
Services offered by a racing club through a totalisator system or a licensing arrangement with a bookmaker within the club 28%

There are also some services that are NIL-rated; find the list below.

Service NIL-Rated GST 
Services rendered by the Central Government, State Government, Union Territory, local authority, or any governmental entity through any undertaking related to functions delegated to a municipality under Article 243W of the Constitution. NIL
Rental services for residential dwellings intended for habitation NIL
Services by means of goods transportation:

(a) land-based transport, excluding the services provided by

(i) goods transportation agencies;

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(ii) courier agencies;

(b) services involving the movement of goods through inland waterways

NIL
Services by way of animal slaughtering NIL

Also Read: What Are The GST Rates For Services?

Classifying Services Under GST

Upon the introduction of GST, the Central Board of Indirect Tax and Customs (CBIC) incorporated the HSN and SAC code systems for a seamless categorization of goods and services.

The SAC code, or Services Accounting Code, is a system that encompasses all services provided within the borders of India. This comprehensive code framework is instrumental in the identification, classification, measurement, and determination of GST on various services offered in the country.

A SAC is comprised of six digits. As services fall within the purview of Chapter 99, every SAC code begins with 99. SAC codes play a dual role, fulfilling various functions. These distinctive codes for diverse services help differentiate them easily.

It aids GST taxpayers in determining the GST rate for the services. During the registration process on the GST portal and in invoicing and GST returns, taxpayers are mandated to specify these SAC codes.

Here are a few SAC codes and their concerned services –

SAC Services
9954 Construction Services Of Buildings
995412 Construction Services Of Other Residential Buildings Like Homeless Shelters, Old Age Homes, Hostels, Etc
995456 Masonry Services
995454 Concrete Services
995457 Scaffolding Services
995453 Roofing And Waterproofing Services
996741 Bus Station Services

Tax Implications Of Different Services

The influence of GST on services has a non-uniform pattern. There are distinct tax slabs customized for specific service categories. Basic services are subjected to lower tax rates, whereas premium services may have higher taxation. It indicates the diverse values and characteristics of various service offerings. Here are a few services and their tax implications.

  1. Work Contract Services – Under GST, a works contract offered as a composite supply is categorized as a service. A 12% GST rate applies to constructing a complex building, civil structure, or any part thereof to sell it, wholly or partially. Note that the value of the land is encompassed within the total amount billed to the service recipient. For works contracts falling outside the above construction category, an 18% GST rate is applicable.
  1. Consultancy Services – Consultancy services are subject to an 18% GST rate. It encompasses various fields like healthcare, finance, investments, and more. Despite the existence of five slab rates, consultancy services specifically fall within the 18% slab.
  1. Courier Services – Courier services incorporate transportation, collection, and delivery operations. It facilitates the movement of letters, parcels, and other items through various transportation modes. While GST does not apply to postal services, it is implied to courier services. 18% GST is applicable on courier services.
  1. Loans And Advances – Loans were earlier subject to Service Tax. GST replaced this taxation system for loans. The new imposition of GST on loans now stands at 18%. It is higher than the previous Service Tax rate of 15%. Many individuals believe that the overall cost of obtaining a loan will rise. However, the effective cost of loans will not necessarily increase. This is because GST is not applied to loan repayment or interest payments. It is imposed on processing charges and other fees paid to the bank, excluding both principal repayment and interest payments.
  1. Educational Services – Most services offered by educational institutions are exempt from tax. However, there are specific instances where taxes may be applicable. It includes training services rendered by commercial coaching entities and educational events organized by foreign-based entities in India. Service recipients in commerce, industry, or any other business or professional activity are subject to 18% GST.

Compliance Requirements For Service Providers

The implication of GST significantly impacted the taxation landscape. While complying with the regulations may seem challenging, having a clear understanding can benefit. Service providers can simplify the entire process by having a systematic approach. Here are crucial strategies that service providers can apply to streamline GST compliance.

  • Service providers must opt for GST registration if their yearly turnover surpasses the prescribed threshold. It includes obtaining a distinctive GSTIN (Goods and Services Tax Identification Number). Ensure current documentation, comprising invoices, procurement records, and pertinent paperwork.
  • Accurate classification of services plays a pivotal role in establishing the relevant tax rates. Service providers must understand the diverse service categories and their associated tax rates, which may involve exemptions or concessional rates.
  • Create invoices that adhere to GST regulations. Invoices must have vital information, including details about the service provider and recipient, invoice number, date, service description, and the applicable tax rate. Establishing a sound record-keeping system is essential. Keep copies of invoices, contracts, and other pertinent documents in place.
  • Timely submission of GST returns is crucial for service providers to uphold compliance standards. The filing frequency depends upon the turnover and registration category. Service providers must verify the precision of the information submitted. Double-check your sales, purchases, tax obligations, and Input Tax Credit (ITC) claims.
  • Perform routine internal audits to address any compliance discrepancies. These assessments guarantee that all procedures, documentation, and records meet GST requirements.

GST Invoicing For Different Service Categories

Registered GST dealers must provide GST Invoices, commonly called GST bills, to their clients. GST bills comprise a detailed record of goods dispatched or services offered besides the payment due.

Here are the different GST invoicing types for various goods and services –

  • Every individual or entity enlisted as a taxpayer providing goods or services must furnish GST Tax invoices to their purchasers. The official term for the invoice the seller sends to the buyer is either an “Invoice” or a “Tax Invoice.” For transactions involving the supply of services, it is mandatory to generate and dispatch the invoice within 30 days from the actual date of service.
  • Individuals choosing the composition scheme or engaging in the supply of exempted goods or services, or both, are mandated to issue a bill of supply. Recipients are ineligible to assert input tax credit based on the information provided in the Bill of Supply.
  • When a registered individual receives an advance from the buyer, a receipt voucher must be issued confirming the said payment.
  • The purchaser has issued a receipt voucher, but no supply has been fulfilled. Here,  registered individuals must generate a refund voucher.
  • Suppose an individual registered under GSR acquires goods or services from an unregistered entity. Then, it is necessary for the registered party to issue a payment voucher to the supplier.
  • A seller must issue a credit note to the buyer where there is a return of goods, a decrease in the value of goods or supplies, or both. Credit notes are to be issued when there are claims for discounts.
  • If a seller discovers that they have invoiced the buyer for an amount lower than the accurate value of goods or services, they can issue a debit note for rectification.

Also Read: Understanding GST Invoicing for Goods: Place of Supply Rules

Conclusion

Understanding the specific rules for determining the place of supply for different categories of services is crucial for businesses and practitioners. These rules provide a framework to ensure accurate tax assessments and compliance. By adhering to the designated guidelines for each service category, businesses can enhance their efficiency, mitigate potential tax risks, and foster smoother trade. As the economy evolves, staying informed and compliant with these rules becomes key. 

FAQs

  • What Is The Determination Of The Supply Of Services?

The classification of a supply can be intra-state or inter-state. The supplier’s location and the place of supply are determining factors for the same.

  • What Is The POS Of Goods And Services?

Point of Service (POS) for food or edibles is initially determined by the first scheduled point of departure, regardless of where they are consumed on board. The POS for goods refers to where the goods are loaded onto the vessel.

  • What Is The Place Of Supply Rules Under GST For The Export Of Services?

The location of the service recipient will be the place of supply for the export of services under GST.

  • What Is An Example Of A Supply Of Goods And Services?

Examples of supply are sale, exchange, transfer, license, barter, lease, rental, and disposal.

  • What Are Some Examples Of Goods And Services?

Examples of goods are furniture, computers, phones, bags, and fruits. Services include surgery, therapy, babysitting, haircuts, house cleaning, etc.

  • What Is The Place Of Supply For The Import Of Services?

Import of a service means its supply. In this case, the supplier is from outside India, and the receiver is in India. A reverse charge mechanism is implied here.

  • What Is The Place Of Supply In GST For Construction Services?

Work contracts usually concern immovable property. The location of that property is the place of supply.

  • What Are The Main 3 Types Of Services?

Consumer, business, and public services are the main three categories.

  • What Is The Difference Between Goods And Services?

Goods are tangible products, while services are not. Goods can be seen and touched, while services can only be consumed.

  • What Is An Example Of The Import Of Services?

The client goes across the border and avails themselves of the service within an international market during an import.

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Shradha Kabr

Shradha Kabra is an experienced finance writer based in India with 15 years of experience simplifying complex financial topics for readers. Her articles on taxation, Indian stock markets, and other national finance issues are well-researched and presented in an easy-to-understand style. Shradha holds a Double Master's degree and aims to make financial literacy accessible to all through her writing.

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