GST on Services Supplied by the Government

It is a common belief that most supplies made by the Government are exempted services, or Goods and Service Tax (GST) is payable by the recipient under the Reverse Charge Mechanism. However, it is crucial to understand that aside from specific supplies, the Government is also obligated to pay GST under the Forward Charge Mechanism.

This article aims to clarify the GST implications 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, meaning the ‘Central Government’. Conversely, under the State Goods and Service Tax Act, 2017, it refers to the respective state. Furthermore, the term ‘Local Authority’ is defined under section 2(69) of the Central Goods and Service Tax Act, 2017, which includes 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 or local authorities can be classified into three categories:

Services that are exempted under GST
Services that are taxable under GST, with the Government or local authority liable to pay tax under the Forward Charge Mechanism
Services that are taxable under GST, but the recipient of the service is liable to pay tax under the Reverse Charge Mechanism

Below is a detailed explanation of each category.

Services Exempted Under GST

Notification No. 12/2017- Central Tax (Rate) dated 28th June 2017 lists the exempted services, summarized as follows:

Activities related to a function entrusted to a municipality under Article 243W of the Constitution
Activities related to a function entrusted to a Panchayat under Article 243G of the Constitution
All services provided by the Central or State Government or local authority, except:
1. Services by the postal department like speed post, express parcel post, agency services, and life insurance to non-government entities
2. Transport of goods or passengers
3. Services related to an aircraft or vessel (inside/outside the precincts of a port/airport)
4. Other services provided to business entities

It is important to note that the above-mentioned services provided by the Government are taxable under all conditions.

Services provided to business entities with a turnover up to INR 20 Lakhs in the previous financial year (INR 10 Lakhs for special category states)

The turnover limit does not apply to services listed in points a to c or services related to renting immovable property, implying all such services are taxable.

Services provided to another government entity or local authority
Services with consideration not exceeding INR 5,000
Services offered to Government or Public Sector Undertakings by guaranteeing loans from banks or financial institutions
Registration services mandated by law, or testing, safety checks, or certifications for public safety or worker protection
Issuance services for passports, driving licenses, visas, birth, or death certificates
Services relating to non-performance penalties paid to the government
Assignment of rights to natural resources for farmers for cultivation
Services offered to Excess Royalty Collection Contractors to collect royalties on behalf of the State Government

Please note that all the above services provided by the Government or local authority are exempt under GST.

Services Taxable Under Reverse Charge Mechanism

For services offered by the Government or local authority, GST is payable by the recipient under the Reverse Charge Mechanism. Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017 specifies services under this mechanism. Sr. No. 5 and 5A cover the applicable services:

Category of Service	Person Liable to Pay GST
All services provided by the Central, State Government or local authority to business entities, excluding: Renting of immovable property Postal services (e.g., speed post, express parcel post, agency services, life insurance) to non-government entities Transport of goods or passengers Services related to an aircraft or 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, via renting immovable property to a registered person.	Registered person.

Under this service category, GST is payable by the recipient under the Reverse Charge Mechanism.

Services Taxable Under the Forward Charge Mechanism

When the services offered by the Government or local authority do not fall under exempt categories or the reverse charge mechanism, they are taxable under the Forward Charge Mechanism, compelling the Government or local authority to pay the GST. For foreigners seeking to understand their GST obligations, involving services supplied, detailed insights on registration fees may be useful, along with comprehensive pricing guidelines.

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Frequently Asked Questions

Common questions about GST on Services Supplied by the Government.

The term 'Government' under the Central Goods and Services Tax (GST) Act, 2017 refers to the Central Government, while under the State GST Act, it means the respective state government. This definition is crucial in determining the GST implications for services provided by the government entities.

The term 'Local Authority' under the Central GST Act includes various local governing bodies such as Panchayats, Municipalities, Cantonment Boards, Municipal Committees, District Boards, Zilla Parishads, Regional Councils, Development Boards, and any other authority entrusted with the control or management of municipal or local funds.

No, not all services provided by the Government or Local Authorities are exempt from GST. The exemptions are limited to specific services listed under Notification No. 12/2017-Central Tax (Rate). Services not covered under this notification may attract GST under the Forward Charge or Reverse Charge Mechanism.

Some of the key services provided by the Government or Local Authorities that are exempt from GST include activities related to functions entrusted to municipalities and panchayats under the Constitution, services provided to the Central or State Government or another Local Authority, and services where the consideration does not exceed INR 5,000.

GST is payable by the recipient of services under the Reverse Charge Mechanism for certain services provided by the Government or Local Authorities, such as services provided to business entities (except specified services), renting of immovable property to a registered person, and other services listed under Notification No. 13/2017-Central Tax (Rate).

The Government or Local Authorities are liable to pay GST under the Forward Charge Mechanism for services that do not fall under the exempted category or the Reverse Charge Mechanism. This includes services like speed post, express parcel post, agency services, life insurance services provided by the post department, and transportation of goods or passengers.

Services provided by the Government or Local Authorities to business entities with an aggregate turnover up to INR 20 lakhs (INR 10 lakhs for special category states) in the preceding financial year are exempt from GST. However, this turnover limit does not apply to certain specified services.

Services provided by the Government or Local Authorities to Public Sector Undertakings (PSUs) or Government Undertakings are generally not exempt from GST. However, services provided by way of guaranteeing loans taken by such undertakings from banking companies and financial institutions are exempt.

Yes, services provided by the Government or Local Authorities by way of registration required under any law, testing, safety checks, certification relating to protection or safety of workers, calibration, and other similar services required under any law are exempt from GST.

Yes, services provided by the Government or Local Authorities by way of issuance of passports, driving licenses, visas, birth certificates, or death certificates are exempt from GST.