GST on Import of Services: Applicability, Rates and HSN Codes

An Indian entity availing services from a provider outside India is considered as import of services. Similar to the previous Service Tax Act, these services are also taxable under the GST. The article will discuss the applicability of GST on the import of services in India, rates and related exemptions.

What is the Import of Services Under GST?

Consider a transaction between a service provider and a service recipient; both are located in India, assuming both are registered under the GST. In such a case, the service provider will have to issue an invoice charging GST as well. 

Consider a service provider located outside India that provides services to an entity located in India, and the place of supply is also in India. This will be referred to as the import of services under GST.

How to Determine the Import of Services Under GST?

The following steps must be examined to consider a transaction as an import of services:

Step 1: Location of Supplier and Recipient

The service supplier must be located outside India, while the service recipient must be located inside Indian taxable territory.

Step 2: Place of Supply

Section 13 of the IGST Act 2017 provides guidance to determine the place of supply when either the location of the supplier or recipient is located outside India. 

Subject to certain exceptions, the place of supply shall be the location of the recipient of services. In case such a location is not available, then the place of supply shall be the location of the supplier.

Step 3: Consideration

Monetary or non-monetary consideration must be exchanged between the two parties. 

In case services are received without any consideration from a related party outside India, it may still qualify as an import of service under GST.

Step 4: Purpose of such services

GST shall only be applicable on services which are imported for business purposes only. If any individual who imports services for personal use for consideration may qualify as a supply under GST; however, such services will be exempt under GST.

Accordingly, to qualify as an import of service, 

1. The location of the supplier must be in India
2. The location of the recipient must be outside India
3. The place of supply must be in India. 
4. Monetary or non-monetary consideration must be exchanged. However, transactions between related parties will be considered a supply, even if no consideration is involved.
5. Services shall be used for business purposes.

For example, an Indian company procures cloud-based services from an IT company located in the United Kingdom for a consideration of Rs.1,00,000. 

The location of service recipient is in India, and the location of supplier is outside India; Section 13 of the IGST Act shall be applicable.

The place of supply as per this section will be the location of service recipient, which is in India. Additionally, there is consideration involved in such a transaction. Accordingly, the above transaction will be qualified as an import of services.

GST Applicability on Import of Services

GST applicability on the import of services considers two crucial aspects, i.e., the purpose and consideration. The import of service will be considered as a supply only if the same is supplied for a business purpose and there is certain consideration involved, except in the case of transactions between related parties, where even if no consideration is involved, GST will still be applicable. 

In such cases, the service recipient in India is liable to pay GST under the reverse charge mechanism. The GST liability on the service recipient arises at the time of receipt of such services or the date of payment to the service provider, whichever is earlier.

If an entity is not registered under GST and imports any service for business purposes from outside India, such an entity shall also be liable to pay GST on a reverse charge mechanism by obtaining the GST registration u/s 24(iii) of the CGST Act.

Continuing with the above example, the Indian company, which received cloud-based services from a company in the United Kingdom, is required to pay IGST on a reverse charge mechanism on Rs.1,00,000.

GST Rates and HSN Codes for Imported Services

The GST rate depends on the nature and type of services availed. For most professional services, GST is usually charged at 18% on the value of the service received, which is the consideration paid for such services. The HSN code for such services shall be covered under Chapter 99.

There are exemptions related to the applicability of GST on the import of certain services listed below:

Exemptions and Special Cases

1. Services imported by the following persons are exempted under the scope of GST
2. Central and state governments, local authorities and any individual for their personal purpose.
3. Charitable Trusts
4. Any person located in a non-taxable territory
5. OIDAR Services (i.e., online information and database access or retrieval) such as online movie subscriptions, e-books or cloud services. If these services are provided by a foreign supplier, then such a foreign supplier shall be liable to register and pay under GST. 
6. Import of services from related parties are also subject to GST, irrespective of whether consideration is involved or not. In case the import of service is without consideration, valuation rules under GST shall be applicable; and GST liability will be calculated based on such derived value.
7. GST shall not be applicable for the import of services in India by any individual, provided the use of such services is for personal purposes.

Input Tax Credit (ITC) on Imported Services

As discussed above, GST shall be applicable on a reverse charge basis to the service recipient, who shall be liable to pay GST. It is pertinent to note that such GST paid shall be available to the service recipient as an input tax credit, subject to other applicable terms, such as that the services must be used for business purposes.