GST on Security Services: GST Rate, SAC Code & RCM on Security Services With Example

Security services are services provided by individuals or firms to ensure the security of property or individuals. Initially, these services were not explicitly defined in the CGST Act of 2017 and were treated under the forward charge mechanism. However, as of January 2019, they have been brought under the Reverse Charge Mechanism (RCM).

Read along as we talk more about the security services GST rate, RCM on security services under GST with example, time of supply, and ITC on security services.

Taxability of security services under GST

Goods and Service Tax (GST) on security services are levied at 18%. Additionally, individuals responsible for RCM on security services should ensure that they submit GST invoices systematically, including Service Accounting Code (SAC) details and required documentation.

Applicability of RCM on security services under GST 

In the GST system, security services were initially not subject to the RCM, which means that they were taxed on forward charge basis where the supplier collects tax from the recipient and pays it to the government.

However, starting from 1st January 2019, security services were notified to be included under RCM. This means that any registered person who receives security services from a non-body corporate is now required to pay GST on a reverse charge basis.

There are, however, two exceptions to this:

• Government agencies or local authorities that have obtained GST registration solely for Tax Deducted at Source (TDS)
• Individuals or businesses who have chosen to pay tax under the GST composition scheme

Here are some important points to note regarding RCM applicability on security services:

• The threshold limit of Rs.20–40 lakhs does not apply to registered individuals for security services.
• If the service recipient is unregistered, the supplier bears the GST liability as a forward charge for security services, regardless of their corporate status.
• The supplier's collection and payment of GST on security services do not relieve the recipient of their responsibility to pay RCM on such services.
• Individuals need to register under the GST Act for RCM applicability on security services.

SAC code and GST on security services

The SAC code is a classification system employed by the Indian Service Tax Department to levy service tax on various types of services provided within India. Here is a tabular representation of the security services SAC code:

Time of supply under RCM on security services under GST with example

Time of supply refers to the time when a transaction is considered to have occurred to determine the liability to pay tax. According to section 13(3) of the GST Act, the time of supply for security services under RCM is the earliest of the following dates:

• The date of payment
• The date immediately after 60 days from invoice issue date

If neither the payment date nor the 60-day period is known, the time of supply will be the date of entry in the recipient’s books.

For example:

Security services are provided in August, the security agency issues the invoice on 8th September 2022, and the payment is made on 10th October 2022.

In this case, the time of supply will be the date of payment i.e., 10th October 2022, since it is earlier than the 60-day period — 8th November 2022.

Cases where GST shall be discharged under forward charge instead of RCM

Here are some cases where GST shall be discharged under forward charge instead of RCM:

• Security services other than security personnel such as sniffer dogs, and CCTV installation
• Services provided to unregistered persons
• Services provided to composition dealers
• Services provided by a body corporate
• Services provided to government agencies registered for TDS

Input tax credit of GST paid on security services

Input tax credit (ITC) refers to the taxes paid on the purchases of goods or services that can be claimed when paying taxes on the output.

In the case of security services obtained for business purposes or taxable supplies, the GST paid under the RCM can be claimed as ITC. Additionally, if the supplier is not registered under GST, a self-invoice can be used to claim the ITC. 

Exemptions available to security services under GST

Exempt supply refers to the supply of goods or services, or both, that are either subject to a nil rate of tax or completely exempt from tax. 

In the context of security services, certain types of security services are exempted from the GST and are not subject to any tax liability such as:

• Security services provided to educational institutions such as security guards, housekeeping staff, etc
• Security services to an individual (or his family) working in a foreign diplomatic mission or consular post in India

Although to claim these exemptions, an MEA-issued certificate must be submitted to the GST Council.

Advance ruling relating to GST on security services

An advance tax ruling is a written explanation of the tax laws. It is issued by tax authorities to businesses and individuals who are confused and uncertain about certain provisions. 

Here is an advance ruling related to GST on security services:

Applicant: M/s AS&D Enterprise is a Limited Liability Partnership (LLP) that provides security personnel (manpower) to various businesses at different locations based on their requirements.

Case: The applicant — M/s AS&D Enterprise — sought clarification on whether it would be treated as a body corporate and if the supply of security personnel by them would be taxed under the forward charge mechanism instead of the RCM.

Ruling: The Haryana AAR concluded that LLPs should be included within the definition of a body corporate for notification No. 29/2018-Central Tax (Rate). Consequently, the supply of security personnel services by an LLP to a registered person would not be subject to the RCM. 

This clarifies that such supplies should be treated as taxable under the forward charge mechanism.

The ruling comes after the Haryana AAR considered the following points:

• An LLP is considered a body corporate as per Section 2(d) of the LLP Act, 2008.
• An LLP is a separate legal entity, and its partners have limited liability, which means their liability is limited to their agreed contribution to the LLP.
• The LLP Act, 2008 empowers the central government to apply provisions of the Companies Act to LLPs when appropriate. 

Conclusion

The introduction of the RCM has shifted the responsibility of paying GST from the supplier to the recipient in certain cases. Therefore, businesses and individuals must understand these regulations and comply with the GST requirements to ensure smooth operations and avoid any potential non-compliance issues.