Here's what top CFOs are betting
on to avoid GST notices:
Here's what top CFOs are betting on to avoid GST notices:
Book a demo to find out!
Index

GST on Supply of Electricity

By Annapoorna

|

Updated on: Mar 16th, 2022

|

2 min read

GST on the supply of electricity is one of the prominent issues. Taxpayers are under a dilemma of whether the electricity supply is the sale of goods or services or whether it is taxable or exempt under GST.

The implications under GST will be if electricity is supplied in conjunction with other goods and services. These issues will be explained in this article.

Is electricity supply goods or services under GST?

Let’s discuss the definition of goods and services under GST before selecting the right fit for electricity.

Goods include moveable properties, actionable claims, crops and anything attached to the land which needs to be severed before its sale but excludes money and securities.

Services are anything other than goods, money and securities. Still, they include the use of money or conversion from one currency to another currency for which a separate consideration is charged (for example, commission or interest).

Electricity is a form of moveable property, and hence the supply of electricity will be considered a supply of goods under GST.

Present taxation of electricity generation and supply

Supply of electricity is exempted under GST as per the Notification 02/2017 (Central Tax) dated 28 June 2017 under the heading “Electrical Energy” (HSN Code: 27160000).

Further, services provided by an electricity transmission or distribution utility (e.g. state electricity board) by way of transmission or distribution of electricity is exempted under GST as per the Notification 12/2017 under heading 9969.

Accordingly, if any person other than electricity transmission or distribution utility supplies electricity, it will attract GST at the rate of 18%.

Before GST, electricity supply was exempted under the respective state’s VAT acts. Also, services provided by an electricity transmission or distribution utility by transmission or distribution of electricity were exempted under the service tax act.

Advantages of bringing electricity into GST

Charging GST on the supply of electricity will bring many benefits for businesses. GST levied will serve as an input tax credit for businesses, reducing their cost of production. Businesses, especially manufacturing companies, can improve price competitiveness in domestic and foreign markets.

While the view may not be the same if electricity is used for personal purposes where input tax credit cannot be availed, this will increase the cost of living. 

GST collected on electricity supply will be shared between state and central government. At the same time, previously state-specific charges were levied and collected by respective state governments, which may be abolished after the electricity supply is covered under GST.

Possible interpretations for GST treatment on electricity supply

Certain situation-specific issues are covered as follows:

(A). Will the owner have to charge GST on electricity if the tenant recovered these charges?

In a rental agreement, the tenant receives many other services besides renting of property (for example, access to common areas, maintenance services, electricity supply etc.), for which the owner can charge it separately or include these costs in rental charges. Hence, this is a case of composite supply.

Composite supply refers to the supply of two or more goods or services that are bundled and supplied with each other in the normal course of business, where one of the goods or services is a principal supply. 

GST is levied at the rate of principal supply irrespective of other goods or services have different rates.

In our case, renting property is the principal supply, and other services are a part of the principal supply. Accordingly, GST will be applicable on all ancillary services (including electricity charges) provided by the owner.

But, if the owner collects charges for ancillary services (including electricity charges) on a pure agent basis (i.e. the amount of charges on the electricity bill is collected by the owner and no profit motive is involved), then GST would not be applicable on any ancillary services (including electricity charges).

(B). Will GST be applicable if other ancillary services are provided by an electricity transmission or distribution utility?

CBIC in its circular no. 34/8/2018-GST has stated any ancillary service provided by the above utility will be taxable under GST. These services include:

  • Application fee for releasing connection of electricity
  • Rental charges against metering equipment
  • Testing fee for meters/transformers, capacitors etc
  • Labour charges from customers for shifting of meters or service lines.
  • Charges for duplicate bills

But if we look at this issue from another angle, the ancillary services provided by the utility are related to the supply of electricity. Without these ancillary services, utilities won’t be able to supply electricity. Hence, this is a composite supply where the principal supply is electricity, and therefore GST will be exempted.

inline CTA
For all your business compliances
ClearTax Services, Plans Based On Your Business Needs
About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

summary-logo

Quick Summary

The article discusses the issues surrounding GST on electricity supply, defines goods and services under GST, explains present taxation, advantages of GST on electricity, and possible interpretations for GST treatment. It mentions that electricity is considered a supply of goods under GST but supply by entities other than transmission or distribution utilities attracts GST at 18%. The benefit of introducing GST on electricity is highlighted and specific scenarios for GST treatment on electricity supply are discussed.

Was this summary helpful?
liked-feedbackliked-feedback

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption