GST on Supply of Electricity

 The supply of electricity is exempt from GST under the Goods and Services Tax (GST) regime. However, businesses should understand taxation of other aspects of electricity and its services under GST. This article will guide you through the key aspects of GST on electricity supply, including HSN codes, benefits, and frequently asked questions (FAQs).

Is GST Applicable on Electricity?

Electricity, when supplied as a standalone commodity, is exempt from GST under the current tax structure. However, the supply of electricity-related services may be subject to tax depending on the nature of the service.

Electricity supply

As per Notification No. 02/2017-Central Tax (Rate) dated 28th June 2017, the supply of electricity is exempt from GST under HSN Code 2716.

This means that there is no GST applicable on the sale of electricity provided by utilities or power companies to consumers, whether they are businesses or residential entities.

Electricity related services

Services related to electricity supply, such as the construction, erection, commissioning, or installation of infrastructure for extending the electricity distribution network, are exempt from GST when supplied by electricity distribution utilities.

For services bundled with electricity supply, such as maintenance services or renting of immovable property, GST may be applicable depending on how the services are classified. For example, when bundled with maintenance services or renting, it is considered a composite supply and may attract an 18% GST.

Electricity composite supplies

If electricity supply is bundled with other services (e.g., maintenance of electrical equipment or renting of immovable property), it may qualify as a composite supply and will attract GST at 18%, even if electricity is billed separately.

GST on inverter and battery services

While electricity supply itself is exempt from GST, certain electrical products such as inverters, batteries, and solar panels may attract GST under different categories. These services or products could be taxable at rates ranging from 5% to 18%, depending on the item.

HSN Code for Electricity

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). Hence, businesses or consumers purchasing electricity do not have to pay GST on their electricity bill.

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.

Input Tax Credit (ITC) on Electricity

ITC is not available on electricity bills as electricity supply is exempt from GST. However, businesses can claim ITC on the maintenance and repair services of electrical equipment, provided those services are subject to GST.