CBIC Clarification on GST on Services Charges
Recco
of 55th GST Council Meeting
·
No
GST on penal charges being levied by the Regulated Entities (REs) in view of
RBI instructions dated 18.08.2023 directing such Regulated Entities (REs) to
levy penal charges in place of penal interest.
·
GST
exemption under Sl. No. 34 of notification No. 12/2017-CTR dated 28.06.2017 is
available to payment aggregators in relation to settlement of an amount, up to
two thousand rupees in a single transaction, transacted through credit card,
debit card, charge card or other payment card services
·
Regularizing
payment of GST on research and development services provided by Government
Entities against consideration in the form of grants received from Government
Entities in specified period of 01.07.2017-09.10.2024 on “as is where is” basis.
·
Regularizing
payment of GST on skilling services provided by Training Partners approved by
the National Skill Development Corporation in the period 10.10.2024-15.01.2025
·
GST
is applicable on facility management services provided to Municipal Corporation
of Delhi (MCD) Headquarters.
·
Whether
Delhi Development Authority (DDA) is not a local authority as per section 2(69)
of the CGST Act, 2017?
·
8.
Regularizing payment of GST on Reverse Charge (RCM) basis on renting of
commercial property by unregistered person to a registered person for taxpayers
registered under composition levy regularised for a
short period of 10.10.2024 to 15.01.2025.
·
9.
Regularizing payment of GST on support services provided by an electricity
transmission or distribution utility.
·
10.
Regularizing the non payment of GST on services
provided by M/s Goethe Institute/Max Mueller Bhawans
for the past period.
[Circular No. 245/02/2025-GST dated 28 January, 2025]
F. No. CBIC-190354/2/2025-TO(TRU-II)-CBEC
Subject: Clarifications regarding
applicability of GST on certain services.
Based on the recommendations of the GST Council
in its 55th meeting held on 21st December 2024, at Jaisalmer, and in exercise of
the powers conferred under section 168(1) of the Central Goods and Services Tax
Act, 2017, clarifications on various issues are being issued through this Circular,
as under:
2. Applicability of GST on penal
charges being levied by the Regulated Entities (REs) in view of RBI instructions
dated 18.08.2023 directing such Regulated Entities (REs) to levy penal charges in
place of penal interest.
2.1 Representations have been received seeking
clarification on the applicability of GST on penal charges being levied by the Regulated
Entities (REs) in view of RBI instructions dated 18.08.2023 directing such Regulated
Entities (REs) to levy penal charges in place of penal interest.
2.2 Regulated Entities (REs) such as banks
and non-banking financial companies (NBFCs) have been instructed, vide RBI instructions
dated 18.08.2023, to discontinue the use of penal interest for non-compliance with
loan terms. As per the instructions, instead of penal interest, REs are to levy penal charges for non-compliance with loan terms.
The intent of levying penal charges is essentially to inculcate a sense of credit
discipline. These instructions are effective from 01.01.2024, and do not apply to
credit cards, external commercial borrowings, trade credits and structured obligations
which are covered under product specific directions.
2.3 It is being viewed by certain field formations
that penal charges so levied are in the nature of payment/consideration for tolerating
an act or situation. Similar issues were examined in Circular No. 178/10/2022-GST
dated 03.08.2022, wherein it has already been clarified that certain payments such
as liquidated damages for breach of contract are not a consideration for tolerating
an act or situation. They are rather amounts recovered to deter such acts; such
amounts are for preventing breach of contract or non-performance and are thus mere
‘events’ in a contract. It has been further clarified that the essence of a contract
is its ‘performance’ and not its ‘breach’, meaning thereby that parties enter into
a contract for execution and not for its breach.
2.4 Penal charges levied by REs, in compliance
with RBI directions dated 18.08.2023, are essentially in the nature of charges for
breach of terms of contract and hence, fall within the ambit of the above clarification.
2.5 Thus, as recommended by the 55th GST
Council, it is hereby clarified that no GST is payable on the penal charges levied
by Regulated Entities, in compliance with RBI directions dated 18.08.2023, for non-compliance
with material terms and conditions of loan contract by the borrower.
3. Whether GST exemption under
Sl. No. 34 of notification No. 12/2017-CTR dated 28.06.2017 is available to payment
aggregators in relation to settlement of an amount, up to two thousand rupees in
a single transaction, transacted through credit card, debit card, charge card or
other payment card services?
3.1 Representations have been received seeking
clarity on the applicability of GST exemption under Sl. No. 34 of notification No.
12/2017-CTR dated 28.06.2017 to Payment Aggregators (PAs) in relation to settlement
of an amount, up to two thousand rupees in a single transaction, transacted through
credit card, debit card, charge card or other payment card services.
3.2 The matter has been examined. Payment
Aggregators (PAs) are entities that facilitate e- commerce sites and merchants to
accept various payment instruments from their customers without the need for the
e-commerce sites and merchants to create a separate payment integration system of
their own. In the process, PAs receive payments from customers, pool and transfer
them on to the merchants within a specified time period.
3.3 The exemption under Sl. No. 34 of notification
No. 12/2017-CT(Rate) dated 28.06.2017 is available to acquiring banks. For the purpose
of the said exemption entry, the term ‘acquiring bank’ has been explained as under:
“acquiring
bank” means any banking company, financial institution including non- banking financial
company or any other person, who makes the payment to any person who accepts such
card.
3.4 Clause 8 of the RBI’s Guidelines on Regulation
of Payment Aggregators and Payment Gateways dated 17.03.2020, pertaining to ‘Settlement
and Escrow Account Management’ makes it clear that the PAs receive payments from
customers in an escrow account, and are obligated to do the final settlement with
the merchant within time periods specified by RBI. Therefore, the RBI regulated
PAs, involved in the settlement process of making payments to the merchant, are
covered by the second part of the definition of acquiring bank, i.e. “any other
person, who makes the payment to any person who accepts such card” and hence, fall
within the definition of acquiring bank, for the purpose of the exemption under
Sl. No. 34 of notification No. 12/2017-CTR dated 28.06.2017, as they make the payment
to the merchants who accept credit cards, debit cards, charge cards or other payment
card services.
3.5 Further, the RBI’s Guidelines dated 17.03.2020
clearly distinguish between Payment Aggregators and Payment Gateways (PGs), keeping
in view their role vis-à-vis handling funds. PAs are defined as entities who receive
payments from customers, pool and transfer them on to the merchants within a specified
time period. On the other hand, PGs are defined as entities that provide technology
infrastructure to route and facilitate processing of an online payment transaction
without any involvement in handling of funds.
3.6 Thus, as recommended by the 55th GST
Council, it is hereby clarified that GST exemption under Sl. No. 34 of notification
No. 12/2017-CTR dated 28.06.2017 is available to RBI regulated Payment Aggregators
(PAs) in relation to settlement of an amount, up to two thousand rupees in a single
transaction, transacted through credit card, debit card, charge card or other payment
card services, as PAs fall within the definition of ‘acquiring bank’ given in the
Explanation to the said exemption entry. It is also clarified that this exemption
is limited to payment settlement function only, which involves handling of money,
and does not cover Payment Gateway (PG) services.
4. Regularizing payment of GST
on research and development services provided by Government Entities against consideration
in the form of grants received from Government Entities.
4.1 The GST Council, in its 54th meeting
held on 09.09.2024 recommended exempting research and development services provided
by Government Entities or research associations, universities, colleges or other
institutions, notified under clauses (ii) or (iii) of sub-section (1) of section
35 of the Income Tax Act, 1961, against consideration in the form of grants. The
same has been exempted w.e.f. 10.10.2024 vide notification No. 08/2024-CT(Rate)
dated 8.10.2024.
4.2 There were certain interpretational issues
with respect to the taxability, or otherwise, of supply of research and development
services by Government Entities against grants received from the Government Entities
like DRDO, CSIR, SERB etc. These issues now stand resolved, for the period starting
from 10.10.2024, with the issuance of notification No. 08/2024-CT(Rate) dated 08.10.2024
which specifically exempted research and development services provided by Government
Entities or research associations, universities, colleges or other institutions,
notified under clauses (ii) or (iii) of sub-section (1) of section 35 of the Income
Tax Act, 1961, against consideration in the form of grants.
4.3 Accordingly, for the past period, the
Council, in its 55th meeting, has recommended to regularize payment of GST on the
supply of research and development services by Government Entities against grants
received from the Government Entities for the period 01.07.2017 to 09.10.2024 on
‘as is where is’ basis.
4.4 Thus, as recommended by the 55th GST
Council, the payment of GST on the supply of research and development services by
Government Entities against grants received from the Government Entities is regularized
for the period 01.07.2017 to 09.10.2024, on ‘as is where
is’ basis.
5. Regularizing payment of GST
on skilling services provided by Training Partners approved by the National Skill
Development Corporation.
5.1 On the recommendations of the 54th meeting
of the GST Council held in New Delhi on 09.09.2024, the entry at Sl. No. 69 of the
Notification No. 12/2017-CTR dated 28.06.2017 was amended vide Notification No.
08/2024 dated 08.10.2024, to synchronize it with the new regulatory framework for
skill development under NCVET.
5.2 As a result of the aforesaid amendment,
the earlier exemption available to the skilling services provided by Training Partners
approved by National Skill Development Corporation was withdrawn. The amended exemption
was restricted to the skilling services provided by Training Bodies accredited with
an Awarding Body that is recognized by the NCVET. Later, it was informed by the
Ministry of Skill Development and Entrepreneurship, Government of India, that since
NSDC is the implementing agency for skilling schemes of the Government of India,
as well as other skill development programs, hence, the withdrawal of the tax exemption
to Training Partners approved by NSDC would adversely impact the skilling ecosystem
significantly.
5.3 Accordingly, the GST Council, in its
55th meeting, has recommended that the earlier exemption to skilling services provided
by Training Partners approved by the National Skill Development Corporation may
be restored. The said exemption has been reinstated by amending Notification No.
12/2017-CT(Rate) dated 28.06.2017 vide Notification No. 06/2025-CT(Rate) dated 16.01.2025
with effect from 16.01.2025.
5.4 Further, for the past period, the GST
Council has recommended to regularize payment of GST on services provided by Training
Partners approved by the National Skill Development Corporation, which were exempt
prior to 10.10.2024, for the period 10.10.2024 to 15.01.2025 on ‘as is where is’ basis.
5.5 Thus, as recommended by the GST Council,
the payment of GST on services provided by Training Partners approved by the National
Skill Development Corporation, which were exempt prior to 10.10.2024, is regularized
for the period 10.10.2024 to 15.01.2025, on ‘as is where
is’ basis.
6. Applicability of GST on facility
management services provided to Municipal Corporation of Delhi (MCD) Headquarters.
6.1 Representation has been received seeking
clarification on the applicability of GST on facility management services provided
to Municipal Corporation of Delhi (MCD) Headquarters, New Delhi.
6.2 MCD is receiving the services such as
housekeeping, civil maintenance, furniture maintenance and horticulture, from facility
management agency, for the upkeep of their office. MCD has sought clarification
as to whether such services received by them are exempt from GST in terms of Sr.
No.3A of the notification No. 12/2017-CTR dated 28.06.2017.
6.3 The said entry at Sr. No. 3A of notification
No. 12/2017-CTR dated 28.06.2017 provides exemption to composite supply of goods
and services in which the value of supply of goods constitutes not more than 25%
of the value of the said composite supply provided to the Government or local authority
by way of any activity in relation to any function entrusted to a Panchayat under
Article 243G of The Constitution of India or in relation to any function entrusted
to a Municipality under Article 243W of The Constitution of India.
6.4 However, in the instant case, MCD is
receiving the services of facility management such as housekeeping, civil maintenance,
furniture maintenance and horticulture agency for the upkeep of their office. These
services are not supplied in relation to performing any functions entrusted to a
Municipality under Article 243W of The Constitution of India. Such services are
not covered under the scope of entry at Sr. No. 3A of the notification No. 12/2017-CTR
dated 28.06.2017.
6.5 Thus, as recommended by the 55th GST
Council, it is hereby clarified that GST is applicable on the services provided
by facility management agency to MCD, Delhi HQ for upkeep of its head quarter building
at applicable rates as these services are not covered under the scope of entry at
Sr. No. 3A of the notification No. 12/2017-CTR dated 28.06.2017.
7. Whether Delhi Development Authority
(DDA) is a local authority as per section 2(69) of the CGST Act, 2017?
7.1 Representation has been received from
DDA seeking clarification whether DDA is a ‘local authority’ as per section 2(69)
of CGST Act, 2017.
7.2 As per entry at Sr. No. 5 of notification
No. 13/2017-CTR dated 28.06.2017, services supplied by local authority to a business
entity are taxable on Reverse Charge (RCM) basis.
7.3 Local authority under section 2(69) of
the CGST Act, 2017 has been
defined as a “Municipal Committee,
a Zilla Parishad, a District Board, and any other authority legally entitled to,
or entrusted by the Central Government or
any State Government with the control or
management of a municipal or local fund”
7.4 It means an authority which is similar
to the elected self-governing body such as Municipal Committee and which is entrusted
with the control and management of municipal or local fund can be termed as local
authority.
7.5 It is seen that DDA does not meet the
requirement of local authority as per section 2(69) of the CGST Act, 2017. Thus,
as recommended by the 55th GST Council, it is hereby clarified that DDA cannot be
treated as local authority under GST law.
8. Regularizing payment of GST
on Reverse Charge (RCM) basis on renting of commercial property by unregistered
person to a registered person for taxpayers registered under composition levy.
8.1 Based on the recommendations of the 54th
GST council held on 09.09.2024, renting of immovable property other than residential
dwelling (commercial property) by unregistered person to registered person was brought
under reverse charge basis.
8.2 The said recommendation was notified
vide notification No.09/2024-CTR dated 08.10.2024 effective from 10.10.2024 by inserting
an entry at Sr. No. 5AB of the notification No. 13/2017-CTR dated 28.06.2017 thereby
prescribing payment of GST on reverse charge basis on renting of immovable property
other than residential dwelling (commercial property) by unregistered person to
registered person.
8.3 Various representations from different
sectors were received requesting to bring the service of renting of commercial property
by unregistered person to registered person under Forward Charge basis.
8.4 55th GST Council in its meeting held
on 21.12.2024 recommended that taxpayers registered under composition levy may be
excluded from the entry at Sr. No. 5AB of the notification No. 13/2017-CT(Rate)
dated 28.06.2017. The same has been notified vide notification No. 07/2025- CT(Rate)
dated 16.01.2025. The Council further recommended that payment of GST on reverse
charge basis on renting of immovable property other than residential dwelling (commercial
property) by unregistered person to a registered person for taxpayers registered
under composition levy may be regularized on ‘as is where is’ basis for the intervening
period (i.e., date of effect of notification No. 09/2024-CTR dated 08.10.2024 to
date of issuance of amending notification No. 07/2025-CT(Rate) dated 16.01.2025).
8.5 Thus, as recommended by the 55th GST
Council, payment of GST on Reverse Charge (RCM) basis on renting of immovable property
other than residential dwelling (commercial property) by unregistered person to
registered person under composition levy is hereby regularized for the period from
10.10.2024 to 15.01.2025 on ‘as is where is’ basis.
9. Regularizing payment of GST
on certain support services provided by an electricity transmission or distribution
utility.
9.1 The GST Council, in its 54th meeting
recommended to exempt supply of services by way of providing metering equipment
on rent, testing for meters/ transformers/ capacitors etc., releasing electricity
connection, shifting of meters/service lines, issuing duplicate bills etc., which
are incidental or ancillary to the supply of transmission and distribution of electricity
provided by electricity transmission and distribution utilities to their consumers.
Thereafter, entry at Sr. No. 25A was inserted in the notification No. 12/2017- CTR
dated 28.06.2017 vide notification No. 08/2024-CTR dated 08.10.2024, with effect
from 10.10.2024.
9.2 In its 55th meeting, the GST Council
recommended that the entry at Sr. No. 25 and 25A may be aligned and the same has
been brought into effect vide notification No. 6/2025-CTR dated 16.01.2025. Accordingly,
these incidental or ancillary services to the supply of transmission or distribution
of electricity supplied by transmission or distribution utilities are now covered
under the said exemption entry. Further, it was also recommended that the intervening
period i.e., 10.10.2024 (effective date of entry at Sr. No. 25A in notification
No. 12/2017-CTR dated 28.06.2017) up to 15.01.2025 (till the date of amending notification
No. 06/2025 CTR dated 16.01.2025) may be regularised on
‘as is where is’ basis.
9.3 Thus, as recommended by the 55th GST
Council, the payment of GST on certain incidental or ancillary services to the supply
of transmission or distribution of electricity, as mentioned in Para 9.1 above,
supplied by an electricity transmission or distribution utility is regularized for
the period 10.10.2024 to 15.01.2025, on ‘as is where is’
basis.
10. Regularizing the payment of
GST on services provided by M/s Goethe Institute/Max Mueller Bhawans.
10.1 Goethe Institute/Max Mueller Bhawan
have six institutes across India which provide linguistic and cultural training
to young Indians preparing for their stay in Germany.
10.2 They are registered under GST at Delhi,
Mumbai, Chennai, Bengaluru, Kolkata, and Pune. Prior to 1st April, 2023, the Institutes
did not collect GST from their students nor did they pay GST to Government as they
were under the bonafide belief that their activities are
exempt from GST.
10.3 55th GST Council has recommended to
regularize the payment of GST on services provided by Goethe Institutes/Max Mueller
Bhawans for the period from 01.07.2017 to 31.03.2023 on
‘as is where is’ basis.
10.4 Thus, as recommended by the 55th GST
Council, payment of GST on services supplied by Goethe Institute/Max Mueller Bhawans is hereby regularized for the period from 01.07.2017
to 31.03.2023 on ‘as is where is’ basis.
11. Difficulties, if any, in the implementation
of this circular may be brought to the notice of the Board.