Otis Singleton
The applicability of GST on electricity supply in India has been a subject of confusion and debate. Electricity is a crucial commodity for both businesses and households, and understanding the GST rates and exemptions is essential. While electricity is considered a good under the GST Act, the supply of electricity is currently exempt from GST. This exemption includes services provided by electricity transmission and distribution utilities. However, if electricity supply is bundled with other services, such as maintenance or renting of immovable property, it may qualify as a composite supply and attract GST at 18%. Additionally, certain electrical products, such as inverters, batteries, and solar panels, may attract GST under different categories. The inclusion of electricity under GST has benefits for businesses, helping to reduce manufacturing costs and enhance competitiveness.
| Characteristics | Values |
|---|---|
| Supply of electricity subject to GST? | No, the supply of electricity is exempt from GST. |
| Supply by utilities subject to GST? | No, supply by electricity transmission or distribution utilities is exempt from GST. |
| Supply by private suppliers subject to GST? | Yes, a GST rate of 18% is applicable if supplied by anyone other than utilities. |
| Composite supply with renting of immovable property subject to GST? | Yes, a GST rate of 18% is applicable. |
| Composite supply with maintenance services subject to GST? | Yes, a GST rate of 18% is applicable. |
| Electricity charges recovered by RWAs subject to GST? | No, there is no GST charged on electricity charges recovered from home/commercial space owners. |
| Electricity charges recovered from tenants in commercial spaces subject to GST? | Yes, a GST rate of 18% is applicable. |
| Electricity charges recovered from tenants in residential properties subject to GST? | No, GST is exempt. |
| Electricity charges recovered as part of maintenance charges subject to GST? | Yes, a GST rate of 18% is applicable. |
| GST on supervision charges? | Yes, a GST rate of 18% is applicable. |
| GST on cheque bounce charges? | Yes, a GST rate of 18% is applicable. |
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What You'll Learn
Electricity supply bundled with other services
The supply of electricity in India is exempt from GST under the Goods and Services Tax regime. However, when electricity supply is bundled with other services, such as maintenance services or the renting of immovable property, it may qualify as a composite supply and attract an 18% GST. This is because the GST rate applicable to the principal supply (rent or maintenance) is applied to the entire supply, even if electricity is billed separately.
For example, in commercial spaces like malls and airports, electricity charges are typically bundled with rent or maintenance fees. As part of a composite supply, these charges are subject to an 18% GST, as the principal supply is the renting of immovable property or maintenance services.
It is important to note that when real estate developers, RWAs, or property owners recover electricity charges at actuals from their tenants or residents, they are acting as pure agents, and no GST is levied on these transactions.
Additionally, certain electrical products and services may attract GST under different categories. For instance, inverters, batteries, and solar panels could be taxable at rates ranging from 5% to 18%, depending on the item. Similarly, installation, repair, and maintenance services related to electricity supply may attract GST depending on the specific arrangement.
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Transmission or distribution of electricity
The transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST. This exemption is outlined in Notification No. 12/2017-CT(Rate) dated 28 June 2017.
However, this exemption only applies to the "Transmission or distribution of electricity" and not to any other services for which separate charges are fixed and collected. 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 example, the supply of services such as connection, re-connection, supervision of works, erection of poles, substations, transmission lines, and supply of meters to consumers during the course of the electricity supply are taxable. Additionally, if electricity supply is bundled with other services, such as maintenance of electrical equipment or renting of immovable property, it may qualify as a composite supply and attract an 18% GST.
The taxation of electricity is a contentious issue in India, as it is considered a movable property and falls under the definition of "goods," while also being a major source of revenue for state governments. The power to levy taxes on the consumption or sale of electricity rests with the State Government, and it is proposed to keep these taxes outside the GST regime.
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Composite supply and GST
The supply of electricity in India is exempt from GST. However, the supply of electricity-related services may be subject to tax depending on the nature of the service.
The concept of composite supply is important in determining the correct GST rate and providing uniform tax treatment for supplies of two or more goods or services. Composite supply is a new concept introduced in GST that covers supplies made together, whether the supplies are related or not.
In the context of electricity, a composite supply occurs when electricity is supplied alongside other services, such as maintenance services or the renting of immovable property. In these cases, the supply of electricity is considered part of the composite supply and is subject to GST at the rate of the principal supply, which is typically 18%. This is true even if the electricity is billed separately.
For example, in commercial spaces like malls and airports, electricity charges are typically bundled with rent or maintenance fees. As part of a composite supply, these charges attract GST at a rate of 18%, as the principal supply is the renting of immovable property or maintenance services.
It is important to note that when electricity is supplied by real estate owners, Residential Welfare Associations (RWAs), or real estate developers, and they recover these charges on a pure agent basis or based on the actual charges by the electricity boards, it will not be considered part of the value of the composite supply, and no GST is levied.
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Electricity supply by private suppliers
India is the third-largest producer and second-largest consumer of electricity in the world. The electricity sector in India is dominated by fossil fuels, with coal being the primary source of electric power generation. The government of India holds a 51.34% stake in NTPC Limited, the country's largest power company, while the remaining 48.66% is held by the public.
In recent years, there has been a push towards privatization in the power sector, particularly in Delhi, where the government handed over the management of electricity distribution to three private companies: BSES Rajdhani Power Limited (BRPL), BSES Yamuna Power Limited (BYPL), and Tata Power Delhi Distribution Limited (TPDDL). This move has resulted in significant savings for the Delhi Government, with load shedding reducing from 4.9% to 0.055% in FY 2018-19.
Tata Power Company Ltd is India's largest private sector power utility, with an installed generation capacity of over 13,735 MW. Another notable private company in the power sector is Adani Transmission Limited, which owns and operates approximately 18,500 ckm of transmission lines.
While the supply of electricity is generally exempt from GST in India, there are certain cases where GST may apply. For example, if electricity supply is bundled with other services such as maintenance or renting, it may qualify as a composite supply and attract an 18% GST rate. Additionally, certain electrical products such as inverters, batteries, and solar panels may attract GST under different categories, with rates ranging from 5% to 18%.
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Electricity supply and tax exemptions
The supply of electricity is currently exempt from Goods and Services Tax (GST) in India, as per Notification No. 02/2017-Central Tax (Rate) dated 28 June 2017. This means that there is no GST on the sale of electricity to consumers, whether businesses or residential entities. Services related to electricity supply, such as the construction or installation of infrastructure for extending the electricity distribution network, are also exempt from GST when supplied by electricity distribution utilities.
However, if electricity supply is bundled with other services, such as maintenance of electrical equipment or the renting of immovable property, it may qualify as a composite supply and attract an 18% GST rate. In such cases, the principal supply (e.g. rent) attracts GST, and the electricity charges are subject to the same rate. This is applicable even if the electricity is billed separately.
It is important to note that certain electrical products, such as inverters, batteries, and solar panels, may attract GST under different categories, with rates ranging from 5% to 18%.
Prior to the implementation of GST, electricity supply was exempt from Value Added Tax (VAT) and services provided by electricity distribution and transmission utilities were exempt under the Service Tax Act. The inclusion of electricity under GST has helped improve the competitiveness of exporters and Indian businesses by streamlining the taxation process and reducing cascading effects. It has also reduced manufacturing costs for businesses.
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Frequently asked questions
The supply of electricity is currently exempt from GST in India. This exemption also applies to services provided by electricity transmission and distribution utilities.
If electricity charges are bundled with rent or maintenance fees, it is considered a composite supply and will be taxed accordingly. The GST rate on renting immovable property and maintenance of premises will be applicable, even if electricity is billed separately.
Yes, certain electrical products such as inverters, batteries, and solar panels may attract GST under different categories. These products could be taxable at rates ranging from 5% to 18%, depending on the item.
No, businesses cannot claim ITC on electricity bills because the supply of electricity is exempt from GST.
