If you buy or sell services, you may be wondering how the new GST rules are going to affect you. The majority of non-essential services are taxed under the new system.
But the rates vary, and the type of GST also varies depending on the location of the recipient.
Tax Slabs for Services
Like goods, services fall into one of four tax slabs. They are taxed at 5, 12, 18 or 28%, and some services are exempt from the GST altogether. In particular, hotels and lodges with tariffs below ₹1,000 are exempt, as well as education and healthcare services.
Services in the 5% GST slab include the following:
- Restaurants in hotels with room tariffs less than ₹7,500
- Transport services
- Textile work
Non-air conditioned hotels, business class air tickets, and work contracts are all services that fall into the 12% GST category. The 18% rate applies to telecom services, IT services, financial services, outdoor catering, and restaurants in hotels with room tariffs above ₹7,500. Finally, only a few luxury services such as private-run lotteries, race club betting, and going to the cinema are taxed at 28%.
As you can see, there are sometimes different tax rates for very similar services. For instance, if you own a standalone restaurant, the GST is only 5%. That was actually decreased from 18% as the council was establishing the rates.
However, if your restaurant is in a hotel, your tax rate may be 5 or 18% depending on the room rates.
GST on Intra-State Services
If the entire transaction happens in the same state, that is an intra-state transaction, and the seller needs to assess both Central GST and State GST. The CGST goes to the federal government, while the SGST goes to the state. For instance, if the SGST is 9% and the CGST is 9%, the total sales tax is 18%, and as the seller, you remit each of those amounts to the relevant governing bodies.
GST on Services in Multiple States
If a transaction to purchase services occurs across multiple states, the tax is based on the location of the recipient of the services. To explain, imagine a business in New Delhi, Dehli purchases advertising services from a company based in Mumbia, Maharashtra, and the ads are run in a newspaper in Chennai, Tamil Nadu.
The recipient of the services is the original purchaser, and as that individual is based in Dehil, the taxes are assessed there.
In this situation, the centre levies Inter-state GST.
Then, the centre apportions some of the IGST to the state where the recipient is registered. Before assessing GST on your services, you may want to consult with a tax specialist in your area, as there are specific rules for telecom, property, and transportation services as well as some other industries.
Changing Registration Requirements
If you sell services, the new GST rules may also change where you have to register your business. Just do business in one state? Then, that’s the only place you have to register. If you provide services in multiple states, you still only have to register in the state where your operations are based. But if you set up an office in another state, you have to register there.
To explain, let’s say your office is based Assam and you sell services in Bihar. In this case, you only need to register in Assam, but if you eventually set up an office in Bihar, you also need to register in that state as well.
To stay compliant with the new GST rules, you may want to invest in some tools to help you. Cloud-based accounting software such as QuickBooks is constantly being updated to reflect the newest GST and taxation rules, and that helps to simplify your accounting.