The supply of electricity is one of the most significant sources of revenue for any state government. GST on electricity has proven to be a bone of contention, with most consumers confused about whether it can be categorised as goods or services. Many also remain confused about whether the same is exempted from GST charges or is taxable under GST laws. We shall shed light on all aspects pertaining to the GST rate on electricity.
With many consumers still confused about whether the supply of electricity is a good or a service, let us look at the definition of these two terms under the GST Act.
According to Section 2(52) of the CGST Act of 2017, goods can be defined as moveable properties, actionable claims, crops, and other assets attached to the land, which need to be extricated before proceeding with the sale. However, this excludes both securities and money.
Services, on the other hand, according to Section 2(102) of the CGST Act of 2017, refer to anything else apart from goods, securities, and money. However, services also include using money or converting money from one currency to another (for which a commission or interest) is charged.
Given that electricity is a variant of moveable property, the GST on electricity charges and the supply of the same is considered as a good under the norms of the GST Act.
As per Notification 02/2017 (Central Tax) under the heading ‘Electrical Energy’ (HSN Code: 27160000), issued on the 28th of June 2017, electricity supply stands exempted from GST.
In addition, all services offered by either an electricity transmission or a distribution utility (such as a state electricity board) are exempted from GST. Thus, the distribution or transmission of electricity is also exempted as per Notification 12/2017, under subheading 9969.
If any individual, apart from electricity distribution or transmission utility, takes up the task of supplying electricity, the GST on electricity levied stands at 18%.
Prior to the introduction of the GST Act, all supply of electricity was exempted in each state, as per their respective VAT acts. Additionally, during this era, all services provided by electricity distribution and transmission utilities were exempted under the aegis of the Service Tax Act.
By way of GST on electricity charges, businesses definitely stand to benefit in the following ways:
They will benefit by way of reduced costs incurred on all processes pertaining to manufacturing.
The introduction of GST on electricity will help boost the competitiveness of exporters, as well as indigenous business houses.
It will also help minimise the cross-subsidies applicable on electricity charges, which affects manufacturer and exporter’s competitiveness.
With the introduction of GST on electricity, large biases have been eliminated, and this has helped restore neutral incentives across the board.
The GST on electricity charges will be shared between the central government and the respective state governments. State-specific charges that were previously levied on the supply of electricity by state governments have since been abolished (post the introduction of GST).
Throughout this article, we understand that electricity and its supply fall under Article VII of the Indian Constitution. Thus, this puts it out of the purview of taxation under the GST Act. Hence, even though electricity can be classified as a good, it remains out of the grasp of GST at the moment.