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GST on security services

Security Service means service rendered by any person towards the security of any property (whether movable or immovable) or security of any person in any manner. In the GST regime, security services though initially was not covered under reverse charge mechanism (RCM) but the same was notified for the purposes of payment under RCM w.e.f. 1st January 2019 vide Notification No. 29/2018- Central Tax (Rate) dated 31-12-2018. 

Reverse charge means the recipient of goods or services is liable to pay tax on supply instead of the supplier of such goods or services. Under RCM, all provisions of GST law shall apply to the recipient as he is a person who liable to pay tax.

Applicability of RCM on security services under GST

From 1st January 2019, any registered person receiving security services from any person other than a body corporate is required to pay GST on a reverse charge basis.

However, the above provisions shall not apply to the following persons-

(i) Government agency or local authority who have taken GST registration only for TDS purpose.

(ii) A person who opted to pay tax under the GST composition scheme 

When do security services get covered under reverse charge (RCM)?

The security services would be covered under the ambit of reverse charge mechanism if all the following four conditions are satisfied.

1. Services supplied should be security services

The term ‘security services’ as per the RCM Notification means “services provided by way of supply of security personnel“. It is relevant to note that if security agencies apart from providing security personnel provide other services also like services of investigation, detection or verification, of any fact or activity. Such services will not be subject to payment under reverse charge and in such cases, the security agency will be required to charge GST from the customer and deposit the same under forward charge mechanism.

2. Security services should be provided by any person other than a body corporate

If the person is obtaining security services from a Company / LLP, the provisions of RCM will not be applicable.

As per definition of “body corporate” under Section 2(11) of the Companies Act, 2013. it includes a private company, public company, one personal company, small company, Limited Liability Partnerships, foreign company etc. However, body corporate does not include-

(i) a co-operative society registered under any law relating to co-operative societies; and

(ii) any other body corporate (not being a company as defined in the Companies Act 2013), which the Central Government may, by notification, specify in this behalf. 

4. Security services should not be exempt

Security services performed in an educational institution are exempt from GST. No GST is payable on such supply of security services and accordingly, there will be no liability to pay GST under reverse charge as well.

Examples of applicability of RCM on security services

 

Service provider

Service recipient

RCM applicability

Person liable to pay GST

Security Guard Services Pvt. Ltd.

TG Software Pvt. Ltd.

No (Since the service provider is a body corporate, RCM will not apply)

Security Guard Services Pvt. Ltd.

AK Manpower Services (Proprietorship)

TG Software Pvt. Ltd.

Yes (All conditions of RCM are satisfied.)

TG Software Pvt. Ltd.

AK Manpower Services (Proprietorship)

Karan Associates (Unregistered person)

No (Since the service recipient is an unregistered person, RCM will not apply.)

AK Manpower Services (Proprietorship)

 

GST rate on security services

Security Services are taxable at a GST rate of 18%. Thus in the case of intra-State supply, CGST @ 9% and SGST @ 9% will be applicable. On other hand, IGST @ 18% will be applicable on inter-State supplies.

SAC code for security services

 

SAC Code

Description

998521

 Investigation services

998522

Security consulting services

998523

Security systems services

998524

Armoured car services

998525

Guard services

998526

Training of guard dogs

998527

Polygraph services

998528

Fingerprinting services

998529

Other security services

 

Time of supply for security services under RCM

According to provisions of section 13(3), the time of supply for purposes of payment of tax under RCM would be the earliest of the following dates:

(a) the date of payment

OR

(b) the date immediately after 60 days from the date of issue of invoice by the supplier

If it is not possible to determine the time of supply under (a) or (b), the time of supply shall be the date of entry in the books of account of the recipient.

Example:

1. Month in which security services provided - October

Date of issue of invoice by security agency - 07th November 2021

Date of payment - 10th December 2021

In the instant case, time of supply will be the date of payment i.e. 10-12-2021 or 61st day from the date of invoice i.e. 07-01-2022, whichever is earlier i.e. 10-12-2021.

Availability of input tax credit

Input tax credit (ITC) means taxes paid on purchases of goods or services can be claimed at the time of payment of taxes on output. In case of security services were obtained for business purposes / taxable supplies, ITC of GST paid under reverse charge mechanism can be claimed.

However, If the supplier is not registered under GST, an input tax credit of GST paid under RCM can only be claimed on basis of a self invoice.

Exempted security services under GST

Exempt supply means a supply of any goods or services or both which attract a nil rate of tax or which may be wholly exempt from tax. The following types of security services are exempted from GST: 

  • Services provided to an educational institution by way of security or cleaning or housekeeping services performed in such educational institution.
  • Services provided by any person for official use of a foreign diplomatic mission or consular post in India or personal use or the use of the family members of diplomatic agents or career consular officers posted therein. This exemption is available subject to certain conditions. 

Relevant extract of GST notification mandating RCM

The relevant extract of RCM notification in regard to security services is given below:

Sl. No.

Category of Supply of Services

Supplier of service

Recipient of service

14

Security services (services provided by way of supply of security personnel) provided to a registered person:

Provided that nothing contained in this entry shall apply to, –

(i) (a) a Department or Establishment of the Central Government or State Government or Union territory; or
(b) local authority; or
(c) Governmental agencies;
which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 of the said Act and not for making a taxable supply of goods or services; or

(ii) a registered person paying tax under section 10 of the said Act.

Any person other than a
body corporate

A registered person,
located in the taxable
territory.


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CA Anand Singh

CA Anand Singh

I am a practising Chartered Accountant with 6 years of experience in Direct and Indirect Taxation, FEMA, Corporate Law and Audit etc.