RCM on Import of Services / GST On Import of Services In India – Rules &
Taxability
Under the Goods and
Services Tax (GST) law in India, the concept of “import of services” is
specifically defined and may differ from the general understanding of service
imports in trade and business circles. Not all services received from outside
India are taxable under GST. Only those services that fulfill the legal
definition of “import of service” under the Integrated Goods and Services
Tax (IGST) Act, 2017 are considered taxable supplies and subject to GST.
As per Section 2(11)
of the IGST Act, a service will be treated as an “import of service” when
three key conditions are satisfied. Firstly, the supplier of the service
must be located outside India. Secondly, the recipient of the service
must be located in India. Thirdly, the place of supply of the service
must also be in India. If any of these three conditions is not fulfilled,
the service will not be treated as an import under GST. Only when all three are
present, GST liability arises on the recipient. Taxability of Import of Service
Under Reverse Charge: Notification No. 10/2017- Integrated Tax (Rate)
|
Sl.
No.
|
Category
of Supply of Services
|
Supplier
of service
|
Recipient
of Service
|
|
(1)
|
(2)
|
(3)
|
(4)
|
|
1.
|
Any
service supplied by any person who is located in a non-taxable territory to
any person other than non-taxable online recipient.
|
Any
person located in a non-taxable territory
|
Any
person located in the taxable territory other than non-taxable online
recipient.
|
Exemption:( Notification
No. 9/2017-Integrated Tax (Rate)
|
Sl.
No.
|
Chapter,
Section, Heading, Group or Service Code (Tariff)
|
Description
of Services
|
Rate
(per cent.)
|
Condition
|
|
10
|
|
Services
received from a provider of service located in a non- taxable territory by –
(a) the Central Government, State Government, Union territory, a local
authority, a governmental authority or an individual in relation to any
purpose other than commerce, industry or any other business or profession;
(b) an entity registered under section 12AA of the Income-tax Act, 1961 (43
of 1961) for the purposes of providing charitable activities; or (c) a person
located in a non-taxable territory: Provided that the exemption shall not
apply to – (i) online information and database access or retrieval services
received by persons specified in entry (a) or entry (b); or (ii) services by
way of transportation of goods by a vessel from a place outside India up to
the customs station of clearance in India received by persons specified in
the entry.
|
NIL
|
NA
|
Once a service is
considered as an “import of service,” it becomes taxable under the Reverse
Charge Mechanism (RCM). In a reverse charge situation, the liability to pay
tax shifts from the supplier to the recipient of the service. This means
that the Indian entity or person receiving the service from abroad has to
discharge the GST liability, even though the service provider is not registered
in India. The applicable tax is usually IGST and must be paid in cash, not
through Input Tax Credit (ITC), though the recipient can claim ITC on the tax
paid if the service is used in the course or furtherance of business.
The scope of supply under
Section 7(1)(b) of the CGST Act, 2017 also clarifies that import of
services for a consideration is deemed to be a supply, whether or not it
is in the course or furtherance of business. This means that even if an
individual imports a service from outside India for personal use, such as
hiring a foreign architect for designing his personal residence in India, the
transaction would still be taxable under GST. The law makes no exception for
personal consumption when it comes to the import of services for consideration.
Additionally, Schedule
I of the CGST Act lists certain transactions that are treated as supplies even
if no consideration is involved. One of the key entries in Schedule I
states that import of services by a person from a related person or from any
of his other establishments located outside India, in the course or
furtherance of business, is deemed to be a taxable supply. For instance, if an
Indian company receives marketing services from its own foreign branch, even
without any payment, it will be treated as an import of service and the Indian entity
will be liable to pay tax under reverse charge.
However, there are
certain exemptions provided under GST law for specific categories of service
imports. As per the exemption notification, services received from a service
provider located in a non-taxable territory by:
(a) the Central Government, State Government, Union Territory,
local authority, or a governmental authority for any purpose other
than commerce, industry, or business,
(b) an entity registered
under Section 12AA of the Income Tax Act, 1961 for conducting charitable
activities, or
(c) a person located
in a non-taxable territory, shall be exempt from GST. However, this
exemption is strictly limited and does not apply if the service is used for
business or commercial purposes.
To illustrate, if a
charitable trust registered under Section 12AA of the Income Tax Act receives
advisory services from a US-based consultant for organizing a welfare program,
such services would be exempt. But if the same trust receives services for running
a commercial training program, the exemption would not apply and GST would be
payable under RCM.
In conclusion, under GST,
the taxability of service imports depends on the specific definition provided
in the law. If the three key elements—supplier located outside India, recipient
located in India, and place of supply in India—are satisfied, the service
becomes taxable as an “import of service.” Such services are subject to reverse
charge, where the Indian recipient is liable to pay GST. Even imports for
personal use are taxable if made for consideration. In some specific cases,
exemption is available, but it is limited to non-commercial use by government
bodies or charitable organizations. Therefore, businesses and individuals alike
must be cautious in determining the taxability of services received from abroad
to ensure proper compliance under the GST regime.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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