Security services, offered by individuals or entities to protect property and people, were initially outside the explicit scope of the CGST Act 2017 and operated under the forward charge system. However, since January 2019, these services have been incorporated into the Reverse Charge Mechanism (RCM). This article will explore the applicable GST rates for security services, the RCM framework, its time of supply, and the rules for claiming Input Tax Credit (ITC).

Taxation of Security Services Under GST

The Goods and Services Tax (GST) rate for security services is 18%. Taxpayers liable to pay GST under the RCM for these services must ensure that their GST invoices are properly issued, detailing the Service Accounting Code (SAC) and all necessary accompanying documents.

Reverse Charge Mechanism (RCM) Applicability for Security Services Under GST

Initially, security services were not subject to the Reverse Charge Mechanism (RCM) within the GST framework, meaning suppliers collected and remitted tax. Effective January 1, 2019, security services became subject to RCM. This requires any registered recipient of security services from a non-body corporate entity to pay GST under RCM. However, two specific exceptions exist: government agencies or local authorities registered for Tax Deducted at Source (TDS) purposes only, and individuals or businesses opted into the GST composition scheme.

Key considerations for RCM on security services include:

• The standard GST registration threshold (Rs. 20-40 lakhs) does not apply to registered persons receiving these services.
• If the service recipient is unregistered, the supplier remains responsible for GST under a forward charge, irrespective of their corporate status.
• A supplier’s collection of GST does not exempt the recipient from their RCM obligations.
• Individuals must register under the GST Act if RCM applies to their receipt of security services.

SAC Codes and GST Rates for Security Services

The Service Accounting Code (SAC) is a categorization system utilized by the Indian Service Tax Department to classify diverse services for tax imposition. The following table outlines the SAC codes and corresponding GST rates for various security services:

Determining Time of Supply for Security Services Under RCM with an Example

The time of supply denotes the point a transaction is deemed to have occurred for tax liability assessment. As per Section 13(3) of the GST Act, for security services under RCM, the time of supply is the earliest of these events: the actual date of payment, or the date immediately following 60 days from the invoice issuance date. Should neither the payment date nor the 60-day timeframe be determinable, the time of supply defaults to the date the transaction is recorded in the recipient's accounting records.

For instance, if security services are rendered in August, an invoice is issued on September 8, 2022, and payment occurs on October 10, 2022, the time of supply would be October 10, 2022. This is because the payment date precedes the 60-day mark, which would be November 8, 2022.

Situations for Forward Charge GST on Security Services

Certain situations necessitate GST payment under the forward charge mechanism, rather than RCM, including:

• Security services that do not involve personnel, such as the deployment of sniffer dogs or CCTV system installations
• Services rendered to individuals or entities not registered under GST
• Services supplied to taxpayers enrolled under the composition scheme
• Services provided by a body corporate entity
• Services furnished to government agencies specifically registered for TDS purposes

Claiming Input Tax Credit (ITC) on GST Paid for Security Services

Input Tax Credit (ITC) allows businesses to offset taxes paid on inputs against their output tax liability. When security services are acquired for business operations or taxable supplies, the GST paid through the RCM is eligible to be claimed as ITC. Furthermore, if the service provider is not GST-registered, the recipient can generate a self-invoice to facilitate the ITC claim.

GST Exemptions for Security Services

An exempt supply denotes goods or services that are either taxed at a nil rate or entirely free from tax obligations. For security services, specific categories are exempted from GST and thus carry no tax liability. These include security services rendered to educational institutions, such as engaging security guards or housekeeping personnel, and security services provided to foreign diplomatic mission staff or consular post members (or their families) within India. To avail these exemptions, a certificate issued by the Ministry of External Affairs (MEA) must be presented to the GST Council.

Advance Rulings Pertaining to GST on Security Services

An advance tax ruling offers a formal interpretation of tax laws by authorities, guiding businesses and individuals on uncertain provisions. A relevant advance ruling concerning GST on security services involved M/s AS&D Enterprise, a Limited Liability Partnership (LLP) providing security personnel to various businesses. The LLP sought clarification on its status as a body corporate and whether its security personnel supply would fall under the forward charge mechanism, rather than the RCM.

The Haryana Authority for Advance Ruling (AAR) determined that LLPs qualify as a body corporate under Notification No. 29/2018-Central Tax (Rate). Therefore, the supply of security personnel services by an LLP to a registered recipient is exempt from RCM and should be taxed under the forward charge mechanism. This decision was based on several factors:

• An LLP is recognized as a body corporate by Section 2(d) of the LLP Act, 2008.
• LLPs are distinct legal entities with partners having limited liability restricted to their capital contributions.
• The LLP Act, 2008, permits the central government to apply relevant Companies Act provisions to LLPs.

Conclusion

The implementation of the Reverse Charge Mechanism (RCM) has, in specific scenarios, transferred the obligation for GST payment from the service provider to the recipient. Consequently, it is crucial for businesses and individuals to comprehend these regulations and adhere to GST compliance standards to ensure seamless operations and mitigate the risk of non-compliance.