Changes in CGST Rate Schedule for Certain Services and Input Tax Credit Rules
Simplified Explanation of Notification No. 12/2023-Central Tax (Rate) – Amendments to CGST Rate Schedule for Services
Heading: Changes in CGST Rate Schedule for Certain Services and Input Tax Credit Rules
Purpose of the Notification:
This notification updates the Central Goods and Services Tax (CGST) rate schedule and rules for claiming input tax credit (ITC) for specific services. The changes address the conditions under which businesses can claim input tax credit when the rate of CGST on input services is higher than the rate charged on output services.
Key Changes Introduced:
1. Amendments to Input Tax Credit Rules
- Old Provision:
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- The rules for claiming input tax credit on services with a CGST rate of 2.5% were straightforward, but did not specify how to handle excess tax charged by input service suppliers.
- New Provision:
- For services listed under serial numbers 8 and 10, if the supplier of an input service charges CGST at a rate higher than 2.5%, the recipient can only claim input tax credit on the portion of the input tax that matches the 2.5% rate. Excess tax paid on the input service cannot be claimed as input tax credit.
- Example:
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- Scenario:
- ‘A’ hires ‘B’ for transport services from New Delhi to Jaipur for Rs. 1000.
- ‘B’ hires a cab from ‘C’ for Rs. 800, and ‘C’ charges CGST at 6% (Rs. 48).
- ‘B’ charges ‘A’ at 2.5% CGST (Rs. 25).
- Input Tax Credit:
- ‘B’ can only claim an input tax credit of Rs. 20 (2.5% of Rs. 800) on the service provided by ‘C’. The remaining Rs. 28 (Rs. 48 – Rs. 20) cannot be claimed as ITC.
- Scenario:
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2. Amendments to Specific Service Categories
- For Serial Number 34:
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- (a) In the rate schedule, the term “totalisator or a license to” is replaced with “licensing a”. This change clarifies the description of the services related to licensing in the gambling and betting sectors.
- (b) Item (v) related to licensing of specific services has been removed from the schedule.
- For the Annexure: Scheme of Classification of Services:
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- (i) Serial number 696 and related entries have been removed. This could relate to the removal of specific service classifications from the list.
- (ii) Serial number 698 and related entries have been removed, indicating changes or updates in service classification.
Effective Date:
- Date of Implementation: The amendments will come into force from October 20, 2023.
Summary:
Notification No. 12/2023-Central Tax (Rate) introduces the following updates:
- Input Tax Credit: Limits the claim of input tax credit when the input service tax rate exceeds the output service rate of 2.5%.
- Service Categories: Clarifies and updates descriptions for certain services in the CGST rate schedule and removes outdated service classifications.
These changes are aimed at refining tax credit rules and ensuring clarity in the classification of services for tax purposes.