GST on Security Services: GST Definition & Explanation, Importance, Indian GST Rate, Terms and Conditions
Security services have become an indispensable part of running any establishment in India today. With rising security threats and crimes, businesses as well as residential complexes rely on various types of security services to safeguard their premises, assets and people. However, with the introduction of Goods and Services Tax (GST) in 2017, the taxation of security services has undergone some changes. In this exhaustive guide, we take you through all the key aspects of GST on security services in India.
What is GST?
Goods and Services Tax or GST is an indirect tax regime implemented in India from 1st July 2017. It has subsumed all the indirect taxes applicable earlier such as Value Added Tax (VAT), Service Tax, Excise Duty, Entertainment Tax, Luxury Tax etc.
GST aims to create a unified market by having a single tax rate on goods and services across India. It is collected on the supply of goods or services at each stage of the production and distribution chain. GST is levied on the “value added” at each of these stages.
GST is governed by the GST Council and the taxes are levied concurrently by the Central and State Government. It has a four-tier tax structure:
- 5% (Goods)/ 18% (Services): CGST and SGST/ UTGST
- 12% (Goods)/ 18% (Services): IGST
- 0% Exempt
- 0.25% – 0.10%: Cess on luxury & Sin goods
Why are Security Services Important?
With increasing risks to life and property, security services have become extremely crucial today. Some key reasons why security services are critical are:
- Safety of People and Assets: Security personnel safeguard human lives as well as valuables within a protected facility.
- Access Control: They regulate movement of people and vehicles in and out of the premises.
- Surveillance: CCTV monitoring, frisking and patrolling help detect threats and unlawful activities.
- Response to Emergencies: Quick reaction by trained security guards is vital during medical/fire emergencies.
- Loss Prevention: Theft, robbery, damage etc. lead to huge financial losses which can be prevented.
- Compliance: Certain establishments are legally required to have security systems and personnel.
- Customer Trust: Visible security improves consumer confidence in availing a company’s products/services.
- Reputation: Good security reflects positively on a brand’s image and stature.
How does GST Impact Security Services?
Pre-GST, security services attracted Service Tax at 15% along with 0.5% Swachh Bharat Cess and 0.5% Krishi Kalyan Cess, totaling 15.5%. Value Added Tax was also applicable in some cases. GST has brought about the following changes:
- Single Tax: Has replaced the multiple indirect taxes charged earlier.
- Higher Tax: The effective GST rate on security services is 18% which is higher than 15.5% pre-GST.
- Input Tax Credit: GST paid on inputs can be claimed as credit by service providers.
- Compliance: Additional registration, documentation, returns and payments now required.
Thus, while GST has standardized taxation and permitted input credit benefits, the higher 18% rate has increased service costs for businesses and end-consumers.
Applicability of GST on Security Services
GST becomes payable on security services when:
- A security agency provides manpower services within a state. IGST will apply if services are inter-state.
- Goods related to security like equipment, monitoring systems etc. are supplied.
- A security consultancy provides advisory services for risk assessment, systems audit etc.
GST does not apply when security services are provided by an employee to his/her employer. Salaries paid to security personnel will not attract GST.
GST Rate for Security Services
As per GST notification, the applicable GST rate on security services is 18% which includes:
- CGST: 9% tax charged by Central Government
- SGST: 9% tax charged by State Government
For inter-state supplies, IGST at 18% will be charged instead of CGST and SGST.
This 18% rate applies to nearly all security services like:
- Supply of security personnel
- Security systems/equipment installation
- Security consultancy
- Security testing/maintenance
- Cash/vehicle security
- Bodyguard services
- Security training services
- Services by private detectives
Therefore, GST is payable at 18% on the total invoice value by both service providers as well as receivers.
Input Tax Credit of GST for Security Service Providers
Under GST, security agencies can claim input tax credit (ITC) which can be set-off against their GST liability.
ITC can be claimed on the following:
- GST paid on purchase: Of security equipment, devices, furniture, uniforms etc.
- GST paid to sub-contractors: Hiring third-party security agencies will allow credit for GST charged by them.
- GST paid on rentals: For offices, sites where security is deployed.
- GST on Utilities: Like telecom, electricity etc. used for providing security.
However, ITC cannot be claimed for personal usage or non-business expenditure. Proper invoices are required to claim ITC. This benefit allows agencies to reduce the GST burden on output supplies.
GST Compliance for Security Service Providers
Security service providers have to undertake the following GST compliance:
1. Compulsory Registration
It is mandatory to register if the aggregate annual turnover exceeds ₹20 lakhs (₹10 lakhs for Special Category States).
2. Invoice Issuance
Tax invoice has to be issued for every taxable supply showing GST charged. E-invoicing is required for turnover above ₹20 crores.
3. Record Keeping
Proper accounts of income, expenditure, invoices and ITC claims must be maintained.
4. Monthly/Quarterly Returns
Form GSTR-1 (sales), GSTR-2A (purchases) and GSTR-3B (summary return) have to be filed monthly or quarterly online.
5. Interest and Penalties
Delay in filing returns or payment of tax will attract interest and penalties up to 100% of tax liability.
6. GST Audit
If annual turnover exceeds ₹2 crores, GST accounts have to be audited by a chartered accountant.
Thus, GST involves comprehensive compliance formalities for security agencies.
GST Registration Process for Security Firms
To register under GST, security service providers have to follow these steps:
Step 1: Apply Online on GST Portal
Application Form GST REG-01 has to be filled and submitted on gst.gov.in along with business details.
Step 2: Provide Documents
Scanned copies of identity proof, address proof, bank account details and business documents have to be attached.
Step 3: Pay Registration Fee
A nominal application fee has to be paid online to obtain the Certificate of Provisional Registration.
Step 4: Receive Final Registration
After processing and verification, the final GSTIN registration certificate will be issued. This can take up to 7 working days.
Step 5: Obtain Digital Signature
To file returns online, Class 2 Digital Signature Certificate has to be obtained from authorized agencies.
On completion of registration, security agencies can start issuing GST invoices and filing monthly/quarterly returns.
Invoicing Requirements under GST on Security Services
As per Section 31 of CGST Act, security service providers have to issue a Tax Invoice within 30 days of supply which must contain:
- Name, Address and GSTIN of supplier
- Invoice number and date
- Customer name and shipping address
- HSN code of service
- Item details like description, quantity, value
- Central tax, State tax and total GST charged
- Place and date of supply
- Signature of authorized representative
Invoices have to be issued electronically if annual turnover exceeds ₹20 crores. Overall, accurate invoicing is vital for claiming ITC and reconciliation of sales.
GST Returns and Payments for Security Firms
After issuing invoices, security agencies have to file GST returns for security services and make tax payments as below:
It is a monthly or quarterly return which provides invoice-wise details of outward supplies, inter-state sales and tax liability. It has to be filed by the 10th of next month.
This is a system-generated read only return showing input tax credit available to a GST registered person from supplies received during a month.
It is a simple monthly return that summarizes outward and inward supplies along with amount of tax liability, ITC claimed and taxes paid in a particular month.
After filing GSTR-3B, GST payment has to be made electronically through NEFT/RTGS using prescribed Challan by 20th of next month.
Late filing of returns attracts interest and penalties. Security agencies must comply with these return filing procedures.
Exemptions from GST on Security Services
While 18% GST is applicable on most security services, the following have been exempt as per GST notification:
- Services provided to Government Agencies: Any security services provided to Central Government, State Government, Union Territory, local authority or governmental authority are exempt from GST.
- Services provided to certain International Organizations: Security services provided to specified international organizations like UNESCO, WHO, World Bank etc. are exempt.
- Charitable Religious Institutions: Security services provided to charitable religious trusts like Dera Sacha Sauda etc. do not attract GST.
Thus, no GST needs to be charged if security services are provided to such eligible entities. A certificate of exemption needs to be obtained from the recipient organization.
Reverse Charge of GST on Security Services
In case of Reverse Charge Mechanism (RCM), GST liability has to be paid directly by the service receiver instead of the supplier.
RCM at 5% (CGST 2.5% + SGST 2.5%) applies on security services received from an unregistered supplier by:
- Business entities registered under GST
- Government departments
- Local authorities
So, if a GST registered manufacturing unit hires security from an unregistered agency, it has to pay 5% GST under RCM and the agency won’t charge any tax.
Learn about Reverse Charge in depth on TaxGuru.
How does GST Impact Security Service Recipients?
For businesses and individuals availing security services, GST has the following implications:
- Higher Cost: 18% GST has increased the cost of outsourced security services for service recipients.
- Compliance: Registration may be required if total purchases exceed ₹20 lakhs (₹10 lakhs for certain states).
- Input Tax Credit: GST paid on security services can be claimed as input credit by registered recipients.
- RCM: Unregistered service recipients have to discharge GST liability under RCM for supplies from unregistered agencies.
- Documentation: Invoices are required from vendors to avail input credit.
Thus, GST involves additional compliance responsibilities for companies and entities that utilize security services. Proper planning is required to reduce the tax impact.
Input Tax Credit for Recipients of Security Services
Businesses and establishments procuring security services can claim ITC to reduce GST liability on output supplies and services.
ITC can be claimed on:
- GST paid on security agency’s invoices
- GST paid on purchase, installation and maintenance of security systems
To claim ITC, recipients must ensure that:
- Supplier has charged GST at correct rate
- Invoice contains all details required under GST
- Timely filing of GST Returns
- ITC is claimed within due date
ITC claim will be rejected if any compliance is not fulfilled. Claiming ITC can significantly lower cash outflows on GST for recipients.
GST Compliance for Recipients of Security Services
Recipients of security services may need to undertake the following GST compliance:
Recipient must register if aggregate purchases from registered suppliers exceed ₹20 lakhs (₹10 lakhs in certain states).
It must be ensured that supplier has issued invoices as per GST rules and charged 18% GST.
If supplier is unregistered, 5% GST must be paid directly under RCM along with applicable returns.
ITC credit availment has to be reconciled with GST charged on invoices. Any mismatch should be rectified.
Proper accounts of security services procured, GST invoices and ITC claimed must be maintained.
Thus, recipients should factor in GST compliance costs while planning security budgets and resources.
Challenges in Implementation of GST for Security Services
Despite the advantages, GST has also posed certain challenges for the security services sector such as:
- Increased Costs: 18% GST has inflated service costs making it expensive for businesses and individuals.
- Working Capital Blockage: Delay in ITC claim due to compliance issues can block working capital.
- Lack of Technical Knowhow: Many small agencies struggle with online registration and filing of returns.
- Vendor Management: Getting all suppliers to be GST compliant has been a challenge.
- Logistical Issues: Physical movement of goods for pan-India projects now needs E-Way Bills.
- Complex Procedures: High frequency of returns and intricate ITC rules have added to difficulties.
- Transitional Challenges: Transferring closing balances and reconciling taxes of pre-GST regime has caused problems.
However, increased familiarity with the new tax structure over time is helping overcome these hurdles.
Implementation of GST has significantly changed taxation on private security services in India. While standardization of rates across India has been beneficial, 18% GST has also increased costs.
Security service providers as well as procurers need to be cognizant of GST rules and compliance requirements like registration, invoices, input credit, returns and payments. Although GST has posed some early challenges, familiarity with the new tax structure and claiming input tax credits can help optimize costs for businesses over time.
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