GST on electricity in India is straightforward: the supply of electrical energy is exempt from GST under HSN 2716, and transmission or distribution of electricity by a utility is also exempt. So your basic electricity supply carries no GST, although certain related services can attract GST.

Understanding GST Exemptions on Electricity Supply in India

The Goods and Services Tax (GST) framework generally exempts the supply of electricity. However, it is crucial for businesses to grasp how other electricity-related services and products are taxed under GST. This guide will cover essential aspects, including relevant HSN codes and common queries regarding GST on electricity.

Is GST Applicable on Electricity?

When provided independently, electricity is exempt from GST under the existing tax regulations. Nonetheless, certain services associated with electricity may incur GST, depending on their specific nature.

Electricity Supply

Notification No. 02/2017-Central Tax (Rate), issued on June 28, 2017, clarifies that electricity supply falls under HSN Code 2716 and is exempt from GST. Consequently, power companies and utilities do not levy GST on electricity sales to either commercial or residential consumers.

Electricity-Related Services

Electricity distribution utilities providing services like the construction, setup, activation, or installation of infrastructure for expanding the electricity network are also exempt from GST. However, if electricity supply is combined with other services, such as equipment maintenance or property rental, GST might apply based on the service classification. A composite supply, for instance, which includes maintenance or renting, could be subject to an 18% GST.

Electricity Composite Supplies

When electricity provision is offered alongside additional services, such as maintaining electrical equipment or leasing real estate, it could be classified as a composite supply. In such cases, an 18% GST rate would apply, irrespective of whether the electricity component is billed separately.

GST on Inverter and Battery Services

Although electricity itself is GST-exempt, specific electrical goods like inverters, batteries, and solar panels are subject to GST. The applicable tax rates for these products or associated services can vary from 5% to 18%, determined by the particular item.

HSN Code for Electricity

The supply of electricity is exempt from GST under HSN Code 27160000 (“Electrical Energy”), as per Notification 02/2017 (Central Tax) dated June 28, 2017. This exemption means that neither businesses nor individual consumers are required to pay GST on their electricity bills. Additionally, electricity transmission or distribution services rendered by utilities, such as state electricity boards, are also exempt under Notification 12/2017, falling under heading 9969.

Input Tax Credit (ITC) on Electricity

Input Tax Credit (ITC) cannot be claimed on electricity bills since electricity supply is GST-exempt. Nevertheless, businesses are eligible to claim ITC on maintenance and repair services for electrical equipment, provided these services are subject to GST.

Frequently Asked Questions (FAQ)

Is GST charged on electricity in India?

No. The supply of electrical energy is exempt from GST under HSN 2716, so your basic electricity consumption does not carry GST.

Is transmission and distribution of electricity taxable?

Transmission and distribution of electricity by an electricity transmission or distribution utility is exempt from GST.

Are any electricity-related services taxable?

Yes. Certain ancillary services connected with electricity, such as some charges by third parties, can attract GST even though the energy itself is exempt.

Why is electricity exempt from GST?

Electrical energy is treated as an exempt supply of goods under GST, and its transmission and distribution by utilities is specifically exempted, keeping basic electricity supply outside GST.