When it comes to understanding GST (Goods and Services Tax), one of the key concepts is the “place of supply.” This determines which state or country has the authority to tax a particular transaction. If you’re new to GST and find this concept confusing, don’t worry! We’re here to explain it in simple terms, especially focusing on Section 13 of the IGST Act 2017, which deals with the place of supply of services when either the supplier or the recipient is located outside India.
It is essential to determine the place of supply in order to claim a GST refund on categories like ITC accumulated on export of services and export of services with payment of tax. Determination of place of supply is essential in case of supply of services which has been outlined in the Section 13 (3) to (13) of the IGST Act 2017. We will discuss each sub-section in detail with an example so that you can comprehend it easily.
What is the Place of Supply?
The place of supply is crucial because it decides whether a transaction is interstate (between two states) or intrastate (within the same state). This, in turn, determines whether IGST (Integrated GST) or CGST (Central GST) and SGST (State GST) will be applied.
Section 13 of the IGST Act 2017: Place of Supply of Services
First, I tell what Section 13 (1) to (2) of the IGST Act 2017 states-
13. Place of supply of services where location of supplier or location of recipient is outside India
(1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India.
(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services:
Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.
Explanation of Section 13(2) of the IGST Act 2017 –
The place of supply is determined based on the location of the recipient and it should be outside India to consider it as an export of services and then, you can claim a GST refund on export of services.
If the place of the recipient is not available, the location of the supplier of services will be considered i.e., India. In that case, it won’t be considered an export of services.
The basic rule is that the place of supply of services is where the recipient is located. For example, if an Indian company provides consulting services to a client in the USA, the place of supply is the USA.
Special Cases to determine Place of Supply
There are cases where the place of supply of such services shall be the location where the services are actually performed, and Section 13 (3) to (13) has defined the same. Note that- Section 13(9) has been omitted.
Section 13 outlines several specific scenarios where the place of supply is determined differently:
- Services Related to Goods (Section 13(3)(a)):
- If the service involves goods that must be physically available to the service provider (like repairing a machine), the place of supply is where the service is performed.
- Example: If you send your watch to a service center in Germany for repair, the place of supply is Germany.
- Services Requiring Physical Presence (Section 13(3)(b)):
- If the service requires the recipient to be physically present (like a spa treatment), the place of supply is where the service is performed.
- Example: A spa session in India for an Indian provided by any foreign salon, the place of supply would be India..
- Services Related to Immovable Property (Section 13(4)):
- If the service is directly related to immovable property (like real estate services), the place of supply is where the property is located.
- Example: Property valuation services for a building in Australia will have Australia as the place of supply. But, in case you supply architectural design to foreign entity for building (immovable property) situated in India, the place of supply would be India only and it is not considered as an export of services.
- Events (Section 13(5)):
- For admission to events (like concerts or conferences) or organization of events, the place of supply is where the event is held.
- Example: A ticket sold to an Indian for a concert in New York will have New York as the place of supply. But, if the concert is held in India by a foreign celebrity, the place of supply will be in India only.
- Services Supplied at Multiple Locations (Section 13(6)):
- If services are provided across multiple locations, including India, the place of supply is the location in the taxable territory (India).
- Example: A multinational company providing services across India and other countries will need to account for the place of supply in India for services rendered there.
- Specific Services (Section 13(8)):
- For banking, financial, intermediary services, and short-term hiring of transport, the place of supply is where the supplier is located.
- Example: A financial advisory service provided by a US-based firm to an Indian client will have the USA as the place of supply. But, if the Indian firm provides financial advisory to an US client, the place of supply will be India and it won’t be considered as an export of services.
- Passenger Transportation (Section 13(10)):
- For passenger transportation services, the place of supply is where the passenger embarks on the journey.
- Example: A flight from Mumbai to London has Mumbai, India as the place of supply.
- On-board Services (Section 13(11)):
- Services provided on board a conveyance (like an airplane) are considered to have the place of supply at the first point of departure.
- Example: Meals served on a flight from Delhi to Paris will have Delhi, India as the place of supply.
- Online Information Services (Section 13(12)):
- For online services like database access, the place of supply is the recipient’s location, determined by certain conditions.
- Example: An Indian subscribing to an online database hosted in the USA will have India as the place of supply.
Read more: Upload these documents with your GST refund application
Preventing Double Taxation (Section 13(13))
To avoid double taxation or non-taxation, the government can notify specific services or circumstances where the place of supply rules might differ.
Why is Understanding the Place of Supply Important?
- Correct Taxation:
- Ensures that the correct GST is charged and remitted.
- Helps avoid disputes with tax authorities.
- Compliance:
- Helps businesses comply with GST laws, avoiding penalties. It also makes them understand whether activity performed by your company is an export of services or not.
- Financial Planning:
- Accurate determination of place of supply aids in financial and tax planning.
FAQs on Place of Supply
Q1: What happens if the recipient’s location is not available?
- A1: If the recipient’s location is not known, the place of supply defaults to the supplier’s location.
Q2: Is there GST on services performed outside India?
- A2: If the place of supply is outside India, GST is typically not applicable. You can export services under LUT or with payment of tax and file for GST refund under Section 54 of the CGST Act 2017.
Q3: How do I determine the place of supply for digital services?
- A3: For digital services, the place of supply is the recipient’s location, determined by factors like billing address, IP address, etc.
Q4: Are there different rules for goods and services?
- A4: Yes, the rules for determining the place of supply for goods differ from those for services.
Understanding these rules can help you navigate the complexities of GST and ensure compliance with tax laws. If you have more questions, it’s always a good idea to consult a tax professional.
Conclusion
The place of supply rules under Section 13 of the IGST Act 2017 are designed to simplify the process of determining where services are taxed, especially when they involve cross-border transactions.
It is also important to learn the place of supply as it will help you in filing GST refund claims. By understanding these rules, businesses and individuals can ensure they are applying the correct GST rates and remain compliant with tax regulations.
