Tax in India

As per 2(98) of the CGST Act, 2017, ‘’reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or subsection
(4) of section 9 of the CGST Act, 2017, or under subsection (3) or subsection (4) of section 5 of the IGST Act, 2017.

1. If turnover of the entity is less than the limit of Rs. 20 lakhs in a financial year, no tax would be payable. The exemption from payment of tax is applicable to
   services provided to a business entity having a turnover up to Rs. 20 lakh rupees.
2. However, this exemption is not applicable to :-

(i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;

(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of an airport or a port;

(iii) services of transport of goods or passengers and

(iv) services by way of renting of immovable property.

1. The expression “special category States” provided in Explanation (iii) to section 22 of the CGST Act, shall mean the States as specified in sub-clause (g) of clause (4) of Article 279A of the Constitution.
2. As per the said clause, the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal
   Pradesh and Uttarakhand have been given the status of special category States for the purpose of GST Acts. Notification No. 12/2017-Central Tax(Rate), dated 28.06.2017 (Sl. No. 7 of the Table) provides for exemption from payment of tax in respect of services provided to a business entity located in a special category State with a turnover up to Rs. 10 lakh rupees.
   However, this exemption is not be applicable to

(a) services –
(i) by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;

(ii) in relation to an aircraft or a vessel, inside or outside the precincts of an airport or a port;

(iii) of transport of goods or passengers and

(iv) services by way of renting of immovable property.

No. This gets covered under the exemption by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority.

Regulation of land-use, construction of buildings and other services listed in the Twelfth Schedule to the Constitution which have been entrusted to Municipalities under Article 243W of the Constitution, when provided by governmental authority are exempt from payment of tax.

1. Non-performance of a contract or breach of contract is one of the conditions normally stipulated in the Government contracts for supply of goods or services.
2. The agreement entered into between the parties stipulates that
   both the service provider and service recipient abide by the terms and conditions of the contract.
3. In case any of the parties breach the contract for any reason including nonperformance of the contract, then such person is liable to pay damages in the form of fines or penalty to the other party.
4. Non-performance of a contract is an activity or transaction which is treated as a supply of service and the person is deemed to have received the consideration in the form of fines or penalty and is, accordingly, required to pay tax on such amount.
5. However non performance of contract by the supplier of service in case of supplies to Government is covered under the exemption from payment of tax.
6. Thus any consideration received by the Government from any person or supplier for non performance of contract is exempted from tax.

Illustration: Public Works Department of Karnataka entered into an agreement with M/s. ABC, a construction company for construction of office complex for certain amount of consideration. In the agreement dated 10.7.2017, it was agreed by both the parties that M/s. ABC shall complete the
construction work and handover the project on or before 31.12.2017. It was further agreed that any breach of the terms of contract by either party would give right to the other party to claim for damages or penalty. Assuming that M/s. ABC does not complete the construction and handover the project by the specified date i.e., on or before 31.12.2017. As per the contract, the department asks for damages/penalty from M/s. ABC and threatened to go to the court if not paid. Assuming that M/s ABC has paid an amount of Rs. 10,00,000/- to the department for non performance of contract. Such
amount paid to department is exempted from payment of tax.

The functions entrusted to a municipality under the Twelfth Schedule to Article 243W of the Constitution are as under:
(a) Urban planning including town planning.
(b) Regulation of land-use and construction of buildings.
(c) Planning for economic and social development.
(d) Roads and bridges.
(e) Water supply for domestic, industrial and commercial
purposes.
(f) Public health, sanitation conservancy and solid waste
management.
(g) Fire services.
(h) Urban forestry, protection of the environment and
promotion of ecological aspects.
(i) Safeguarding the interests of weaker sections of society,
including the handicapped and mentally retarded.
(j) Slum improvement and upgradation.
(k) Urban poverty alleviation.
(l) Provision of urban amenities and facilities such as parks,
gardens, playgrounds.
(m) Promotion of cultural, educational and aesthetic aspects.
(n) Burials and burial grounds; cremations, cremation
grounds; and electric crematoriums.
(o) Cattle pounds; prevention of cruelty to animals.
(p) Vital statistics including registration of births and deaths.
(q) Public amenities including street lighting, parking lots, bus
stops and public conveniences.
(r) Regulation of slaughter houses and tanneries.

No. Online information and database access or retrieval services received by Government or local authorities from non taxable territory for any purpose including furtherance of business or commerce are liable to tax.

1. No tax is payable on the services received by the Government / local authority/ governmental authority from a provider of service located outside India.
2. However, the exemption is applicable to only those services which are received for the purpose other than commerce, industry or any other business or profession.
3. In other words, if the Government receives such services for the purpose of
   business or commerce, then tax would apply on the same.

The Department of Posts also provides services like distribution of mutual funds, bonds, passport applications, collection of telephone and electricity bills on commission basis. These services are in the nature of intermediary
and generally called agency services. In these cases, the Department of Posts is liable to pay tax without application of reverse charge.