In its ongoing efforts to simplify the Goods and Services Tax (GST) framework and reduce tax burdens in key sectors, the Central Board of Indirect Taxes and Customs (CBIC), following the recommendations of the GST Council in its 54th meeting held on September 9, 2024, issued Notification No. 08/2024 – Central Tax (Rate). This notification introduces significant exemptions for both research and development services and certain charges related to electricity distribution.
The notification addresses two primary categories:
- Exemption for research and development services supplied by government entities or educational and research institutions.
- Exemption for charges incidental to the transmission and distribution of electricity provided by utilities to their consumers.
These changes, effective from October 10, 2024, are aimed at reducing compliance costs and regularizing past demands on an ‘as is where is’ basis for both sectors.
Key Changes Introduced by Notification No. 08/2024
1. GST Exemption on Research and Development Services
The notification adds a new entry under Serial No. 44A, which exempts certain research and development services provided by specific entities when the services are funded by grants. The exempted entities include:
- Government Entities.
- Research associations, universities, colleges, or other institutions notified under clauses (ii) or (iii) of sub-section (1) of Section 35 of the Income Tax Act, 1961.
This exemption is applicable only if these institutions are notified at the time of supply of the research and development services.
| Serial No. | Service Heading | Description of Service | GST Rate | Conditions |
|---|---|---|---|---|
| 44A | Heading 9981 | Research and development services supplied by: (a) Government Entities (b) Institutions notified under Section 35 of the Income Tax Act, 1961, when consideration is received in the form of grants. | Nil | Provided that the research institution is notified under Section 35 of the Income Tax Act at the time of service supply. |
The GST Council has also decided to regularize any past demands related to research and development services from July 1, 2017, to October 9, 2024, on an ‘as is where is’ basis, ensuring that no retrospective GST demands are raised for this period.
2. GST Exemption on Ancillary Services Related to Electricity Distribution
Additionally, the notification exempts a range of services that are incidental or integral to the transmission and distribution of electricity. These services include:
- Application fees for obtaining electricity connections.
- Rental charges for electricity meters.
- Testing fees for meters, transformers, capacitors, etc.
- Labour charges for shifting meters or service lines.
- Charges for duplicate bills, and other ancillary services.
These services, when provided by transmission and distribution utilities as part of a composite supply, are now exempt from GST.
| Exempted Services | Description |
|---|---|
| Application fees for providing electricity connection | Fees charged by utilities for processing new electricity connections. |
| Rental charges for electricity meter | Periodic rental fees for the installation and use of electricity meters. |
| Testing fees for meters, transformers, capacitors, etc. | Charges for testing and certifying electrical equipment, including meters and transformers, to ensure they meet regulatory standards. |
| Labour charges for shifting meters or service lines | Charges for labour involved in relocating electricity meters or service lines to a different location. |
| Charges for duplicate bills | Fees imposed by utilities for issuing duplicate copies of electricity bills. |
These services, when provided as part of the supply of transmission and distribution of electricity, will now be GST exempt under the composite supply rule.
Similar to the research and development exemption, the GST for the past period for these services will be regularized on an ‘as is where is’ basis, ensuring no retrospective taxation for services provided prior to October 10, 2024.
Objective of the Amendment
The objectives of the exemptions introduced by Notification No. 08/2024 are as follows:
- Promote Research and Development: By exempting research and development services provided by government entities and recognized research institutions, the government aims to encourage more organizations to engage in innovative projects without the added burden of GST on grant-funded research.
- Simplify Electricity Distribution Charges: The exemption on services incidental to electricity distribution helps simplify the tax structure for utilities, reducing the overall cost burden for consumers. This is expected to improve access to electricity services without additional charges for ancillary services.
- Regularize Past Taxation: For both categories, the decision to regularize past demands on an ‘as is where is’ basis ensures that organizations and utilities are not faced with retrospective tax demands, providing clarity and stability to taxpayers.
Effective Date
Both exemptions introduced by this notification will come into effect on October 10, 2024. Past periods (before this date) for both research and development services and electricity-related charges will be regularized with no additional GST demands.
Similar Notifications under IGST and UTGST Acts
In addition to the exemption under the Central Goods and Services Tax Act (CGST Act), similar exemptions have been issued under the:
- Integrated Goods and Services Tax Act, 2017 (IGST Act), and
- Union Territory Goods and Services Tax Act, 2017 (UTGST Act).
This ensures uniformity in the application of GST exemptions across all states and union territories.
The introduction of Notification No. 08/2024 – Central Tax (Rate) brings welcome relief to both research institutions and transmission and distribution utilities by exempting critical services from GST. These exemptions not only reduce the tax burden but also promote innovation and streamline the delivery of essential electricity services.
Entities engaged in research and development and utilities providing electricity distribution services should review these changes to ensure they are aligned with the new provisions and can take full advantage of the GST exemptions.
This article provides a comprehensive overview of Notification No. 08/2024 and its impact on research and development services and ancillary electricity services in the context of GST exemptions.
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