Goods and Services Tax (GST) is a consumption-based tax system that replaced multiple indirect taxes in India. Under the GST, electricity is classified as a good and falls under the ambit of GST. However, the implementation of GST on electricity has been a topic of debate and discussion among various stakeholders. In this blog, we will understand how the GST applies to electricity and its impact on various stakeholders.
What is the GST on Electricity?
GST is a tax on the value addition at each stage of the supply chain of goods and services. It is levied on the final consumption of goods and services. Electricity is good and falls under the ambit of the GST. However, the implementation of GST on electricity is not straightforward. The GST on electricity is levied on the value-added by the distribution company (DISCOM) and not on the total value of electricity supplied.
How GST on Electricity Works?
Under the GST, the electricity supplier (DISCOM) is required to pay GST on the value added by them. This means that the GST is levied on the difference between the purchase price of electricity and the selling price. For example, if DISCOM purchases electricity from a generator at Rs. 3 per unit and sells it to consumers at Rs. 5 per unit, the GST will be levied on the value-added of Rs. 2 per unit.
Impact of GST on Electricity
The implementation of GST on electricity has both positive and negative impacts on various stakeholders. Here are some of them:
Consumers:
The GST on electricity has resulted in an increase in the price of electricity for consumers. However, the increase is not significant as the GST is levied only on the value added by DISCOM.
DISCOM:
The GST on electricity has made the billing process more transparent for DISCOM. Earlier, there were multiple indirect taxes that DISCOM had to pay, and the billing process was complicated. However, with the implementation of GST, the billing process has become simpler.
Generator:
The GST on electricity has had a minimal impact on generators, as they are not liable to pay GST. The GST is levied only on the value added by DISCOM.
GST Rates on Electricity:
Currently, the GST rate on electricity is 5%. However, it is important to note that this rate is only applicable to the value added by DISCOM and not on the entire value of the electricity supplied. This rate was reduced from 12% to 5% in 2018 in order to reduce the burden on consumers.
Earlier, there were multiple indirect taxes on electricity, including excise duty, VAT, and service tax, which led to an increase in the price of electricity. The implementation of the GST has brought uniformity in the tax structure and reduced the cascading effect of taxes.
Input Tax Credit (ITC) on Electricity:
ITC is a mechanism where a taxpayer can claim the tax paid on inputs used in the production of goods and services as a credit against the tax liability on the output. However, ITC is not applicable on GST paid on electricity as it is not considered an input. This means that DISCOM cannot claim the GST paid on the purchase of electricity as ITC.
GST On Other Products:
Impact on Different Sectors:
The implementation of GST on electricity has had a varying impact on different sectors. For example, the industrial and commercial sectors have seen a reduction in the overall tax burden due to GST, while the agricultural sector has seen an increase in the price of electricity due to the levy of GST. The government has provided some exemptions and concessions to certain sectors to reduce the impact of the GST on their operations.
Conclusion:
In conclusion, the GST on electricity is a tax levied on the value-added by DISCOM and not on the entire value of the electricity supplied. It has brought uniformity in the tax structure and simplified the billing process for DISCOM. However, it has led to an increase in the price of electricity for consumers. The government is working towards reducing the GST rate on electricity to make it more affordable for consumers. Overall, the impact of GST on electricity has been mixed, and it is important to understand the nuances of the tax system to make an informed decision on energy consumption.
Frequently Asked Questions
Q1) What is the GST on electricity?
Goods and Services Tax (GST) is a consumption-based tax system that replaced multiple indirect taxes in India. Under the GST, electricity is classified as good and falls under the ambit of GST. The GST on electricity is levied on the value-added by the distribution company (DISCOM) and not on the total value of electricity supplied.
Q2) How is GST on electricity calculated?
The GST on electricity is levied on the value added by DISCOM. This means that the GST is levied on the difference between the purchase price of electricity and the selling price. For example, if DISCOM purchases electricity from a generator at Rs. 3 per unit and sells it to consumers at Rs. 5 per unit, the GST will be levied on the value-added of Rs. 2 per unit.
Q3) What is the current GST rate on electricity?
Currently, the GST rate on electricity is 5%. However, it is important to note that this rate is only applicable to the value added by DISCOM and not on the entire value of the electricity supplied.
Q4) Is Input Tax Credit (ITC) available on GST paid on electricity?
No, ITC is not applicable on GST paid on electricity as it is not considered an input. This means that DISCOM cannot claim the GST paid on the purchase of electricity as ITC.
Q5) What is the impact of the GST on electricity on consumers?
The implementation of GST on electricity has resulted in an increase in the price of electricity for consumers. However, the increase is not significant as the GST is levied only on the value added by DISCOM.
Q6) What is the impact of the GST on electricity on DISCOMs?
The GST on electricity has made the billing process more transparent for DISCOMs. Earlier, there were multiple indirect taxes that DISCOM had to pay, and the billing process was complicated. However, with the implementation of GST, the billing process has become simpler.
Q7) Is there any exemption or concession on the GST on electricity for certain sectors?
Yes, the government has provided some exemptions and concessions to certain sectors to reduce the impact of the GST on their operations. For example, the agricultural sector has been provided some exemptions to reduce the impact of GST on their operations.
Q8) Is the government planning to reduce the GST rate on electricity?
Yes, the government is working towards reducing the GST rate on electricity to make it more affordable for consumers. The reduction in the GST rate will help reduce the overall price of electricity for consumers.
