1. Introduction:
In this article, we shall discuss all the important aspects in regard to payment of GST under reverse charge mechanism (RCM) on security services and situations where reverse charge is not applicable and GST is to be paid by the supplier under forward charge mechanism.
As per Section 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 sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of IGST Act, 2017.
It is pertinent to mention here generally it is the responsibility of the supplier to pay GST to the Government (though he can collect same from customer) which is apparent from section 9(1) of CGST Act/Section 5(1) of IGST Act, 2017 wherein the taxable person viz supplier is liable to pay tax. Such cases are referred as payment of tax under forward charge mechanism.
However such liability for payment of tax is shifted onto the recipient, where the Government believes it would be administratively efficient and will ensure recovery of taxes. Such payment of GST by the recipient is referred to as payment under the reverse charge mechanism.
In accordance to the powers conferred under section 9(3) of CGST Act, 2017 and section 5(3) of IGST Act, 2017, Notification No. 13/2017-Central Tax (Rate) dated 28-6-2017 and Notification No. 10/2017-Integrated Tax (Rate) dated 28-6-2017 (RCM Notifications) were issued by Govt, notifying the situations wherein tax on supply of services would be paid by recipient under reverse charge mechanism. As on date 22 services are under the ambit of the reverse charge mechanism.
Security Services though initially was not covered under reverse charge but same was notified for the purposes of payment under RCM w.e.f. 1st January 2019 vide Notification No. 29/2018- Central Tax (Rate) dated 31-12-2018.
Thus GST on security services was applicable from 1st of July 2017 on forward charge basis wherein the supplier was required to pay tax but it has been brought under Reverse Charge Mechanism (RCM) from 1st January 2019 and responsibility of payment of GST has been shifted onto the recipient.
2. Relevant extract of Notification mandating GST under RCM on security services:
The relevant extract of RCM Notification in regard to security services is given below for the ready reference of our readers.
| Sl. No. | Category of Supply of Services | Supplier of service | Recipient of service |
| 14 | Security services (services provided by way of supply of security personnel) provided to a registered person: Provided that nothing contained in this entry shall apply to, – (i) (a) a Department or Establishment of the Central Government or State Government or Union territory; or (b) local authority; or (c) Governmental agencies; which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 of the said Act and not for making a taxable supply of goods or services; or (ii) a registered person paying tax under section 10 of the said Act. | Any person other than a body corporate | A registered person, located in the taxable territory. |
3. Situations where GST under reverse charge mechanism (RCM) will apply on security services
The security services would be covered under the ambit of reverse charge mechanism, if and only if all the following four conditions are satisfied.
a). Services supplied should be security services
The term ‘Security services’ as per the RCM Notification means “services provided by way of supply of security personnel“. Accordingly services of supply of security personnel will only be subject to payment under reverse charge. Such supply of security personnel can be for security of any property, whether movable or immovable, or of any person, in any manner.
It may be noted here that security agencies apart from providing security personnel provides other services also like services of investigation, detection or verification , of any fact or activity. Such services will not be subject to payment under reverse charge and in such cases the security agency will be required to take registration (subject to threshold exemption of turnover) and charge GST from customer and pay the same under forward charge mechanism.
Whether security by dogs covered under security services:
As discussed above, security services means supply of security personnel i.e. human beings, thus Dogs cannot be regarded as personnel. Thus dog security will also not be covered under RCM and will fall under forward charge mechanism.
b). Security Services should be provided by any person other than a body corporate
As per Explanation (b) to the RCM Notification, “Body Corporate” has the same meaning as assigned to it in clause (11) of section 2 of the Companies Act, 2013.
As per definition of “body corporate” under Section 2(11) of the Companies Act, 2013, it includes a private company, public company, one personal company, small company, Limited Liability Partnerships, foreign company etc.
However, body corporate does not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in the Companies Act 2013), which the Central Government may, by notification, specify in this behalf.
In view of above in case a person is obtaining security services from a Company / LLP, the provisions of reverse charge mechanism will not be applicable. Rather such cases will fall under forward charge with supplier liable to pay tax. The reason for keeping out services of Companies / LLP out from RCM is that in view of the Government the Companies / LLP are reliable and will make due compliance of law and thus there is no need to shift the responsibility of payment of tax onto the recipient.
c). Security Services should be provided to a registered person, located in the taxable territory.
Another important requirement to trigger RCM on security services is that the recipient of security services is a registered person (registered under GST law) located in the taxable territory (i.e. India).
Accordingly, in case security services are provided to any unregistered person, the provisions of reverse charge will not be applicable and GST needs to be paid by the supplier.
It is important to note here that as per Section 24(iii) of the CGST Act, 2017 a person is mandatorily required to obtain GST registration if he is liable to pay tax under RCM. However as for supply of security services, RCM will be applicable only where the recipient is registered and thus where a unregistered person receives security services, he will neither be required to obtain GST registration nor required to pay GST under RCM.
Cases where RCM will not apply even if security services are received by registered persons
As per proviso to entry number 14 of Notification No. 29/2018- Central Tax (Rate) reverse charge provisions will not be applicable where the supply of security services is made to the following registered persons:
(i)(a) a Department or Establishment of the Central Government or State Government or Union territory; or
(b) local authority; or
(c) Governmental agencies;
which has taken registration under the CGST Act, 2017 only for the purpose of deducting tax under section 51 of the said Act and not for making a taxable supply of goods or services; or
(ii) a registered person paying tax under section 10 of the said Act. i.e. a composition dealer.
Thus from above, it is evident that RCM provisions will not apply where security services are provided to Govt. Deptt, local authority, and Govt. agencies who have taken registration only for TDS purposes. Further RCM will also not apply to services rendered to persons who have opted for composition levy.
d). Security Services should not be exempt
As per Entry 66(b)(iii) of Notification No. 12/2017- Central Tax (Rate) dated 28-06-2017 (as amended) inter-alia, security services performed in an educational institution providing services by way of pre-school education and education up to higher secondary school or equivalent, are exempt from GST.
In view of the above exemption, no GST is payable on such supply of security services and accordingly, there will be no liability to pay GST under reverse charge as well.
4. Which GST is to be paid under reverse charge mechanism
The tax viz CGST + SGST / UTGST or IGST that is required to be paid under reverse charge mechanism on security services would depend upon as to whether the supply is inter-State or intra-State supply.
As per Section 7 and 8 of the IGST Act, a supply is regarded as inter-State supply wherein the location of supplier as well as place of supply, are in same State / UT. In case these are in different State / UT, same is treated as Inter-State supply.
Location of Supplier of Service
The location of supplier as per Sec 2(71) of the CGST Act, 2017 would be the registered place of business or unregistered fixed establishment or usual place of residence if the supplier, from which supply is being made.
It is important to note here that if a security agency located in Mumbai, Maharashtra supplies services of security personnel to a Company in Delhi, the location of supplier would be Mumbai, Maharashtra.
Place of Supply of Security Services
The place of supply in respect of security services would be the location of the recipient (registered person) as per Section 12(2)(a) of the IGST Act, 2017.
In case the location of supplier and place of supply worked out as above are in different States / UTs, supply will be inter-State and IGST shall be applicable else CGST + SGST / UTGST will apply, which needs to be paid by recipient under RCM, if conditions, as discussed above, are fulfilled. Let us understand this with help of the following illustrations.
Illustration 1:
Mr A of Mumbai, Maharashtra supplied security personnel to X Ltd (registered in Delhi) and such services are covered under RCM. In this case the location of the supplier is Mumbai, Maharashtra while the place of supply is Delhi and thus X Ltd will be required to pay IGST under RCM on the security charges claimed /paid by/ to Mr A.
Illustration 2:
A Ltd (registered in Mumbai, Maharashtra) supplied security personnel to X Ltd (registered in Delhi). In this case, the location of the supplier is Mumbai, Maharashtra while the place of supply is Delhi and thus IGST will be applicable. However as supply is provided by a body corporate, RCM provisions will not apply. Rather A Ltd shall charge IGST from X Ltd and deposit the same.
5. Rate of GST applicable on security services
Security Services are exigible to GST rate of 18%. Thus in case of intra-State supply, CGST @ 9% and SGST @ 9% will be applicable. On the other hand IGST @ 18% will be applicable on inter-State supplies.
6. When GST under RCM is to be paid on security services
The liability for payment of tax, in this case, will be determined as per Section 13(3) of the CGST Act, 2017 wherein provisions regarding determination of time of supply of services covered under RCM are mandated.
According to provisions of Section 13(3), the time of supply for purposes of payment of tax under RCM would be earlier of:
| Date of payment i.e. entry in books of debit in bank account, whichever is earlier OR |
| 61st day from the date of invoice of security services issued by supplier. |
Example:
| Description | Date |
| Month for which security charges are due | March |
| Date of issue of invoice by security agency | 07-04-20XX |
| Date of Payment – Case 1 | 10-05-20XX |
| Date of Payment – Case 2 | 10-07-20XX |
While determining the time of supply of services covered under reverse charge mechanism the date of supply is not relevant and thus the month in which security services were given is to be ignored. The time of supply is computed as under:
Case 1:
Time of supply will be the date of payment i.e. 10-05-20XX or 61st day from the date of invoice i.e. 07-06-20XX, whichever is earlier i.e. 10-05-20XX. Accordingly, tax, in this case, would be required to be paid by 20th/22nd/24th of June, 20XX with the filing of GSTR-3B in the case of normal assessees.
Case 2:
Time of supply will be the date of payment i.e. 10-07-20XX or 61st day from the date of invoice i.e. 07-06-20XX, whichever is earlier i.e. 07-06-20XX. Accordingly, tax, in this case, would be required to be paid by 20th/22nd/24th of July, 20XX with the filing of GSTR-3B in case of normal assessees.
7. Availing of Input Tax Credit of GST paid under RCM on security services:
In case the security services were obtained for business purposes / taxable supplies, input tax credit in respect of tax paid under reverse charge mechanism can be availed as per Section 16 of the CGST Act, 2017. However, it is important to note that in such a case a self invoice as mandated under Section 31(3)(f) of the CGST Act,2017 will have be raised by the recipient if the supplier is not registered under GST Law.
As per Rule 36(1)(b) of the CGST Rules, 2017, input tax credit of tax paid under RCM (on supplies from unregistered persons) can only be availed on basis of such a self invoice, subject to payment of tax.
For further details on the issuance of self invoice click here.
8. Concluding remarks
Security services were earlier under the domain of reverse charge mechanism in service tax law. However with the implementation of GST they were removed from reverse charge, but later on from 01.01.2019, they were covered under reverse charge.
We have discussed all the aspects in regard to the applicability of RCM on security services. Taxpayers should be cautious in determining whether the security services received by them are subject to RCM or not and if yes, which tax i.e. CGST + SGST or IGST is payable thereon. Further by what date such tax is to be paid and whether we can input tax credit of tax so paid.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
