GST charge on consultancy services

Understanding GST on Consultancy Services: Slabs and Rates

The Goods and Services Tax (GST) has streamlined indirect taxation in India by merging various taxes into a single, unified system. For professionals providing consultancy services, understanding how GST applies is essential for compliance and financial planning. We’ll explore what the GST charge on consultancy services is, the slabs it falls under, and how this impacts consultants and their clients.

1. What is GST on Consultancy Services?

Consultancy services include a broad range of professional services such as management consulting, legal advisory, financial services, IT consulting, and more. Under the GST regime, these services are considered a part of “supply of services”, and consultants must charge GST on the fees they collect from clients.

2. GST Rate on Consultancy Services

For consultancy services, the standard GST rate is 18%. This rate applies to most professional services, including legal, financial, technical, and management consultancy.

Here’s how it breaks down:

CGST (Central GST): 9%
SGST (State GST): 9%
- This division applies when the service provider and the recipient are in the same state.
IGST (Integrated GST): 18%
- This applies when the service provider and the recipient are in different states.

3. GST Slabs and Threshold Limits for Consultants

While consultancy services generally fall under the 18% GST slab, there are certain thresholds and exemptions based on the consultant’s turnover:

Exemption for Small Consultants: Consultants with an annual turnover of less than ₹20 lakh (for most states) or ₹10 lakh (for northeastern and hill states) are exempt from GST registration. They do not need to charge GST on their services.

Compulsory GST Registration: Once the turnover crosses the threshold of ₹20 lakh (or ₹10 lakh, as applicable), GST registration becomes mandatory, and the consultant must charge 18% GST on their services.

Composition Scheme (Not Available for Service Providers): The Composition Scheme is an option for small businesses to pay GST at a lower rate, but it’s generally not available for service providers, including consultants.

4. Input Tax Credit (ITC) for Consultants

One advantage for GST-registered consultants is the ability to claim Input Tax Credit (ITC). ITC allows consultants to reduce their overall tax liability by claiming credit for the GST paid on business-related expenses, such as:

Office supplies
Rent
Equipment purchases
Software subscriptions

This helps consultants offset their GST liability, making it a beneficial aspect of being registered under GST.

5. Impact on Clients

Clients who receive consultancy services are charged GST at the applicable 18% rate. If the client is also GST-registered and using the services for business purposes, they can claim ITC on the GST paid for the consultancy service. This creates a seamless tax flow throughout the supply chain, ensuring no double taxation.

6. How to Comply with GST on Consultancy Services

Consultants must ensure they comply with GST regulations by:

Registering for GST once their turnover exceeds the threshold.

Issuing GST-compliant invoices that clearly state the GST charged.

Filing GST returns periodically (monthly or quarterly, depending on the turnover).

Claiming ITC on eligible purchases to reduce tax liability

To Visit: https://www.gst.gov.in/

FAQs

1.What is the GST rate on consultancy services?

Answer: The standard GST rate on consultancy services is 18%.

2. What qualifies as consultancy services under GST?

Answer: Consultancy services include professional services such as legal, management, financial, and IT consulting.

3. Are all consultancy services taxed at 18% GST?

Answer: Yes, most consultancy services are subject to a standard GST rate of 18%, unless they fall under specific exemptions.

4. Are there any exemptions from GST for consultancy services?

Answer: Yes, certain services like healthcare, education, and exports of services may be exempt or subject to zero-rated GST.

5. Is GST applicable to freelance consultants?

Answer: Yes, freelance consultants are required to charge 18% GST if their annual turnover exceeds ₹20 lakhs (₹10 lakhs in some special states).

6. What is the GST slab for exports of consultancy services?

Answer: Exports of consultancy services are generally zero-rated, meaning no GST is charged but input tax credit can be claimed.

7. Are consultancy services under reverse charge mechanism?

Answer: Yes, if the consultancy service is import from a foreign supplier, the recipient in India is liable to pay GST under the reverse charge mechanism.

8. What is the GST slab for small consultants under the composition scheme?

Answer: The composition scheme is not available for consultancy services, so small consultants must register under regular GST provisions if their turnover exceeds the threshold.

9. Can input tax credit be claim on GST paid for consultancy services?

Answer: Yes, businesses can claim input tax credit on the GST paid for consultancy services, provided the services are use for business purposes.

10. How is GST calculate on consultancy services?

Answer: GST is calculate at 18% on the total service fee charge. For example, if the consultancy fee is ₹1,00,000, GST would be ₹18,000, making the total invoice ₹1,18,000.

What is the GST charge on consultancy services and what are the various slabs of it?