Arbitration Services under GST

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Arbitration Services under GST

In this article we will discuss whether the services given by arbitral tribunal are taxable or exempt. Also we will discuss about who is liable to pay tax on their services. The article is the way to find out the in detail the taxation of GST.

“Arbitral Tribunal” has the meaning assigned to it in clause (d) of section 2 of the Arbitration and Conciliation Act, 1996 (26 of 1996)

As per the above mentioned act Arbitral Tribunal means sole arbitrator or a panel of arbitrators.

The arbitration services provided by the Arbitral Tribunal shall be EXEMPT if it is given to any of the following:

  1. Any person other than a business entities;
  2. A business entity with an aggregate turnover up to RS. 20,00,000/- (Rs. 10,00,000 in case of special category states) in the preceding financial year.
  3. Services provided to Central Government, State Government, Union Territory, Local Authority or Government entity.

The above provision assures that GST shall be levied on arbitration services if it is provided by arbitrator to business entity with an aggregate turnover above RS. 20,00,000/- (Rs. 10,00,000 in case of special category states) in the preceding financial year. It hardly makes a difference whether the Business Entity is registered or unregistered in the preceding year.

The next question is who is liable to pay tax in this case. The answer is Business Entity needs to pay tax under Reverse Charge Mechanism (RCM) as per Section 9(3) of the Income Tax Act, 1961. The business entity needs to register itself if above conditions are met and follow all the compliances.

It also implies that the arbitrator need not register under GST if they are indulged only in exempt supply or supply liable to RCM whatever be the amount of turnover.

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