RCM Entry 5: Government Services to a Business Entity, and the Three Exclusions

RCM Entry 5 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Entry 5 is the broadest entry in the notification. It does not name a service; it names a supplier — government — and then removes four things from the sweep. Everything else a business entity pays government for is potentially inside it.

Entry 5 of Notification No. 13/2017-CT(Rate) covers "services supplied by the Central Government, State Government, Union territory or local authority to a business entity", excluding (1) renting of immovable property and (2) three named groups: services by the Department of Posts and the Ministry of Railways (Railways added by Notification No. 14/2023-CT(Rate) w.e.f. 20.10.2023); services in relation to an aircraft or a vessel, inside or outside the precincts of a port or airport; and transport of goods or passengers. The recipient is any business entity located in the taxable territory. The operative question in practice is whether the payment is a fee, a penalty or consideration — only consideration can attract the levy.

Reading the exclusions correctly

The exclusions are not exemptions; they take the service out of Entry 5, which usually means it goes back to forward charge in government's hands.

Renting of immovable property was excluded from Entry 5 at the outset because it has its own entry — Entry 5A, inserted by Notification No. 3/2018-CT(Rate). Renting: entries 5A, 5AA and 5AB →

Department of Posts. The old text excluded only "speed post, express parcel post, life insurance, and agency services provided to a person other than Government". Those words were omitted by Notification No. 5/2022-CT(Rate) w.e.f. 18.07.2022, and the exclusion now covers services by the Department of Posts generally. The Handbook still records the resulting split as a complication: some postal services run under forward charge (speed post, express parcel post, life insurance supplied to individuals or businesses), others were historically read as reverse charge for business recipients (ordinary post, post card, inland letters, registered post) — the Handbook calls the structure "complicated", which is a fair description.

Ministry of Railways (Indian Railways) was added to the exclusion by Notification No. 14/2023-CT(Rate) dated 19.10.2023 w.e.f. 20.10.2023. The policy behind it is the same one that drove the parallel change to goods entry 6: on the GST Council's recommendation, supply of all goods and services by Indian Railways moved to forward charge so that Railways could avail ITC and reduce its own cost.

Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport, and transport of goods or passengers, are the two remaining exclusions and have stood since inception.

The real question: fee, penalty, or consideration

The Handbook offers the analytical frame that decides most Entry 5 disputes. All payments to government must be tested on the anvil of whether the payment is:

• a fee — "that which does not guarantee favourable consideration of application and is not imposed in any proportion to activities involved";
• a penalty — "that which is linked to any infraction of law"; or
• consideration — everything else, admitted quid pro quo.

Only the third can attract the levy, and it is then subject to the exemptions in entries 47 and 62 of Notification No. 12/2017-CT(Rate).

Why the frame matters commercially. An application fee paid with no assurance of outcome and no proportionality to any service is not consideration. A fine for late filing under another statute is a penalty. A licence fee that buys an exploitable right, priced by reference to what is exploited, is consideration — and Entry 5 then applies.

The sovereign as trader: rights over natural resources

The Handbook takes a firm position here, and it is worth understanding because it explains a large body of demands.

Article 298 of the Constitution permits the sovereign to engage in trade or commerce, and "natural resources of the State are its stock-in-trade." On that reasoning, any award of rights to exploit — spectrum for mobile telephony, mineral exploitation rights — partakes of the character of consideration where it is granted under a contract.

Royalty on mining leases. The Handbook records the Supreme Court's holding in Mineral Area Development Authority v. Steel Authority of India Ltd. that royalties on mining leases are not taxes but contractual considerations under the mineral lease, and that the Mines and Minerals (Development and Regulation) Act, 1957 does not restrict the States' taxing power.

Classification of the mining right. Licensing services from a State Government or local authority for metal extraction are taxable under reverse charge, and royalty paid in respect of a mining lease, together with statutory contributions, is classifiable under SAC 997337 — "Licensing services for the right to use minerals including its exploration and evaluation". The AAR (Goa) in Cosme Costa and Sons held that a statutory contribution made by the lessee is obligatory in nature.

Spectrum. Licence fee and spectrum usage charges for spectrum allotted by the Central Government are classifiable under SAC 997338 and payable under reverse charge — the Commissioner (Appeals) so held in Bharti Hexacom Limited.

And the timing point on deferred spectrum payments. There was considerable confusion about the time of supply where spectrum is paid for in instalments under the deferred payment option. Circular No. 222/16/2024 dated 26.06.2024 settled it: the arrangement is a continuous supply of services under section 2(33) of the CGST Act, so GST liability arises as and when the instalments become due and are paid.

That circular is the practical answer for every long-tenor government concession — annuity, deferred premium, staged licence fee — where the alternative reading would have front-loaded the entire liability.

Who is "government" and who is a "local authority"

By paragraph (d) of the explanation to Notification No. 13/2017-CT(Rate), words not defined in the notification carry their CGST/IGST/UTGST Act meanings.

• Government — section 2(53) of the CGST Act and section 2(9) of the IGST Act mean the Central Government; under section 2(6) of the UTGST Act, the Administrator or an authority or officer authorised to act as Administrator.
• Local authority — section 2(69) lists them exhaustively: a Panchayat (article 243(d)); a Municipality (article 243P(e)); a Municipal Committee, Zilla Parishad, District Board, and any other authority legally entitled to, or entrusted by the Central or a State Government with, the control or management of a municipal or local fund; a Cantonment Board under section 3 of the Cantonments Act, 2006; a Regional Council or District Council under the Sixth Schedule; a Development Board under article 371 and article 371J (added by the CGST (Amendment) Act, 2018 w.e.f. 01.02.2019); and a Regional Council under article 371A.

A pending refinement. The Handbook records that the Finance Bill, 2025 proposed to replace "municipal or local fund" in section 2(69) with "municipal fund or local fund", and to insert an Explanation defining "Local Fund" and "Municipal Fund" — clarifying the scope of the definition.

The definition matters because it is closed. A statutory corporation, a government company, a development authority or a board that does not fall in one of those seven limbs is not a local authority, whatever its public character. It may still be a "Governmental Authority" or "Government Entity" for the exemption notification, but it is not government or a local authority for Entry 5.

The illustration the Handbook uses

A construction company registered under GST obtains a licence from a municipal corporation to construct commercial buildings. The municipal corporation is a local authority; the licensing service is not within any of the four exclusions; the company is a business entity in the taxable territory. The municipal corporation issues its document noting that tax is payable on reverse charge, and the company discharges the tax.

Key takeaways

• Entry 5 catches all services by government or a local authority to a business entity, except renting of immovable property (which has its own entries) and three named groups.
• Ministry of Railways was moved out on 20.10.2023 so that Railways could avail ITC — a forward-charge, not an exemption, change.
• The Department of Posts exclusion was widened when the narrow words were omitted on 18.07.2022.
• Test every payment as fee, penalty or consideration; only consideration can bear the levy.
• Mining royalty (SAC 997337) and spectrum charges (SAC 997338) are consideration, not tax — Mineral Area Development Authority, Cosme Costa and Sons, Bharti Hexacom.
• Deferred spectrum instalments are a continuous supply of services; liability arises as instalments fall due — Circular No. 222/16/2024.
• "Local authority" in section 2(69) is a closed list; a statutory corporation or development authority is not automatically inside it.

Read next

• RCM Entries 5A, 5AA and 5AB: Renting of Immovable Property
• RCM Entries 5B and 5C: TDR, FSI and Long-Term Lease in a Promoter's Hands
• RCM Goods Entries 5 to 7: Lottery, Government Scrap and PSLC

Disclaimer: Positions stated as on 5 September 2026, based on entry 5 of Notification No. 13/2017-Central Tax (Rate) as amended by Notification No. 5/2022-Central Tax (Rate) and Notification No. 14/2023-Central Tax (Rate), sections 2(53) and 2(69) of the CGST Act, 2017, Circular No. 222/16/2024 dated 26 June 2024, and the decisions noted in the ICAI Handbook on Reverse Charge under GST (2nd edition, February 2025).