GST on Government Services —
Exempt or Taxable?
When services to and by the government are exempt from GST, when 18% applies, the pure-services rule (Entry 3), governmental authority vs government entity, RCM and municipality exemptions.
Pure services supplied to the central/state government, a local authority or a governmental authority are fully exempt from GST under Entry 3 of Notification 12/2017-CT(Rate). A composite supply where goods are 25% or less of contract value also stays exempt (Entry 3A). Once goods cross 25% it becomes a works contract taxable at 18%. Core sovereign functions (passports, courts, law enforcement) are outside GST altogether, while commercial activities by government bodies are taxable at 18%.
GST on Government Services — Decision Table
Every common government-services scenario, its GST treatment and the governing notification or entry.
| Service | GST Treatment | Rate | Notification / Entry |
|---|---|---|---|
| Pure services to Central/State Govt, local authority | Exempt | 0% | Notf. 12/2017 Entry 3 |
| Composite supply to govt (goods ≤ 25%) | Exempt | 0% | Notf. 12/2017 Entry 3A |
| Works contract to govt (civil construction) | Taxable | 18% | GST 2.0 — 12% slab withdrawn |
| Renting of commercial property by govt | Taxable | 18% | General rate |
| Basic postal services (letters, registered post) | Exempt | 0% | Notf. 12/2017 Entry 6 |
| Speed Post, Express Parcel (India Post) | Taxable | 18% | General rate |
| Passport, visa, certificate issuance (sovereign) | Outside GST | — | Not a supply |
| Airport / port services by AAI | Taxable | 18% | General rate |
| Municipality water supply to households | Exempt | 0% | Notf. 12/2017 |
| RWA maintenance ≤ ₹7,500/flat/month | Exempt | 0% | Notf. 12/2017 Entry 77 |
| Security services to govt (from non-corporate) | RCM | 18% | Notf. 13/2017 |
| Legal services by advocate to govt entity | RCM | 18% | Notf. 13/2017 Entry 2 |
Rates reflect the GST 2.0 two-slab structure effective 22 September 2025 — the earlier 12% works-contract rate for government projects was withdrawn when the 12% slab was removed. Confirm on the official GST portal before invoicing.
Pure Services to Government — the 25% Test
Entry 3 of Notification 12/2017-CT(Rate) exempts pure services — contracts with no goods involved (consultancy, advisory, project management, cleaning, security personnel supply, IT services) — supplied to the central government, a state government, a union territory, a local authority, a governmental authority or a government entity. The trap is the goods component.
Exempt — pure or goods-light
- Purely services, no goods at all
- Composite supply where goods are ≤ 25% of contract value
- Consultancy, advisory, PMC, cleaning, security
- Supplied to govt / local authority / governmental authority
- No GST charged on the invoice
Taxable — goods-heavy
- Goods exceed 25% of contract value
- Becomes a works contract or goods-heavy composite
- Civil construction, equipment-supply contracts
- Taxed at 18% after GST 2.0 (was 12%)
- Structure & document contracts carefully
The 12% GST slab was withdrawn on 22 September 2025. Government works contracts that were earlier taxed at the concessional 12% are now taxed at 18%. For milestones or certificates completed before 22 September 2025 the old rate applies; from that date the 18% rate applies — check running contracts and revised bills carefully.
A government contractor unsure whether your contract qualifies as a pure service?
Get My Exemption Checked →Governmental Authority vs Government Entity
The exemption depends on who the recipient is. Misclassifying the body is a common cause of wrong GST charging, demands and blocked ITC for the recipient.
| Category | Definition | Examples | Exemption? |
|---|---|---|---|
| Governmental Authority | Body set up by Parliament/State Legislature to carry out constitutional functions (Art. 243G/243W) | BBMP, BMC, Gram Panchayat, DDA, BDA | Yes — Entry 3 |
| Government Entity | Body set up by govt (statute or Companies Act); 90%+ equity held by govt OR under govt control | BSNL, SAIL, NMDC, State Electricity Boards | Yes — Entry 3A |
| Commercial PSU (minority govt stake) | Companies Act company; govt equity below 90% | Post-disinvestment entities | No exemption |
Verify the equity holding and constituting document before treating a supply as exempt.
A PSU that has been partly privatised may no longer be a "government entity" for GST — supplies to it can suddenly become taxable at 18%. Re-check the government shareholding of every recipient before you rely on the exemption for a multi-year contract.
RCM on Services to Government & PSUs
Several supplies to registered government bodies attract GST under the Reverse Charge Mechanism, where the government recipient pays the tax instead of the supplier.
| Service | Who Pays | Rate |
|---|---|---|
| Legal services by advocate / firm to a business entity | Recipient (RCM) | 18% |
| Security services by a non-corporate to a registered person | Recipient (RCM) | 18% |
| Services by a director to a company / body corporate | Recipient (RCM) | 18% |
| Goods transport (GTA) to a government body | Recipient (RCM) | 5% |
RCM applies only where the recipient is registered; pure sovereign services by the government are not in the course of business and carry no RCM.
- A registered government entity receiving security services from an individual firm must self-pay 18% under RCM.
- If the security or transport supplier is itself a body corporate/PSU, forward charge applies instead.
- Misclassified RCM is a frequent cause of GST notices to government departments and PSUs.
Supplying to a PSU or government department? Get your RCM and invoicing position confirmed.
Talk to a GST Expert →Municipality & RWA Services
Statutory functions performed by a municipality are exempt; its commercial activities are taxable. Resident Welfare Association (RWA) maintenance has its own threshold.
- Exempt: household water supply, sanitation and solid-waste management, slaughter-house services, public libraries.
- Taxable at 18%: renting market complexes/shops, stadiums for commercial events, advertising on public infrastructure, municipal airport/port services.
- RWA maintenance is exempt up to ₹7,500 per flat per month per member; cross it and 18% applies on the entire amount, not just the excess.
- An RWA must also register once its aggregate turnover crosses ₹20 lakh a year.
Likely exempt if
- Your contract is a pure service to a government body
- Any goods are 25% or less of contract value
- You supply a governmental authority or government entity
- The activity is a statutory/sovereign function
Likely taxable if
- Goods exceed 25% — it becomes a works contract at 18%
- The recipient is a commercial/privatised PSU
- It is a commercial activity (renting, advertising, parcels)
- It is a listed RCM service (legal, security, GTA)
Exemption is claimed at the contract level. Split goods and services clearly, keep documentation of the 25% test, and re-price live government works contracts for the 18% rate now that the 12% slab is gone — a mispriced bill can wipe out a thin contractor margin.
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