There is less than a week for the roll out of GST and like all other businesses, co-working centers and the coworkers need to gear up to meet the challenge. So are you ready for the transition, here is a quick take that can help you :
|Topics||Impact on Co-Working Spaces||Impact on Coworkers|
|Registration||By now we have most of you have filed the necessary documents to obtain the GST ID. If you have not, well, go to http://gst.gov.in and complete the formality.
Note that all those currently registered under Excise, VAT or service tax laws (along with a few others) need to compulsorily register under the GST Laws. Likewise, if your turnover in the year is likely to exceed Rs 20 Lacs, then go ahead and register now.
|Tax Rate||So far, the service tax on co-working space services and other allied services was 15%. Under the new regime, this will go up to 18%.||Your output tax will depend on the nature of business you undertake, so refer to the tax rates notified under the GST Laws.
On the service charges charged by the co-working spaces, you will now be charged 18% tax, but the good news is you can claim this as input credit irrespective of the nature of business you are in (services, trading or manufacturing)
|Input Credit||So far, co-working centers could utilize the service tax paid on the input services – property rental, lease line cost etc to offset against the output liability. Now they will be able to obtain the GST credit even on materials used in providing the services – Computers, Housekeeping materials etc.||Input credit can now be obtained for all material and services used in your business, including the capital goods.|
|What’s missing in GST right now.||The GST law enacted right now, still leaves a few items outside its scope – of importance to the co-working spaces is Electricity and Diesel. So, the taxes paid on these two will continue to add up to your cost.||Most businesses that work out of co-working spaces may not be impacted by the items that are not part of GST.
Surely, your co-working services’ cost would have been lower if fuel and electricity were part of GST.
|What’s taxable in the co-working world||Taxable:
Service charges for the space, charges for any other services, membership fees, charges for internet services and other amenities. Any reimbursement charged to the coworker is also chargeable to GST.
Security deposit collected from the coworkers will not be taxable. However, if the deposits are set off against any rental expenses, then the same shall be taxable.
It is quite common that new co-working spaces will take some time before they breach the limit required for compulsory registration. Likewise, many small enterprises and freelancers who work as coworkers may not be registered under GST. So it’s important to understand the following:
|Service Provider||Registered||The co-working space shall levy GST on the invoice which will be used by the coworker as input credit||Since the coworker is not charging GST on their sales / output services they cannot set off the input GST and hence becomes an expensive|
|Example: Large co-working space invoicing to a large coworker||Example: Large co-working space invoicing to a freelancer / start up|
|Unregistered||In case the co-working space is not registered, but the coworker is a registered dealer, then the coworker needs to pay GST on behalf of the co-working space and then claim the same as input credit.||Outside the scope of GST.|
|Example: A new co-working space invoicing to a large coworker||Example: A new co-working space invoicing to a freelancer / start up|
Extending the logic of purchasing from unregistered dealers, the co-working space will have to pay GST on purchase of services and goods from small service providers, retailer who are unregistered dealers. So, look up your invoices carefully.
While the idea of GST was well intentioned to reduce the cascading effect of tax, and for more most part it does solve that problem – like the co-working space being able to obtain tax credit on their fixtures that was otherwise lost, the mechanism to operationalize this is complicated.
All registered dealers will now need to file multiple returns – one detailing the output GST generated by them through sales and services, one claiming the input tax on goods and services, and lastly the net payment / refund. Since every business will depend on their service providers to correctly upload the details of the input taxes that they can obtain, you will need the entire supply chain to be equally efficient.
Disclaimer : The purpose this blog is to examine the impact of GST on the co-working ecosystem. This should not be considered as a form of tax advise. Tax Laws are subject to various Rules and interpretation which can differ for different industries. Seek professional advise before acting on any of the issues discussed in the blog.