Gst On Extended Warranty

Sometimes companies provide offers of extended warranty to the customers which can be availed at the time of original supply or just before the expiry of the standard warranty period. Whether GST would be payable in both of these scenarios?

Circular No. 195/07/2023-GST dated 17th July, 2023 provides clarity in this matter :-

(1) If extended warranty taken at the time of supply :

If a customer enters in to an agreement of extended warranty with the manufacturer at the time of original supply, then the consideration for such extended warranty becomes part of the value of the composite supply, the principal supply being the supply of goods, and GST would be payable accordingly.

Example : Suppose a customer purchases a smartphone for Rs. 20,000 and decides to opt for an extended warranty on the phone at the time of purchase. the cost of the extended warranty, let's say Rs. 2,500. The GST rate for the smartphone is 18%.

Then GST Rate of Principal supply (mobile) will be applicable on the extended warranty.

So, if the GST rate for the smartphone is 18%, the extended warranty cost of Rs.2500 will also be subject to an 18% GST rate.

(2) If extended warranty taken after the original supply :

In case where a consumer enters into an agreement of extended warranty at any time after the original supply, then the same is a separate contract and GST would be payable by the service provider, whether manufacturer or the distributor or any third party, depending on the nature of the contract (i.e. whether the extended warranty is only for goods or for services or for composite supply involving goods and services).

Example : Suppose a customer purchases a refrigerator for Rs. 30,000. At the time of purchase, the customer does not opt for an extended warranty. However, a few months later, after the original purchase, the customer decides to purchase an extended warranty for the refrigerator. The extended warranty cost is Rs.2,000.

In this scenario, the extended warranty is treated as a separate service contract because it was purchased after the original supply of the refrigerator.

The GST applicable on the extended warranty will depend on the nature of the warranty, specifically whether it covers:

Goods Only:

If the extended warranty covers only the refrigerator itself, then the GST rate applicable to the refrigerator/parts (let's say 18%) will apply to the extended warranty cost of Rs. 2,000. So, GST on the extended warranty would be 18% of Rs. 2,000, which is Rs. 360.

Services Only: If the extended warranty covers only services related to the refrigerator (e.g., maintenance or repair services), then the GST rate applicable to those services will be applied to the extended warranty cost.

Composite Supply (Goods and Services): If the extended warranty covers a combination of both goods (refrigerator) and services (maintenance or repair), the GST rate applicable to the composite supply will be applied to the extended warranty cost.

The specific GST rate for the extended warranty will be determined based on the terms of the warranty.

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