Subject: Changes in GST Liability and Input Tax Credit for Warranty and Extended Warranty
Clarification in respect of GST liability and input tax credit (ITC) availability in cases involving
Warranty/ Extended Warranty, in furtherance to Circular No. 195/07/2023-GST dated 17.07.2023

Introduction:
The Central Board of Indirect Taxes and Customs (CBIC) has issued new clarifications regarding
GST liability and input tax credit (ITC) for warranty and extended warranty scenarios. This update
aims to simplify these changes for business owners, ensuring you understand how they impact
your operations.

Key Points:

1. Warranty Replacements:
   – When a manufacturer or supplier replaces defective parts or entire goods under warranty,
   GST rules apply similarly to both scenarios.
   – Previously, only part replacements were clarified. Now, it is confirmed that replacing
   entire goods under warranty follows the same GST and ITC rules as part replacements.
   – Example: Replacing a faulty engine under warranty follows the same GST treatment
2. Distributor Replacements:
   – If a distributor replaces parts or goods from their own stock under warranty and later gets
   these replaced items replenished by the manufacturer, the GST treatment is clarified:
   – No GST is payable on replenishments from the manufacturer to the distributor.
   – No ITC reversal is required for these transactions.
   – Example: Replace a faulty bike with one from your stock; if the manufacturer sends a
   new bike as a replacement, no additional GST or ITC reversal is needed.
3. Extended Warranty at Original Sale:
   – If the extended warranty is provided by someone other than the original goods supplier
   (e.g., the manufacturer or a third party), it is considered a separate service and not part of
   the original goods supply.
   – GST for the extended warranty, in this case, will be treated as a separate service.
   – Example: Selling a bike with an extended warranty includes GST on the total value. If the
   manufacturer sells the extended warranty directly, it’s a separate service with its GST
4. Extended Warranty Sold Later:
   – When an extended warranty is sold after the original purchase of goods, it is treated purely
   as a service.
   – The supplier of this extended warranty service must handle the GST applicable to the
   service.
   Summary:
   – Replacing Parts or Goods Under Warranty: GST rules are now the same for both parts
   and entire goods.
   – Distributor Replacements: No GST or ITC reversal is needed for stock replenishments
   from the manufacturer.
   – Extended Warranty: Considered a separate service if provided by a different entity or sold
   later, with distinct GST implications.