One of the most misunderstood areas in the mobile recharge business is how GST is applied and how Input Tax Credit (ITC) flows across the chain.
Let’s break this down correctly.
Two Business Models in Mobile Recharge
The GST treatment depends on the nature of arrangement between telecom operator and intermediaries.
1. Discount Model (Principal-to-Principal)
In this model:
- Distributor purchases recharge from telecom operator at a discounted price
- Example:
- MRP = ₹100
- Distributor buys at ₹98
- Margin = ₹2
GST Treatment:
- Telecom operator pays GST on full value (₹100)
- Distributor is not providing separate service
- Margin is treated as trading margin
ITC Position:
- Distributor may take ITC on inward supplies (if eligible)
- No separate GST is charged on margin
2. Commission Model (Agent Model) – Most Practical Scenario
In this model:
- Distributor / dealer / retailer acts as an agent of telecom operator
- They earn commission, not trading margin
Example:
- Recharge value = ₹100
- Commission = ₹2
GST Treatment under Commission Model
At Telecom Operator Level:
- Operator provides telecom service to customer
- GST payable on full value (₹100)
→ GST = ₹18
At Distributor / Dealer / Retailer Level:
- They provide support / distribution service to operator
- GST applicable only on commission earned
Recharge is considered a Supply of Service instead of Supply of goods. Its SAC code is 998413, GST rate 18%.
Example:
| Particulars | Amount |
| Commission Income | ₹2 |
| GST @18% | ₹0.36 |
✔ Correct Position:
- Distributor does NOT take ITC of ₹18 on recharge value
- Because:
- They are not the recipient of telecom service
- They are only earning commission income
✔ What ITC is Actually Available?
- ITC is available only on:
- Rent
- Office expenses
- Other input services used in business
- ITC is NOT available on full recharge value
Simplified Flow of Tax
| Level | Nature of Income | GST Liability |
| Telecom Operator | Service value ₹100 | ₹18 |
| Distributor | Commission ₹2 | ₹0.36 |
| Dealer | Commission ₹2 | ₹0.36 |
| Retailer | Commission ₹2 | ₹0.36 |
GST in mobile recharge business is not a traditional ITC chain system.
Instead:
- Tax on telecom service is paid by operator
- Intermediaries pay GST only on their commission income
- No artificial ITC pass-through of ₹18 happens
Practical Risk for Taxpayers
If you:
- Claim ITC on full recharge value
- Treat recharge as “purchase and resale” incorrectly
👉 It can lead to:
- ITC disallowance
- Interest + penalty
- Departmental scrutiny
Understanding whether your client operates under:
- Discount model or
- Commission model
is crucial for correct GST treatment.
In most practical cases, the commission model applies, and GST is payable only on commission income, not on the full recharge value at every stage.
