Supply Under GST: Meaning, Scope, Types and Taxability
To deal with the multi-faceted indirect tax policies, the Indian government introduced the Goods and Services Tax Act 2017 and the concept of supply under GST. The aim of the new tax regime was to remove the cascading effect of taxes on the inter-state supply of goods.
Under the GST Act, supply of goods refers to the transfer of ownership of goods between two parties by agreement. As GST is a destination-based tax, i.e., the goods are taxed at the destination of delivery and not the origin, the place of supply or the goods that are supplied under GST is a crucial aspect of the taxation system.
Read on to know the types of supplies under GST and how they are taxed.
What Is Supply under GST?
In economics, the concept of supply of goods and services is self-explanatory and is calculated as the net value of production in a specific time period. However, supply under GST is defined as a taxable event which may include the following:
- Sale or ownership transfer of goods and services.
- Lease and transfer of assets and goods without the transfer of title.
- Exchange or barter of goods and services with or without money.
- Licensing or periodic payments to exercise certain privileges or usage of owner’s property.
Supply is essentially an instrument for furthering business ventures or offering charitable contributions. The definition of supply also includes importing goods and services for personal or business value.
Scope of Supplies under GST
The scope of supply defined by the GST Act is as below:
- Consideration is the primary basis for supply.
- Business entrepreneurs should consider supply as a means to further business activities.
- A taxable person should ensure adherence to supply.
- Supply must be taxable and made within feasible boundaries.
Following are the 6 different types of supply as defined in the Act:
- Sale: It refers to the transfer of property irrespective of its specifications. In terms of consideration, the sale may include cash or deferred payments. Basically, it is defined as a transfer of property in goods for cash or transfer of rights to use any good.
- Transfer: It normally refers to the transfer of property by which an individual can convey his property in any given time period to other individuals or to himself.
- Barter: This involves the exchange of one commodity for another. It also includes swapping, parting ways with or transferring for an equivalent amount of cash, etc.
- Exchange: This refers to commodity exchanges, and the GST value is calculated on the original price or valuation of the goods and not the remaining amount after exchange.
- Licence: When business entities obtain special privileges like licences, mining rights, and natural resource extraction rights against payment of fees or royalties, it is considered a licence.
- Rental: Rental income consists of payments for renting out commercial or residential complexes. Normally, the GST Act states that no GST shall be calculated on rent.
However, the supply of goods and services devoid of consideration is exempt from supply under GST. Also, the import of services and goods falls under supply.
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What are the Types of Supply?
The GST definition of supply includes two main supply variants – taxable and non-taxable. Further classifications can be derived as given below:
Taxable supplies: This includes the supply of all goods and services that are taxable under GST. However, taxpayers can claim refunds on tax payments during payments. Taxable supplies can further be classified into 3 main types:
- Regular taxable supplies: Supply of any good or service is regular if it incurs a positive tax amount.
- Nil-rated supplies: Supplies that do not incur any taxation.
- Zero-rated supply under GST: Exporting certain supplies to Special Economic Zone (SEZ) or other business organisations does not incur taxation but is taxed when sold within the national borders.
Non-taxable supplies: The supply of these goods and services does not incur any taxes. These include:
- Exempt supplies: Supply of certain goods and services does not incur GST payment even when they fall within the taxed category.
- Non-GST supplies: Supply of certain goods and services are examples of non-taxable supply under GST.
Activities under Schedule I, II, and III
Following are the activities considered as supply in accordance with three Schedules of the GST Act:
1. Activities under the supply of goods: These include transferring business assets with or without consideration. For non-taxable individuals, supply refers to the business assets presumably supplied for him/her. However, this is invalid if the business changes hands or is carried forward by a taxed representative.
2. Activities under supply of services: These include activities related to ownership of land or buildings and transfer of business assets. The former includes lease, rent, tenancy and licences involved in occupying land or building. It may also include letting commercial or industrial complexes for lease or rent.
Business asset transfer involves dealings with business assets for personal use. Construction of buildings, temporary transfer of intellectual property rights and renting immovable properties also fall into this category. Supply, in this sense, also includes developing software applications or transferring rights to using a good.
3. Activities excluded under supply of goods and services: Certain services do not fall into the supply category. This includes:
- Services provided to an employer by an employee.
- Gifts up to Rs. 50,000 by an employer to their employee.
- Funeral, burial or mortuary services, including transporting the deceased.
- Services offered by courts and tribunals.
- Services provided by the Chairperson, member of a government body or any individual involved in a designation provisioned by the Constitution.
- Sale of land or building unless its construction and receivable considerations are received.
- Speculative and actionable claims other than lottery or betting.
Elements of Supply under GST
The CGST law of 2017 states that certain attributes specify the basic supply elements. These include place, value and time.
- Place: Supply of goods and services are location-dependent and subject to changes based on location changes. Thus supply can be intra-state, inter-state or specifically meant for exports. GST will be calculated on the supply of these goods and services according to their whereabouts.
- Value: Manufacturers add value to goods or services based on their usability and modes of production. The intrinsic value of the goods and services determines the GST calculation on these commodities.
- Time: Time is an important component of GST that determines GST calculation. It determines the time limit for GST calculation and payments apart from the due dates.
Taxable Supply under GST
In simple terms, taxable supply refers to the supply of those goods and services that incurs GST under the CGST Act, 2017. Now the payment of taxes on these supplies depends on their intrinsic value (of the transaction) and the price paid by the buyers. Valuation of taxable supply includes:
- Any legal form of taxes, duties or charges that are included with the concerned goods and services charged or supported by State Goods and Services Act, Union territory Goods and Services Act, etc.
- Any liabilities the supplier is liable to pay but are incurred by the buyer and not included in the price of such goods.
- Any additional expenses incurred by the supplier, including packing and commissions, which they charge from buyers.
- Interests, late fees and penalties for delay in supply considerations.
- All forms of subsidies are linked to the price of the good or service, excluding those provisioned by government policies.
- Schedule II of GST law states that regular GST calculation applies to mixed and composite supplies. Mixed supply refers to multiple orders or bulk supplies and is valid for commodities that can be sold separately and are not dependent. Composite supplies refer to complementary goods that are inseparable, and owners can derive utility from each only when consumed together.
How Is Composite Supply Defined under the GST Act?
The concept of Supply in GST is generally inclusive of clearly identifiable supplies. However, the concept requires a special clause for multiple goods and services due to the real-life complexities of including goods and services.
When the supply of goods and services consists of multiple commodities in a bundle or combination, it is defined as composite supply under GST. Composite supplies include:
- Two or more taxable supplies of goods and services in any combination.
- Complementary goods and services that include supplies that come in bundles and are to be enjoyed together.
- One among the bundle is a principal supply.
GST rates on composite supplies apply for the whole bundle and not individually. So if a railway ticket comes with additional insurance, tax liabilities apply to the principal supply alone. Thus, the principal supply denotes the journey expenses.
Examples of Composite Supply in GST
Composite goods will always comprise a main product or service which is referred to as the principal/primary supply. The additional elements add value to the principal supply.
A charge for one night at a hotel room costs Rs. 4000 inclusive of GST. The rooms offer complimentary breakfast and laundry services.
Here, the room rent alone is the principal supply, and all the other complimentary benefits come as a result of the primary supply. Hence, the complementary goods and services cannot be sold individually, and the GST is calculated on the composite supply of goods and services.
Final Word
The CGST Act essentially includes the supply under GST of all goods and services that are taxable at the destination and not the source of origin. Unlike the pre-GST regime that treated all taxable events separately, GST is a more unified approach and eases the taxation process.
FAQs
Ans. The Bill of supply must contain the following information:
• The name, address, GST identification number of the supplier
• A unique consecutive serial number of sixteen characters
• Harmonised system of nomenclature code for goods and services
• Description of goods or services
• Signature of the supplier or his authorised representative
Ans. The inter-state supply of goods and services (under the Section 7 of the integrated goods and Services Act of 2017) refers to the supply between the supplier and retailer/consumer whereby they are in:
• Two different states
• Two different Union territories
• A state and a union territory
• Import of goods and services
• A location in India and another outside India
• To SEZ units or developers
Ans. Mixed supplies are when two or more individual commodities are blended together to be sold together or independently. A gift box containing different desserts and sweets is an example of a mixed supply since each can be sold separately.
Ans. Exempted supplies refer to supply of goods and services that do not attract taxes under Section 6 and 11 of the GST Act. On the other hand, Zero-rated supplies are those where both the inputs and the final supplies do not incur GST.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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