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.
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:
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.
The scope of supply defined by the GST Act is as below:
Following are the 6 different types of supply as defined in the Act:
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.
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:
Non-taxable supplies: The supply of these goods and services does not incur any taxes. These include:
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:
The CGST law of 2017 states that certain attributes specify the basic supply elements. These include place, value and time.
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:
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:
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.
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.
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.
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.
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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