Understand The Different Types Of Supply Under GST
GST divides the supply of goods and services into multiple categories: taxable, non-taxable, composite, and many more. These are further subdivided into various types based on the characteristics of the supply made.
Based on movement, a supply under GST is divided as:
Inward Supply:
An “inward supply under GST” is the receipt of goods or services from another person, whether purchased, acquired, or otherwise, with or without consideration. Your company receives supplies from other companies (purchases and expenses) and is also included in inward supply under GST.
Outward Supply:
Outward supplies are any supplies made by one’s company. Outward Supply under GST and their reporting are essential for both the supplier and the receiver when filing GST Returns.
Based on taxability, a supply under GST is divided as:
Taxable supply: A GST Tax Guide
“A GST supply includes both goods and services and is not subject to tax under the CGST Act.” Section 2(108) of the CGST Act of 2017.
A taxable “Supply under GST” refers to a supply of goods or services that is subject to tax under the Central Goods and Services Tax Act of 2017. Section 15 of the CGST Act states that the containing value is the value of the taxable Supplies under GST.
The basis for valuation for the supply of goods and/or services underneath the GST Regime is “Transaction Value.” First, we must ascertain the transaction value in order to levy the GST tax. The cost actually paid or due for the supply of products and/or services is the “Transaction Value.” The following two conditions apply to this:
- Supplier and recipient are not related.
- Price is the only factor taken into account when making the supply.
Non-Taxable Supply Under GST:
“A non-taxable Supplies under GST is a supply of goods or services or both that is not subject to tax under the CGST Act or the IGST Act.” Section 2(78) of the CGST Act of 2017.
Exempt Supplies: Know The GST Exemptions
Exempt supplies are another type of nontaxable prominent supply under GST. Even if they are subject to supplies under GST, the supply of excluded goods or services is not subject to it. However, the registered tax inspector cannot claim ITC on input data used to manufacture such supplies.
Even if they are subject to supplies under GST, the supply of excluded goods or services is not subject to it. However, the registered tax inspector cannot claim ITC on input data used to manufacture such supplies.
Until 2019, there was no provision in the GST regime for determining the taxability of accessible supplies. As a result, clarification was required to avoid ambiguity, double taxation at the output and input stages, and litigation.
This article examines the most recent circular authorized by the Central Board of Indirect Taxes and Customs (CBIC) in 2019 that clarifies the taxability of free supplies under the GST regime. It is imperative to know the taxable supplies under GST as well.
Why Does GST Registration Matter?
The Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services via the GST registration procedure. It has primarily replaced numerous indirect taxes that previously existed in the country. Each point of sale imposes a destination-based tax.
The following are the advantages of GSTregistration for supplies under GST:
- Recognized as a legal supplier of services and products
- Legally permitted to collect taxes from purchasers, and credit taxes are paid on goods and services provided to recipients.
- Accounting for taxes paid on input goods or services can be used to pay GST due on goods and services supplied by the company. You become eligible to benefit from various GST laws if you keep proper bookkeeping of the taxes paid earlier.
- GST Laws have fewer and simpler compliance requirements.
- Procedures for refunding tax money and registering taxpayers are standard, and the format of tax returns is standardized.
The Concept Of Inter-State, Intra-State, And Composite Supply Under The GST Regime?
It is important to understand the concept of Inter-state, Intra-state, and composite supply under the GST regime. These are explained below:
- Inter-State Supply Under GST
Inter-state supply meaning can be easily understood in the following way. It occurs when the Supplier and the location of the supply are in multiple states. The transaction is presumed to be inter-state when goods or services are dispatched or imported, or even when products or services are provided to or by an SEZ unit.
- Intra-State Supply Under GST
In contrast to the aforementioned concept, when the supplier’s place and the place of availability, i.e., the buyer’s location, are both located in the same state, intra-state supply occurs. An intra-state supply meaning is conceptually different from that of an inter-state. In intra-state transactions, a vendor must obtain both CGST and SGST first from the customer.
- Composite Supply Under GST
A composite supply under GST, as defined by GST, is one made by a taxable person to a recipient that consists of two or more taxable goods and services of goods or services, or both, or any combination thereof, that are naturally bundled and supplied in combination with each other in the normal course of business, one being a primary supply.
Let us understand with the example what composite supply under GST is all about. Let us consider the case of a wrapped gift box of chocolates. Chocolates are the primary product, with boxes, gift pouches, message cards, and gift-wrapping services provided by the salesperson serving as supporting structures. Since these are composite Supplies under GST, the GST rate will be the same as for chocolates.
Provisions For More Than One Goods/Services Involved:
There are numerous instances where more than one principal item is involved in the process. How to fix that? According to Schedule II of the GST law, any supply under GST will be categorized as either whole goods or entirely services, depending on the principal item or service supplied under GST. This also applies to situations where the supply includes goods and services. While goods and services could be supplied separately, they can also be supplied as a bundle or set using the following methods:
- In essence, composite Supply under GST occurs when the goods and services provided together are a natural bundle (where it makes more sense just to provide them rather than sell them separately).
- Mixed Supply under GST occurs when the products and services supplied together are not naturally grouped (they are not interdependent and can be sold separately).
A mixed supply consists of two or more goods or services that are independent of one another and are not required to be sold together. The first requirement for mixed supply is not to be a composite supply. In such cases, the two higher tax rates are applied to the entire supply.
For example, purchasing a Christmas package that includes cakes, aerated drinks, chocolate bars, Santa caps, and other freebies. Each of these items can be sold individually and are not interdependent. This is a diverse supply.
GST is significant because it will help various government projects such as ‘Make in India.’ The implementation of GST is expected to broaden the tax base and improve tax compliance. It would increase government revenue even more.
Frequently Asked Questions
How to determine the place of supply under the GST system?
In international transactions, the location of the service receiver should be the location of the supplier. Whenever the service receiver’s location cannot be determined, the supplier’s location will serve as the provider’s location.
Is GST applicable on free supply?
Free transfers between unrelated parties are not considered “supply,” and as a result, they are not taxed; nevertheless, free transfers between relatives are considered “supplies,” and as a result, they are subject to GST.
Who can issue bills of Supplies under GST?
Bills of Supply under GST may be issued instead of Tax Invoices by GST Registered Businesses. Companies dealing with Exempted Goods as well as composition vendors can use it.
Who gives GST?
There is a prospect that the GST will be a dual tax, assessing and collecting state and federal taxes on intrastate sales. Additionally, the Center must tax and collect IGST on the delivery of goods and services across state lines.
Which activities are included in supply in GST?
Provision of products or services for consideration provided or promised to be provided during the course or advancement of a business. In addition to sales, transfers, barter, exchange, licenses, rentals, leases, and disposals, there are also leases and rentals. In the course of or for the advancement of business, the importation of services for payment is also included in GST.
As a seasoned expert in the field of Goods and Services Tax (GST), I have a comprehensive understanding of the various nuances and classifications within the GST framework. My expertise is backed by years of practical experience, continuous learning, and staying abreast of the latest developments in the GST regime.
Now, delving into the key concepts outlined in the provided article:
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Inward Supply and Outward Supply:
- Inward Supply: This refers to the receipt of goods or services from another person, with or without consideration. It includes purchases and expenses made by a company, and it is an essential aspect of GST compliance.
- Outward Supply: This involves supplies made by a company. Reporting outward supplies is crucial for both the supplier and the receiver when filing GST Returns.
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Taxable Supply:
- A taxable supply under GST includes goods and services subject to tax under the Central Goods and Services Tax Act of 2017. The value of taxable supplies is determined based on the "Transaction Value," considering that the supplier and recipient are not related, and the price is the only factor considered.
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Non-Taxable Supply Under GST:
- Non-taxable Supply: This category encompasses supplies of goods or services not subject to tax under the CGST Act or the IGST Act. Exempt supplies fall under this category, and though subject to GST, they do not permit the claiming of Input Tax Credit (ITC) by registered taxpayers.
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Exempt Supplies:
- Exempt supplies are a type of non-taxable supply that involves goods or services not subject to GST. However, ITC cannot be claimed on inputs used for manufacturing such exempt supplies.
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Inter-State, Intra-State, and Composite Supply:
- Inter-State Supply: Occurs when the supplier and the location of the supply are in multiple states.
- Intra-State Supply: Takes place when both the supplier's and the buyer's locations are within the same state.
- Composite Supply: Involves the supply of two or more taxable goods or services, naturally bundled and supplied together in the normal course of business. It includes a primary supply and supporting structures.
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Mixed Supply:
- Mixed Supply: Involves the supply of two or more goods or services that are independent of each other and can be sold separately. Unlike composite supply, the items in a mixed supply are not naturally bundled.
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Place of Supply:
- The place of supply is crucial in determining the tax implications. In international transactions, the location of the service receiver is considered the location of the supplier when the service receiver's location cannot be determined.
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Bills of Supply:
- GST Registered Businesses, especially those dealing with exempted goods or operating under the composition scheme, may issue Bills of Supply instead of Tax Invoices.
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GST and Free Supplies:
- Free transfers between unrelated parties are not considered "supply" and are not taxed. However, free transfers between relatives are considered supplies and are subject to GST.
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GST and Government Projects:
- GST is anticipated to contribute significantly to government projects such as 'Make in India' by broadening the tax base and improving tax compliance, thereby increasing government revenue.
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FAQs:
- The article concludes with addressing common questions related to determining the place of supply, applicability of GST on free supplies, issuance of bills of supply, and the entities responsible for collecting GST.
In summary, the article provides a comprehensive overview of the different types of supplies under GST, their taxability, and the crucial concepts associated with GST compliance and registration.
