What is a mixed supply under GST?
A mixed supply under GST refers to a combination of two or more individual supplies of goods or services, or any combination thereof, made together by a supplier for a single price. Each component of a mixed supply is independently taxable and has no direct connection to the other supplies included. For instance, if a package contains a watch and a pen sold together at a single price, each item is taxed separately based on its respective GST rate. The rate applicable to the highest-taxed item in the package determines the GST rate for the entire mixed supply. This is crucial because it influences the overall tax liability, ensuring that the correct tax rate is applied to the entire transaction. The concept of mixed supply is essential in GST to prevent potential tax avoidance and ensure that the correct amount of tax is collected by the authorities. Businesses can also use tools like the GST Calculator to quickly estimate their tax liabilities on such transactions.
Example: A garden centre sells cut flowers, ornamental plants, and gardening services together as a bundle. When sold individually, the plants and flowers attract GST at 5%, while the gardening services are taxed at 18%. However, when offered as a bundle, the entire package is subject to GST at the higher rate of 18%.
Note: Whenever a retailer dispatches the items in a mixed supply, the applicable tax rate on the delivery charge will match the GST rate applied to the entire bundle.
What is a composite supply under GST?
A composite supply under GST refers to a situation where two or more goods or services are supplied together, and one of these is the principal supply, while the others are incidental. The GST rate applicable to a composite supply is determined by the principal supply. For example, when a company sells a laptop with a warranty and service contract, the laptop is considered the principal supply, and the associated services are incidental. The GST rate applied is that of the laptop, which simplifies the taxation process and ensures consistency. Composite supplies are integral to GST as they help clarify the tax treatment of bundled goods and services, ensuring that the tax is levied in line with the primary component of the transaction. The concept of composite supply is crucial for maintaining clarity and uniformity in tax application under GST law. Those registered under the GST Composition Scheme must also understand these classifications to determine their applicability and limits.
Example: A gift box containing a variety of items such as chocolates, dry fruits, and a small decorative item is sold for a single price. Each product in the box may attract a different GST rate when sold separately. However, since the items are packaged and sold together for a single price and are not naturally bundled, this is treated as a mixed supply under GST. As per GST rules, the entire supply is taxed at the highest applicable rate among the items in the package — in this case, the rate applicable to the decorative item, if it is the highest.