Types of supply under GST
1. Taxable supply
- Transactions subject to GST.
- Includes most sales and services.
- GST rate varies based on HSN/SAC codes.
2. Exempt supply
- Transactions not subject to GST.
- Includes specific essential goods and services.
- No GST rate applicable.
3. Zero-rated supply
- Exports and certain specified supplies.
- Attract a GST rate of 0%.
- Allows for input tax credit refunds.
4. Composite and mixed supply
- Bundled supply of goods/services.
- GST rate depends on the principal supply.
Scope: List of supplies and taxability
The scope of supply under GST is defined by Section 7 of the Central Goods and Services Tax (CGST) Act, 2017. This section outlines that supply includes all forms of goods and services transactions such as sale, transfer, barter, exchange, license, rental, lease, or disposal made for consideration by a person in the course of their business. It also covers activities listed in Schedules I, II, and III of the CGST Act, which classify certain transactions as supplies, even if made without consideration. Understanding the scope of GST through these provisions helps businesses stay compliant by clearly identifying what qualifies as a taxable supply. Below is a detailed explanation of the three schedules:
Schedule I: Supplies Made Without Consideration
Schedule I lists activities that are considered supplies even without consideration. These include:
- Permanent transfer of business assets: When a business asset is permanently transferred to another person, it is treated as a supply
- Supplies between related entities: Transactions between related persons or entities, such as intra-group transfers, are regarded as supplies
- Imports of services from related parties: When services are imported from related parties, they are deemed supplies even without direct consideration.
Schedule II: Classification of Transactions
Schedule II outlines the criteria for determining whether a transaction is a supply of goods or services:
- Supply of goods: This includes transactions where ownership or title of goods is transferred, such as the sale of products
- Supply of services: This includes transactions where no transfer of title occurs, but there is a right to use goods, such as renting or leasing goods
Schedule III: Activities Excluded from Supply
Schedule III lists activities that are not considered supplies of goods or services, and therefore fall outside GST’s scope. These include:
- Services provided by employees to employers: Services rendered by employees in their capacity as employees
- Transactions involving actionable claims: Claims enforceable in court, such as betting or lottery
- Sale of land and buildings: The sale of land and buildings (unless sold as part of a business) is excluded from GST. However, construction of such properties may still be subject to GST
Supplies where there are multiple goods and/or services involved
Composite supply and mixed supply are two classifications of supply under GST. A composite supply consists of naturally bundled goods or services supplied together, whereas a mixed supply consists of two or more independent goods or services sold together for a single price.
| Feature | Composite supply | Mixed supply |
|---|
| Definition | Naturally bundled goods or services supplied together in the ordinary course of business | Two or more independent goods or services supplied together for a single price |
| Tax treatment | GST rate of the principal supply applies | Highest GST rate among all items applies |
| ITC eligibility | Follows the principal supply classification | Follows the highest-rated item |
| Example | Car sale with free insurance or warranty | Gift pack containing chocolates and toys |
| Legal basis | Section 8(a) of the CGST Act, 2017 | Section 8(b) of the CGST Act, 2017 |
Composite supply
- A combination of goods and/or services that are naturally bundled and supplied together.
- The GST rate applicable to the principal supply determines the tax rate for the entire supply.
- Example: A car sale with a warranty service.
Mixed supply
- Two or more independent goods and/or services supplied together for a single price.
- The highest GST rate applicable to any item in the package applies to the entire supply.
- Example: A gift pack containing chocolates and toys.
Composite supply and mixed supply are two categories of supply under GST that apply when multiple goods and/or services are supplied together. A composite supply consists of naturally bundled goods or services taxed at the rate of the principal supply, whereas a mixed supply comprises independent items sold together for a single price and is taxed at the highest applicable GST rate.
Composite vs mixed supply under GST
| Feature | Composite supply | Mixed supply |
|---|
| Definition | Naturally bundled goods or services supplied together in the ordinary course of business | Two or more independent goods or services supplied together for a single price |
| Tax treatment | GST rate of the principal supply applies | Highest GST rate among all items applies |
| ITC eligibility | Follows the principal supply classification | Follows the highest-rated item |
| Example | Sale of a car with insurance or warranty | Gift hamper containing chocolates, toys, and other unrelated items |
| Legal basis | Section 8(a) of the CGST Act, 2017 | Section 8(b) of the CGST Act, 2017 |
Composite supply
- A combination of goods and/or services that are naturally bundled and supplied together in the ordinary course of business.
- The GST rate applicable to the principal supply applies to the entire transaction.
- Example: A car sold with a warranty service.
Mixed supply
- Two or more independent goods and/or services supplied together for a single price.
- The highest GST rate applicable to any item in the package applies to the entire supply.
- Example: A gift pack containing chocolates and toys.
Time of supply for goods under GST
The time of supply for goods under GST is governed by Section 12 of the CGST Act, 2017, and is generally the earliest of three trigger dates: the date of the invoice (or the last date on which it should have been issued), the date of receipt of payment, or the date of supply of goods. Determining the correct time of supply ensures that GST is paid in the appropriate tax period.
| Trigger | Rule | Example |
|---|
| Date of invoice or the last date by which the invoice must be issued | The earliest applicable invoice date determines the time of supply | Invoice issued on 1 June for goods delivered on 25 May – time of supply is 1 June |
| Date of receipt of payment | Applies if payment or an advance is received before the invoice | Advance received on 20 May – time of supply is 20 May |
| Date of supply of goods | Relevant where goods are delivered or dispatched before invoicing | Goods delivered on 15 May before the invoice – time of supply is 15 May |
Applying the correct time of supply rule helps businesses remain compliant with GST requirements, supports the wider scope of GST, and ensures timely tax payments. Businesses can also explore Bajaj Finance Business Loans to meet working capital needs while maintaining GST compliance.
Conclusion
Understanding the intricacies of supply under GST is crucial for businesses to ensure compliance and optimise tax benefits. The comprehensive coverage of transactions under GST simplifies the tax system and aids in efficient tax collection. Additionally, having clarity on GST obligations can help businesses manage their finances better, especially when planning for funding options like business loans, where understanding factors such as the business loan interest rate becomes important for cost-effective financial planning.
Why a business loan from Bajaj Finance helps with GST compliance costs
A business loan from Bajaj Finance can help businesses manage GST compliance costs, including accounting software, ERP upgrades, professional consultancy, working capital, and tax-related expenses without disrupting day-to-day operations. You can also apply for a business loan to maintain cash flow while meeting statutory GST obligations.
- Rapid disbursement: Bajaj Finance offers fund disbursement in as little as 48 hours* after approval, enabling businesses to address urgent GST compliance and operational requirements.
- Competitive interest rates: Bajaj Finance provides business loans with interest rates ranging from 14% to 23% per annum, helping businesses finance compliance-related investments at predictable borrowing costs.
- Simplified application process: Bajaj Finance offers an online application process that reduces paperwork and speeds up loan processing, making access to funds more convenient.
- Flexible repayment tenure: Bajaj Finance allows repayment tenures ranging from 12 months to 96 months, enabling businesses to align EMIs with their cash flow and compliance budget.
