TAXABLE SUPPLY UNDER GST
Supply on which tax shall be paid under GST is known as taxable supply. Taxable Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST.
Sale: Transferring the property in goods from one to another, upon valuable consideration.
Transfer: Any transfer of goods or right in goods or of undivided share in goods without transfer of title thereof.
Barter: To exchange one commodity for another without use of money.
Exchange: To swap, to part with, give or transfer for an equivalent with the use of money.
Licence: Permission granted by competent authority to exercise certain privileges without such authorization the activity would have constituted as an illegal act.
Rental: Periodical payment for the use of another property.
Lease: Contractual agreement by which one party conveys an estate in property to another party, for a limited period, subject to various conditions, in exchange for something of value, but still remain ownership.
Disposal: To pass or into the control of someone else; to alienate, bestow, or part with.
ELEMENTS OF TAXABLE SUPPLY
Supply has two important elements:
- Supply is done for a consideration
- Supply is done in course of furtherance of business
If these elements are not met with, it is not considered as a sale.
Examples:
1. Mr. A buys a table for Rs.10,000 for his personal use and sells it off after 10 months of use to a dealer. This is not considered as supply under CGST as this is not done by Mr. A for the furtherance of business.
2. Mrs. B provides free coaching to neighboring students as a hobby. This is not considered as supply as this act is not performed for a consideration.
FEATURES OF TAXABLE SUPPLY UNDER GST
In the GST system, a taxable event is Supply. For the government to consider an event as a supply, it should have the following characteristics.
- Supply of goods or services – It is a supply of goods when a transaction takes place. For example, purchasing a bottle. Supply of service is when there is a transfer of right without transfer of title. For example, availing taxi-cab services.
- Taxable – Supply of goods or services can either be taxable or tax-exempt. Taxable supplies are goods and services that attract GST. Tax-exempt supplies include supply of goods or services that belong to a specific category of the GST Act.
- A taxable person should make the supply – A taxable person is someone who registers under the GST, or is a liable to register. People can also voluntarily register. Supply between two non-taxable people is not a supply under GST.
- Within a taxable territory – Taxable territory means any place in India.
- Supply made in the course of business – GST is applicable only on business transactions. Hence, a transaction made for business purpose is supply under GST. If someone supplies goods for personal purposes, it will not be considered as a supply under GST.
- In exchange for cash or reward (consideration) – Consideration means a barter of goods or services, or payment made for a supply in money, or in kind. Advance payment or deposit towards supply also falls under consideration. According to CGST Act, the following activities that will be treated as supply even if made without consideration:
- When a business permanently transfers or disposes its assets for which taxpayers availed input tax credit.
- Supply between two related or separate persons for business purposes.
- When a taxable person imports services from a related person, or from his or her own business outside of India for business purposes.
- Supply of goods by an agent on behalf of the supplier or supply that an agent receives on behalf of a customer.
TYPES OF SUPPLY
INTRA-STATE SUPPLY
Intra-State is a type of supply of goods or services where the location of the supplier and the place of supply of goods are in the same State or same Union Territory.
Exceptions –
- Supply of goods to or by a Special Economic Zone developer or a SEZ unit; or
- Goods imported into the territory of India; or
- Supplies made to a tourist(section 15)
TERRITORIAL WATERS
- Where the location of the supplier is in the territorial waters; or
- Where the place of supply is in the territorial waters;
The place of supply will be in the nearest Coastal State or Union Territory.
INTER-STATE SUPPLY
It is a supply of goods or services, where the location of the supplier and place of supply are in-
- Two different States;
- Two different Union territories; or
- A State and a Union territory
It also includes import of goods or services into the territory of India.
Further, the following shall be treated as an inter-state supply of goods or services:
- When the supplier is located in India and the place of supply is outside India;
- To or by a Special Economic Zone (SEZ) developer or a SEZ unit; or
- In the taxable territory, not being an intra-state supply and not covered elsewhere.
2. BASED ON COMBINATION
COMPOSITE SUPPLY
Composite supply means a supply is comprising two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply.
It means that the items are generally sold as a combination. The items cannot be supplied separately.
A supply of goods and/or services will be treated as composite supply if it fulfills the following criteria:
- Supply of two or more goods or services together, AND
- It is a natural bundle,i.e., goods or services are usually provided together in the normal course of business.
- They cannot be separated.
Examples:
- Goods are packed and transported with insurance. The supply of goods, packing materials, transport and insurance is a composite supply. Insurance, transport cannot be done separately if there are no goods to supply. Thus, the supply of goods is the principal supply.
- Buying a Dry Fruit Gift Box for Diwali. It includes dry fruits, a box and a wrapper. Box and wrapper cannot be sold individually without the main content which is dry fruit. This is composite supply.
MIXED SUPPLY
Mixed supply under GST means a combination of two or more goods or services made together for a single price. Each of these items can be supplied separately and is not dependent on any other.
Under GST, a mixed supply will have the tax rate of the item which has the highest rate of tax.
Example: Buying a Christmas package consisting of cakes, aerated drinks, chocolates, Santa caps and other gift items. Each of these items can be sold separately and are not dependent on each other. This is mixed supply.
CONTINUOUS SUPPLY
Continuous supply is of two types viz., continuous supply of goods and continuous supply of services.
Continuous supply of goods: It means a supply of goods which is provided on continuous basis, under a contract, whether or not by means of wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular basis and includes supply of notified goods.
Continuous supply of services: It means a supply of services which is provided continuously or on recurrent basis, under a contract for a period exceeding three months with periodic payment obligations and includes supply of notified services.
3. BASED ON RECIPIENT
INWARD SUPPLY
It means receipt of goods or services or both whether by purchase, acquisition or any other means with or without consideration.
OUTWARD SUPPLY
It means a supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.
4. BASED ON TAX TREATMENT
EXEMPT SUPPLY
Exempt Supply of any goods or services is one which attracts nil rate of tax or which may be wholly exempt from tax. It includes non-taxable supply. In the case of exempt supply in respect of any goods and/or services, the taxable person shall not be required to pay tax.
ZERO-RATED SUPPLY
It means export or supply of goods or services to a Special Economic Zone developer or a Special Economic Zone unit.
NON-TAXABLE SUPPLY
Non-taxable supply is the sale of any good or service which attracts nil rate of tax and is similar to exempt supply.
TRANSACTIONS DO NOT COME UNDER PURVIEW OF GST
Following are the transactions not covered under GST:
- Services provided by an employee to the employer.
- Gifts up to Rs.50,000/- in value in a Financial Year, by an employer to an employee.
- Services of the funeral, burial, crematorium or mortuary including transportation of the deceased
- Services by any court or Tribunal.
- Duties performed by the MP/MLA/MLC/Members of Local Bodies.
- Duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority.
- Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity.
- Sale of Land.
- Sale of Building (However, If construction of a complex /building intended for sale to a buyer and part of the consideration is received before completion, then it will be treated as Supply of Services).
- Actionable claims, other than lottery, betting and gambling.
QUESTION COVERED
What is taxable supply?
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