Any supply of goods or services made in the course of business, whether voluntary or mandatory, is subject to GST. The concept of supply ensures a broad tax base, encompassing most economic activities, thereby streamlining the tax system and enhancing compliance and revenue collection.
What is supply under GST?
Supply includes activities such as sale, transfer, exchange, barter, licensing, rental, leasing, and disposal. If a person carries out any of these activities during the course of their business and for consideration, it will be considered as a supply under GST
What are the three components or elements of supply under GST?
Goods
- Tangible products that are movable and used in commerce.
- Includes items like raw materials, finished goods, and consumables.
- Subject to GST based on the HSN code and applicable rate.
Services
- Intangible activities performed for consideration.
- Encompasses professional services, maintenance services, and more.
Consideration
- Payment made in exchange for goods or services.
- Can be monetary or non-monetary (barter).
- Essential for determining the transaction's taxability under GST.
Types of supply under GST
Taxable supply
- Transactions subject to GST.
- Includes most sales and services.
- GST rate varies based on HSN/SAC codes.
Exempt supply
- Transactions not subject to GST.
- Includes specific essential goods and services.
- No GST rate applicable.
Zero-rated supply
- Exports and certain specified supplies.
- Attract a GST rate of 0%.
- Allows for input tax credit refunds.
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 states 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 mentioned in Schedules I, II, and III of the CGST Act, which classify certain transactions as supplies, even without consideration. 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.
- These provisions ensure certain transactions are captured under GST, preventing avoidance through non-monetary exchanges and ensuring businesses can claim input tax credit where applicable
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
- This schedule helps differentiate between goods and services, which is important for applying the correct tax rates and rules.
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
- A combination of goods and/or services that are naturally bundled and supplied together.
- Principal supply dictates the GST rate.
- Example: A car sale with a warranty service.
Mixed supply
- Two or more independent goods and/or services supplied together.
- Highest GST rate among the items applies.
- Example: A gift pack containing chocolates and toys.
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.
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