Types of Supply Under GST: Scope and Components Explained

Table of Contents

• What is Supply Under GST?
• Key Aspects of a Taxable Supply Under GST
• Importance of Accurate Supply Classification
• Components of Supply Under GST
• Classification of Supplies Under GST
• Scope of Supplies Under GST
• Conclusion

The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. Understanding the different types of supply under GST is crucial for businesses, especially MSMEs, as it impacts tax liabilities, compliance requirements, and overall business operations. This article delves into the different categories of supply under GST, providing a clear understanding for small businesses.

What is Supply Under GST?

Supply under GST refers to the transfer, exchange, sale, or any other disposition of goods or services for a consideration. This consideration can be in the form of money or anything else of value. It is the foundation of GST, as the tax is levied on the supply of goods and services. The term “supply” is broad, encompassing various transactions that businesses engage in daily. Understanding supply under GST helps businesses correctly classify their transactions and comply with tax laws.

Key Aspects of a Taxable Supply Under GST

A supply is considered taxable if it meets specific criteria outlined in the laws introduced under the GST regime in India. Understanding these criteria helps businesses ensure compliance and correctly determine the applicability of GST. Here’s a concise overview of the essential characteristics of a taxable supply:

Consideration

A supply must involve consideration for it to be taxable under GST. Consideration refers to the payment or compensation made for the supply of goods or services. It can be in the form of money, barter, or any other form of value exchanged. If a transaction does not involve consideration, it may not be deemed a taxable supply, except in cases specified in Schedule I of the CGST Act, 2017, where certain transactions are treated as supplies even without consideration.

In the Course or Furtherance of Business

The supply must be made in the course or furtherance of business. This means that the transaction should be part of the regular business activities or operations of the supplier. Personal transactions, or those not related to the business’s commercial activities, do not qualify as taxable supplies. This principle ensures that only business-related transactions are taxed under GST.

Goods or Services

The supply must involve goods or services as defined under GST laws:

• Goods: Any movable property excluding money and securities, which includes products like electronics, clothing, and raw materials.
• Services: Any activity carried out for consideration, excluding the transfer of goods or ownership. This encompasses services like consulting, legal advice, and maintenance.

A taxable supply under GST can involve either goods, services, or a combination of both.

Supply of Goods or Services

The nature of the supply determines the tax treatment:

• Supply of Goods: Transactions where there is a transfer of title or ownership of physical goods.
• Supply of Services: Transactions where there is no transfer of title but a provision of service, such as renting or professional services.

Registered Supplier

The supplier must be registered under GST to make a taxable supply. A person or business entity must obtain GST registration if their aggregate turnover exceeds the threshold limit set by the GST law. Only registered suppliers are authorized to collect GST and claim Input Tax Credits.

Taxable Event

The supply must be a taxable event as defined by the GST law. For instance, certain goods or services are exempt from GST, and transactions involving exempt supplies do not qualify as taxable supplies. The GST Act specifies which goods and services are taxable and which are exempt.

Importance of Accurate Supply Classification

Accurately classifying the type of supply under GST is crucial for businesses. Misclassification can result in incorrect tax payments, penalties, and legal issues. This can be particularly damaging for MSMEs, given their limited resources. Ensuring accurate classification helps in maintaining compliance and avoiding unnecessary financial burdens.

Components of Supply Under GST

Three key components must be determined to accurately calculate GST liability on a transaction:

Time of Supply

The Time of Supply determines when the goods or services are considered supplied, which in turn dictates when the associated GST becomes payable. For goods, the time of supply is typically the earliest of the following:

• The date of issuing an invoice.
• The date of removing the goods (if supply involves movement).
• The date on which the supplier receives payment, if it occurs before the invoice is issued.

For services, the time of supply is determined by the earliest of the following:

• The date of issuing an invoice or receiving payment.
• If the invoice is not issued within the prescribed period, the date of provision of the service.

The determination of the correct time of supply is crucial, as it impacts the timing of GST returns and the payment of tax​.

Place of Supply

The Place of Supply is essential to determining whether a transaction is intra-state or inter-state, which affects the type of GST that will be levied (CGST and SGST for intra-state supplies, and IGST for inter-state supplies).

• For goods, the place of supply is generally the location where the goods are delivered.
• For services, it is usually the location of the service recipient. However, for services like transportation, the place of supply might be the location where the service is performed.

The correct determination of the place of supply ensures that the correct tax is applied and helps avoid disputes or errors in tax filings​.

Value of Supply

The Value of Supply determines the taxable amount on which GST is calculated. It includes:

• The price paid or payable for the goods or services.
• Any additional charges related to the supply, such as packing costs, transportation fees, and insurance.
• Any taxes, duties, and cess, except GST itself.
• Subsidies directly linked to the price, excluding those provided by the government.

The value of supply excludes discounts if they are provided before or at the time of the supply and recorded in the invoice. Accurately determining the value of supply is critical as it directly influences the GST amount payable.

Classification of Supplies Under GST

Supplies under GST are primarily classified into two broad categories:

Taxable Supplies

Taxable supplies are those which are subject to GST. Businesses involved in such supplies must register under GST and comply with related obligations. These supplies can be further classified into:

• Regular Taxable Supplies: This is the most common type, encompassing the sale or transfer of goods or services for a consideration, attracting a standard GST rate.
• Zero-Rated Supplies: While these supplies are taxable, the applicable GST rate is zero. This category often includes exports.
• Reverse Charge Supplies: In certain cases, the recipient of the supply, rather than the supplier, is liable to pay GST. This mechanism is employed for specific transactions like job work or imports.

Non-Taxable Supplies

• Exempt Supplies: Exempt supplies are those specifically excluded from the purview of GST. While no GST is levied on these supplies, businesses dealing in exempt supplies might still need to register under GST if their turnover exceeds the prescribed threshold. Examples include:
  • Agricultural produce
  • Certain educational services
  • Newspapers
• Non-GST Supplies: These supplies are entirely outside the scope of GST. They are neither taxable nor exempt. Examples include:
  • Sale of immovable property
  • Transactions in securities
  • Personal use of goods or services

Other Important Classifications

• Composite Supply: This involves a principal supply and one or more ancillary supplies, all considered as a single supply. The GST rate applicable to the composite supply is determined by the rate of the principal supply.
• Mixed Supply: Involves two or more independent supplies, none dominating the other. The GST rate is calculated based on the value of each supply.
• Import of Goods and Services: The import of goods and services into India is also considered a supply under GST.

Scope of Supplies Under GST

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 supply of goods and services such as sale, transfer, barter, exchange, license, rental, lease, or disposal made for consideration by a person in the course or furtherance of business. It also covers activities specified in Schedules I, II, and III of the CGST Act, which classify various transactions as supplies, even if no consideration is involved. Here is a detailed outlook of what the three schedules comprise of:

Schedule I: Supplies Made Without Consideration

Schedule I outlines activities that are deemed as supplies even if no consideration is involved. This schedule includes:

• Permanent Transfer of Business Assets: When a business asset is permanently transferred to another person or entity, it is treated as a supply.
• Supplies Between Related Entities: Transactions between related persons or entities, such as intra-group transfers, are considered supplies.
• Imports of Services from Related Parties: When services are imported from related parties, these are deemed supplies even if no consideration is directly involved.

These provisions ensure that certain transactions are captured under GST, preventing avoidance through non-monetary exchanges.

Schedule II: Classification of Transactions

Schedule II provides criteria for determining whether a transaction should be classified as a supply of goods or services:

• Supply of Goods: Includes transactions where there is a transfer of title or ownership in goods. For instance, the sale of a product or goods is a supply of goods.
• Supply of Services: Includes transactions where there is no transfer of title but rather a right to use goods. For example, renting or leasing goods is considered a supply of services.

This schedule helps in distinguishing between goods and services, which is crucial for applying the correct tax rates and rules.

Schedule III: Activities Excluded from Supply

Schedule III lists activities that are neither considered as supplies of goods nor services, thus falling outside the scope of GST. This schedule includes:

• Services Provided by Employees to Employers: This includes services rendered by an employee in their capacity as an employee.
• Transactions Involving Actionable Claims: This refers to claims that can be enforced in a court of law, like betting or lottery.
• Sale of Land and Buildings: Sale of land and buildings (other than those sold as part of a business) is excluded from GST. However, construction of such properties may be subject to GST.

Conclusion

Understanding the various types of supply under GST is essential for MSMEs to ensure compliance and accurate tax calculations. By classifying supplies correctly, businesses can optimize their GST liability and avoid penalties. Staying updated with GST regulations and seeking professional advice is crucial for navigating the complexities of GST.

*This article is for information only. Please visit the official GST portal or consult with a GST practitioner, CA or relevant professional for more details on the GST supply classification and more.

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Author: Anirban Sinha

A product manager with a writer’s heart, Anirban leverages his 6 years of experience to empower MSMEs in the business and technology sectors. His time at Tata nexarc honed his skills in crafting informative content tailored to MSME needs. Whether wielding words for business or developing innovative products for both Tata Nexarc and MSMEs, his passion for clear communication and a deep understanding of their challenges shine through.