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What is Supply in GST: Types and Concepts Explained

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May 9, 2023

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Definition of Supply Under GST

The concept of supply of goods and services is self-explanatory in economics and is measured as the net value of production in a certain time period. However, under GST, supply is defined as a taxable event that may include the following:

  • Exchange of services and goods for or against money.
  • Transfer of ownership or sale of services and goods.
  • Licensing involves monthly payments to exercise particular privileges or use the owner's property.

Supply is mainly a tool for advancing company ventures or making charity contributions. Importing services and goods for corporate or personal use is also included in the definition of supply.

Importance of Understanding the Concept of Supply Under GST

Understanding the concept of supply under GST is crucial because it is the fundamental basis for the levy and collection of GST. It determines what transactions are taxable, the applicable tax rates, and the compliance requirements. Businesses need to correctly identify and account for supplies to ensure they meet their tax obligations and avoid penalties for non-compliance. 

Characteristics of a Taxable Supply

To understand supply under GST it is important to understand the characteristics of "taxable supply" in detail. Below is a list:

  1. Supply of Goods or Services
  2. Taxable or Tax-Exempt
  3. Made by a Taxable Person
  4. Within a Taxable Territory
  5. In Exchange for Consideration
  6. In the Course of Business

1. Supply of Goods or Services

A taxable supply can involve either the transfer of goods or the provision of services. It encompasses a broad range of transactions, including sales, leases, and services rendered.

2. Taxable or Tax-Exempt

A taxable supply is subject to Goods and Services Tax (GST) or a similar consumption tax. Some supplies, however, may be tax-exempt, such as certain essential food items and healthcare services.

3. Made by a Taxable Person

The supply must be made by a person or entity registered for GST, known as a taxable person. They are responsible for collecting and remitting the GST to the government. Read this blog to know more about who is a taxable person under GST and what are the applicable considerations.

4. Within a Taxable Territory

A taxable supply occurs within a geographic region where GST is applicable. In the context of a country, it typically means the entire country, but it can also apply to specific regions or states.

5. In Exchange for Consideration

Consideration, which can be in the form of money, goods, or services, must be involved in the supply. It signifies a mutual arrangement where something is given in return for the supply.

6. In the Course of Business

A taxable supply is made as part of an entity's regular business activities. It distinguishes commercial transactions from non-business, personal exchanges.

Understanding these characteristics helps individuals and businesses identify when they need to register for GST, charge tax on their supplies, and fulfill their compliance obligations accurately.

Components of Supply under GST

Let us now understand the components of supply under GST. Under the Goods and Services Tax (GST) system, a supply is characterized by three key factors that play a crucial role in calculating the tax liability for the transaction: location, value, and timing.

  1. Location of Supply - This aspect establishes whether a transaction qualifies as an intra-state supply, an inter-state supply, or an international trade, which subsequently dictates the specific GST category it falls into.
  2. Value of Supply - This component is responsible for determining the assessable value of the supply in question, thereby influencing the corresponding tax obligation.
  3. Timing of Supply - This component is instrumental in deciding when the applicable taxes and GST returns must be submitted.

Types of Supply Under GST

The GST definition of supply distinguishes between taxable and non-taxable supplies. Further classifications for the types of supply under GST are as follows:

1. Non-Taxable Supplies

These services and goods are not subject to taxes. These are some examples:

  1. Non-GST Supplies: Non-taxable supplies under GST include certain goods and services.
  2. List of Exempt Supplies: Certain services and goods are exempt from GST payment even if they fall under the taxable category.

2. Taxable Supplies

All services and goods taxable under GST are included in this category. Taxpayers can, however, demand refunds on tax payments made throughout the payment period. Taxable supplies are further categorised into two categories:

  1. GST Zero-Rated Supply: Certain supplies sent to Special Economic Zones (SEZs) or other business organisations are tax-free but are charged when sold within national borders.
  2. Regular Taxable Supplies: Any good or service supply is considered regular if it results in a tax liability.

Conclusion

The CGST Act effectively includes delivering any services or goods taxable at the destination rather than the point of origin under GST. Unlike the pre-GST regime, which treated all taxable events separately, the GST regime is more uniform and simplifies the tax procedure.

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Frequently Asked Questions 

1. How does GST define the term "supply," and what are the different types of supplies under GST?

GST defines "supply" broadly to include various transactions. Types of supplies under GST include:

  • Intra-State Supply (within the same state).
  • Inter-State Supply (across different states).
  • Export and Import.
  • Composite Supply (naturally bundled goods/services).
  • Mixed Supply (multiple supplies in one transaction).
  • Taxable Supply (all goods and services subject to GST).

2. What are the registration requirements for taxable persons under GST, and what is the threshold limit for registration?

Under GST, taxable persons must register if their aggregate turnover exceeds the threshold limit. The threshold limit varies by state. As of my last knowledge update in 2022, it is typically set at INR 20 lakhs for most states, but lower (INR 10 lakhs) for some special category states. However, it's essential to check the current threshold limits as they may have been updated since then.

3. What is the composition scheme, and how does it relate to the concept of supply under GST?

The composition scheme under GST is a simplified tax scheme for small businesses. It relates to the concept of supply as it allows eligible businesses to pay a fixed percentage of their turnover as tax instead of regular GST. This is applicable for businesses with a lower annual turnover and reduces the complexity of tax compliance for them. 

4. What are the exclusions and exceptions for transactions that are not considered as supply under GST?

Exclusions and exceptions for transactions not considered as supply under GST include gifts without consideration, employer-employee transactions, and certain specified activities like services provided by MP/MLAs, services by high court and Supreme Court, and actionable claims.

5. How is the taxable value determined in a transaction under GST, and what are the rules for valuation in specific cases?

The taxable value under GST is typically determined as the open market value of the goods or services being supplied. If that is not available, it is determined based on the transaction value. There are specific rules for valuation in cases where open market value or transaction value cannot be applied. These include:

  • Value of Supply of Goods between Related Persons: The value is based on the open market value or the value of similar goods or services.
  • Valuation of Services: If the value cannot be determined using the transaction value, it's determined based on the cost of provision of the service plus a profit margin.
  • Valuation of Immovable Property: This involves determining the value based on the transaction value of similar properties or by using the stamp duty value.
  • Valuation in Case of Works Contract: It separates the value of goods and services and values each accordingly.

These valuation rules ensure a consistent and fair assessment of GST.

6. What are the key considerations related to the time of supply, and how does it affect the tax liability of businesses?

Key considerations related to the time of supply include the issue of an invoice, receipt of payment, or the date of supply as per the books of account. The time of supply affects when businesses must pay GST and file returns. It determines the tax liability, ensuring that businesses pay tax in the correct tax period based on when the supply occurred.

Disclaimer

Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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