GUIDESPERSONAL FINANCE
Supply Under GST Explained: Types, Place, Time & Value Rules
4 MIN • 
LAST EDITED BY ULFATH JOAD ON MAY 30, 2025.
LAST EDITED BY ULFATH JOAD ON MAY 30, 2025.
GUIDES LAST EDITED BY ULFATH JOAD ON MAY 30, 2025.
Under GST's framework, 'supply' is the fundamental taxable event, including a broad range of transactions, including sales, exchanges, imports, and licensing arrangements.
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:
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.
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.
To understand supply under GST it is important to understand the characteristics of "taxable supply" in detail. Below is a list:
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.
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.
The supply must be made by a person or entity registered for GST, known as a taxable person under GST. They are responsible for collecting and remitting the GST to the government.
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.
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.
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.
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.
The GST definition of supply distinguishes between taxable and non-taxable supplies. Further classifications for the types of supply under GST are as follows:
A taxable supply is a supply of any goods or services that is subject to GST at charging rates (5%, 12%, 18%, or 28%). These are supplies that are not exempt, nil-rated, or non-taxable.
Taxable supplies are essential since they directly relate to the Input Tax Credit (ITC). When businesses make taxable supplies, they can claim ITC on the inputs they consume, and this will help alleviate the cascading effect of taxes.
In other words, companies will be able to recover GST incurred on their inputs when they utilise them to make their taxable supplies
For instance, if a manufacturer buys raw materials (paying GST) and sells finished goods (collecting GST), they are able to adjust the GST paid against the GST collected.
Exempt supplies are those specially exempted by the government through notifications under Section 11 of the CGST Act or contained in Schedule III.
These inputs do not draw GST; therefore, firms rendering exempt supplies cannot offset ITC on such supply inputs. This is a critical difference impacting business economics.
Some of the examples of exempt supplies are:
1. Fresh vegetables and fruits
2. Educational services rendered by qualifying educational institutions
3. Healthcare services by clinical establishments
4. Services by government
5. Unprocessed grains such as rice, wheat
6. Residential house rent services (other than hotel, inn, etc.)
7. Services rendered by government agencies levying charges less than ₹1,000
Companies that are mainly involved in exempt supplies need to handle their procurement strategy with care since they cannot reclaim the GST paid on their purchases.
Nil-rated supplies are found in the GST schedule but are charged at a 0% rate. This is different from exempt supplies since nil-rated supplies are technically within the GST regime but have zero tax liability.
The main distinction between nil-rated supplies and exempt supplies is the treatment of ITC. Nil-rated supplies, while being prepared, allow businesses to claim ITC on inputs utilized, which cannot be done with exempt supplies.
Examples are:
1. Milk, eggs, and fresh vegetables
2. Educational services
3. Handloom products
4. Fresh fruits
Zero-rated supplies are of particular importance in GST, as they are subject to 0% GST and a refund of input taxes is eligible for suppliers. Section 16 of the IGST Act states zero-rated supplies as:
1. Export of goods or services or both
2. Supply of goods or services or both to a Special Economic Zone (SEZ) developer or an SEZ unit
This measure is intended to keep Indian exports competitive in international markets by removing the tax element from the cost base. In contrast to exempt supplies, zero-rated supplies enable businesses to recover input taxes, which makes them especially beneficial.
For instance, if a garment manufacturer exports clothes, they can recover all GST paid on fabric, thread, and other inputs that go into producing the clothes.
Non-taxable supplies lie completely outside the purview of GST. These are goods or services on which the government has chosen not to include them in the GST regime.
Examples are:
1. Alcohol for human consumption
2. Petroleum products (at present)
3. Electricity
4. Sale of land and buildings (except under-construction properties)
Firms dealing in non-taxable supplies cannot claim ITC on related purchases. This provides a unique treatment as opposed to exempt supplies, since non-taxable supplies are not even included within the GST regime.
Section 2(30) of the CGST Act explains a composite supply as one which comprises two or more supplies of goods or services which are naturally bundled and supplied together along with one another in the course of ordinary business, with one being the principal supply.
The concept of "principal supply" is crucial here as it determines the tax rate applicable to the entire bundle. The principal supply is the predominant element of the composite supply, and the tax rate of this principal element applies to the whole bundle.
For example: When you buy a television with warranty and installation, the TV is the main supply, and the whole transaction is taxed at the rate for televisions.
When you reserve a train ticket with meal service, transportation is the main supply, and the whole package is taxed.
The phone is the main supply when you buy a mobile phone with a charger and earphones in one package.
This arrangement avoids tax cascading and reduces compliance for enterprises and consumers as well.
Section 2(74) says this is separate supplies intentionally assembled for one price. The most severe tax rate among all products is levied on whole supply.
Examples: Gift basket with chocolates (18%), dry fruits (12%), juice (12%), and decorative items (28%) levies 28% GST on total value.
The place of supply provisions determines which state's GST applies to a transaction. This is critical for determining whether IGST (Interstate GST) or CGST+SGST (Central and State GST) should be charged.
For domestic supplies of goods, the place of supply is generally:
Special provisions apply under Section 11 of the IGST Act for imports and exports.
The place of supply for services depends on:
Section 12 deals with domestic services (supplier and recipient in India), while Section 13 covers international services (supplier or recipient outside India).
The time of supply determines when the tax liability arises, which is crucial for tax compliance and reporting.
The time of supply for goods is the earliest of the:
Special provisions apply to small businesses under the composition scheme and in cases where tax is payable under reverse charge.
For services, the time of supply is the earliest of the:
These provisions ensure that GST is collected appropriately, neither too early nor too late in the supply chain.
Valuation rules determine the taxable value on which GST is applied. The general principle is that the transaction value is the taxable value, which includes:
Certain items are excluded from the supply value, such as discounts recorded on the invoice or agreed upon before or at the time of supply.
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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GST defines "supply" broadly to include various transactions. Types of supplies under GST include:
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.
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.
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.
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:
These valuation rules ensure a consistent and fair assessment of GST.
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.
Exempt supplies are goods and services specifically excluded from GST taxation by the government, but suppliers cannot claim input tax credit on purchases used to make these supplies. Examples include fresh fruits, vegetables, and educational services.
Nil-rated supplies, on the other hand, are technically taxable under GST but at a 0% rate, and suppliers can claim input tax credit on related purchases. The key difference is that exempt supply providers cannot recover input tax credit, while nil-rated supply providers can.
A composite supply involves multiple goods or services naturally bundled together where one is clearly the main item (principal supply), and GST applies at the rate of this principal supply.
For example, when buying a phone with a charger, the phone is the principal supply. A mixed supply consists of multiple independent items sold together for a single price, where items aren't naturally bundled. In mixed supplies, GST applies at the rate of the item with the highest tax rate.
For instance, a gift hamper containing chocolates, dry fruits, and a diary would be taxed at the highest applicable rate among these items.
IGST (Integrated Goods and Services Tax) applies to interstate transactions – when goods or services move from one state to another.
For example, if a Delhi supplier sells goods to a Mumbai customer, IGST applies. CGST (Central GST) and SGST (State GST) apply only to intrastate transactions – sales within the same state.
IGST also applies to imports into India and supplies to Special Economic Zones. The total tax amount remains the same; IGST simply combines what would otherwise be separate CGST and SGST payments.
Generally, services provided completely free of cost aren't subject to GST since there's no consideration involved. However, Schedule I of the CGST Act specifies exceptions where GST applies even without consideration. These include:
1. Services between related parties (like parent and subsidiary companies)
2. Supply of goods/services between employer and employee
3. Transfer of business assets for private use
4. Supply between distinct persons under the same PAN for business purposes
These transactions require GST payment even when provided "free" because they're deemed to have consideration under GST law.
Incorrect determination of place of supply leads to several complications:
Possible need for amendments in returns and reconciliation statements
Businesses must carefully determine the correct place of supply according to specific rules in the GST Act to avoid these issues and ensure proper tax compliance.
