All you need to know about supply under GST in India

What does supply mean under GST?

In the GST system, a taxable event is called a Supply. For an event to be considered as a supply by the government, it should have the following characteristics. 

• Supply should be of goods or services.
• Supply should be taxable. 
• Supply should be made by a taxable person.
• Supply should be made within a taxable territory.
• Supply should be made in exchange for cash or reward (consideration).
• Supply should be made in the course of business or in the interest of growing a business.

Let’s look at how each of these characteristics is defined in the GST Act.

Supply of goods or services

When a transaction takes place, if there is a transfer of title of goods, then it is considered as supply of goods. For example, when you buy a pen from a retailer, the ownership of the pen is transferred from the retailer to you, the customer. 

When there is a transfer of right in goods without transfer of title, it is considered as supply of service. For example, if you are availing transportation services, then the right of using the service is transferred to you, while the ownership still stays with the transportation company.

Supply should be 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 mentioned in the GST Act. 

Supply should be made by a taxable person

A taxable person is defined as a person who is registered under the GST, or is a liable to register, or a person who has voluntarily registered.

Supply between two non-taxable people will not be considered as supply under GST.  

If a person supplies goods or services in different states or has multiple business verticals, then they are required to register separately for each state or vertical. Each of these registered entities will be considered as a taxable person.    

Supply should be made within a taxable territory

Taxable territory means any place in India except the State of Jammu and Kashmir.

Supply should be made in exchange for consideration

Consideration can be defined as a barter of goods or services, or payment made for a supply in money, or in kind. A prepayment or deposit toward a supply is also as accepted as a consideration by the government.  

According to CGST Act, the following activities that will be treated as supply even if it is made without consideration.  

• When a business permanently transfers or disposes its assets for which input tax credits have been availed.
• Supply made between two related or separate persons for business purposes.
• Supply of goods by an agent on behalf of the supplier or supply received by an agent on behalf of a customer.
• When a taxable person imports services from a related person, or from his or her own business outside of India for business purposes.

Supply should be made in the course of business or in the interest of growing a business

GST is applicable only on business transactions. Hence, for a transaction to be a considered as supply under GST, it has to be made for business purposes.

If supplies are made for personal purposes, it will not be considered as a supply under GST.    

What are the three components of supply under GST?

A supply under GST has three attributes that are used to calculate the tax owed for that transaction: place, value, and time.

• Place of Supply - This component determines whether a transaction is an intra-state supply, an inter-state supply, or an external trade, which determines the type of GST that will be associated with it.
• Value of Supply - This component decides the taxable value of supply made, and thus the amount of tax that needs to be paid for it.
• Time of Supply - This component determines when the associated taxes and GST returns are due.

Types of supply under GST

Under the GST, supply of goods and/or services can be classified into two major categories - Taxable supplies and Non-taxable supplies. These are further classified into different types based on the nature of supply made.

• Taxable Supplies - These refer to supply of goods and/or services that are taxable under GST. Registered taxpayers can claim refunds on tax paid during purchases (in other words, they are eligible for ITC).
  • Regular taxable supplies - Whenever you supply an item or service which attract a GST rate greater than 0% within India, it becomes a regular taxable supply.
  • Nil-rated supplies - Whenever you supply goods which attract 0% GST by default, such supplies are known as nil rated supplies.
  • Zero-rated supplies - Whenever you make exports, supplies to a SEZ unit or deemed exports, the GST associated with the items or services involved becomes 0 even though the same would attract a GST rate greater than 0% when sold within India. Such supplies are deemed as zero rated supplies
• Non Taxable Supplies
  • Exempt Supplies - The supply of exempt goods or services do not attract GST even though they are within the purview of GST. That said, the registered taxpayer cannot claim ITC on inputs used for making such supplies.
  • Non-GST supplies - This refers to supply of items which are outside the purview of the GST law.

Note: The following transactions must neither be considered as a supply of goods nor services: Supply of goods from one non-taxable territory to another without entering India. Supply of warehoused goods to a buyer before they pass clearance for home consumption. Supply of goods related to high sea sales. 

Supplies where there are more than one goods and/or services involved

Any supply of goods and/or services made under GST will be classified as either wholly goods or wholly services depending on the primary item or service supplied according to Schedule II of the GST law. This also applies to those cases where the supply made involves both goods and services.

While goods and services can be supplied individually, one can also supply them as a bundle or a set using one of the following methods of supply: 

• If the goods and services supplied together are a natural bundle (wherever it makes more sense to provide them together than to sell them individually), then it is known as a composite supply.
• If the goods and services supplied together are not naturally bundled together (they are not interdependent and can also be sold separately), then such a supply is known as mixed supply.

Learn more about composite supply and mixed supply.