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Scope of Supply under GST: All You Need to Know

Scope of Supply under GST: All You Need to Know

The Indian government implemented new requirements on July 1, 2017, which mandate that people and businesses follow the guidelines for GST registration. Nonetheless, there are specific types of goods and services that qualify for GST exemption. Within the GST structure, certain goods and services are also subject to the zero tax rate, which is referred to as an exempt supply. To have a thorough grasp of GST exemptions, it is important to consult the GST exemption list. This comprehensive guide clarifies the definition of what is excluded from GST and what goods and services do not need to be registered with the government.

 

Table of content

 

What is Supply Under GST?

In general, the net value of production over a given time period is used to determine the self-explanatory concept of supply of goods and services. On the other hand, supply as defined by the GST is a taxable event that could involve any of the following:

  • Transferring ownership or selling goods and services

  • Transferring commodities and assets through leasing without transferring ownership

  • Trade or barter of commodities and services for cash or other assets

  • Licencing or recurring payments to use an owner's property or to enjoy specific rights

In essence, supply is a tool used to support commercial endeavours or make charity contributions. Importing goods and services for one's own use or commercial benefit is also included in the notion of supply. 

Let us consider some examples to understand the meaning of supply. After ten months of personal use, X sells the table he purchased for Rs. 10,000 to a dealer. Since X is not doing this to grow his business, it is not deemed a supply under the CGST. Similarly, Y coaches nearby students for free as a hobby. Since this act is not done in exchange for payment, it is not seen as supply.


Types of Supply Under GST

  • Sale: Regardless of the details, it describes the transfer of property. There are two possible forms of consideration for this sale: cash and delayed payments. To put it simply, it's the transfer of ownership of things in exchange for money or the transfer of the right to use any kind of good. 

  • Transfer: This usually relates to the conveyance of property, whereby a person may transfer their possessions to themselves or to other people at any particular time. 

  • Exchange: This is the exchange of commodities; the GST value is computed using the goods' initial price or valuation, not the amount left over after the exchange. 

  • Barter: In this scenario, a commodity is traded for another. It also covers trading, giving up or transferring for a similar sum of money, etc. 

  • Licence: A licence is granted to commercial companies in exchange for payments or royalties. Examples of such privileges include mining rights, licences, and the ability to extract natural resources. 

  • Rental: The money received from the leasing of business or residential buildings makes up the rental income. Generally speaking, the GST Act specifies that rent is not subject to GST calculation. 

  • Composite Supply: A supply that consists of two or more products or services that, according to common business standards in that field, must be provided in tandem with one another. Stated differently, it is not possible to provide these things separately. The entire transaction involves two supplies: a major supply and a secondary supply. The full supply will be subject to the major supply tax rate in these circumstances. As in purchasing a gift box of dry fruits for Diwali. It comes with a wrapper, a box, and dry fruits. It is not possible to sell the box and wrapper separately without the dry fruit, which is the main component. This supply is a composite one. 

  • Mixed Supply: A mixed supply is one that consists of two or more items or services that are not necessarily required to be sold together and are independent of one another. "It should not be a composite supply" is the first prerequisite for a mixed supply to be met. In these situations, the full supply will be subject to the tax rate that is higher between the two supplies. For instance, purchasing a Christmas package that includes chocolates, Santa hats, cakes, and other gift things. These products are independent of one another and can be sold separately. This supply is not uniform. 


Scope of Supply Under GST

The following elements determine the scope of supply under GST:

 

Supply of Goods and Services

The goods and services within the scope of supply are specified in the CGST Act of 2017. Securities and money have been excluded from the definition of goods and services. However, if a transaction involves the use of money or if money is converted into another currency at any point during the transaction, that would fall under the definition of goods and services as long as a separate consideration is given for it. According to the act, any activity may be included in the provision of goods or services.


Consideration

No activity would be considered a supply without consideration, which can be anything from money to kind. However, there are several circumstances in which consideration is not necessary yet the activity would still be considered a supply. These circumstances include: 

  • Supply of products and services between two related parties or between two distinct people when the transaction has been conducted in furtherance of business.

  • Permanent disposal of business assets where tax credits have been claimed.

  • A principal's agent's supply of goods when the agency gets the products on the principal's behalf.

  • A taxable person's import of services from a linked party or his own imports of goods into his establishments outside of India to support his company.


Furtherance of Business 

Since GST is a tax, it only applies to transactions and activities carried out in the course of conducting business; any activity or transaction carried out in a personal capacity will not be subject to GST. This restriction does not apply when imports are made in exchange for something.


Taxability

For a supply to be eligible for GST attachment, the activity or transaction must be taxable; otherwise, it would not be considered a part of the supply.


Taxable Territory

Determining whether the activity or transaction occurs within the taxable region is another crucial criterion that determines whether the activity is classified as a supply or not. For GST to be applied, the transaction should have been carried out within India. Whether a provision of goods and services is considered an intrastate or interstate supply depends on the location of the source and the commodities delivered. It would be regarded as an intrastate supply if the suppliers and the items are located in the same state; but, if they are not, it would be seen as an interstate supply.


List of Supplies and Taxability


Schedule II of the GST Act: Activities considered as a supply of goods 

  • Transferred or disposed of business assets with or without consideration 

  • The owner's business assets will be deemed to have been provided to him in the course of his business if he becomes non-taxable. 

The following situations do not apply to this: a. Business is transferred to another individual; b. Business is carried out by a taxable representative


Schedule II of the GST Act: Activities considered as a supply of services

Land and building

  • Tenancy, easement, lease, rent, and permission to occupy land 

  • Leasing or renting out the building (which consists of a commercial, industrial and residential complex for full or partial business usage)

Transfer of business assets

  • Construction of a structure or complex meant to be sold in whole or in part to a buyer

  • Permitting the use of intellectual property rights or transferring them temporarily 

  • Immovable property rental (residential rentals are GST-exempt) 

  • Creation of software for information technology 

  • Non-competition agreements

  • Transfer of any good's usage rights in exchange for money 

  • A supply of services is any procedure or treatment used on someone else's property


Schedule III of the GST Act: Activities considered neither as sale of goods nor as a supply of services

  • Services provided to the employer by an employee

  • Services given by a court or tribunal

  • Services rendered by a funeral home, cemeteries, or mortuaries, including the conveyance of the deceased 

  • The Chairperson, Member, or Director of a body established by the federal government, state government, or local authority

  • The MP, MLA, MLC, and Members of Local Bodies

  • Sales of Land

  • Sales of Buildings (However, if construction of a complex/building intended for sale to a buyer and part of the consideration is received before completion, then it will be treated as Supply of Services)

  • Duties performed by any person who holds any post in accordance with the provisions of the Constitution in that capacity 

  • Actionable claims that don't involve lotteries, wagering, or gambling 

  • Supply of goods from one location within the non-taxable territory to another location within the non-taxable territory without the goods entering India 

  • Supply of goods in storage to any individual before authorization for domestic use 

  • Supply of goods by the consignee to any other individual by endorsing documents related to the goods, following the goods' departure from the non-Indian port of origin but before authorization for domestic use


Conclusion

It becomes essential to comprehend the provisions to comprehend the scope of supply under the GST. The basis for the GST charge is whether or not an event is regarded as a supply. Therefore, if it turns out that this is incorrect, the entire idea is incorrect. To move further with the GST levy, one must have a thorough understanding of complex concepts such as principal-agent relationships, the negative list, supply parameters, Schedule I, Schedule II, and Schedule III.


Frequently Asked Questions

Q1. What is the taxable event under GST?

The provision of goods or services, or both, for consideration in the course or advancement of business, is a taxable event under GST. The taxable event known as "supply" will include the taxable events under the current indirect tax regulations, such as manufacturing, selling, or providing services.



Q2. What is the scope of ‘supply’ under the GST law?

Any type of provision of products or services, or both, including sales, transfers, bartering, exchanges, licences, rentals, leases, or disposals made or agreed to be provided for consideration by an individual in the course or furtherance of business, are covered by the broad definition of "supply." Service import is also included. Additionally, the model GST law allows for the inclusion of some non-considered transactions in the supply chain.

 

Q3. What is a taxable supply?

A provision of products or services, or both, that is subject to the GST Act's goods and services tax is referred to as a "taxable supply."



Q4. What are inter-state supplies under GST?

According to Section 7 of the Integrated Goods and Services Act of 2017, the delivery of goods and services between a supplier and a retailer or consumer that occurs in: 

  • Two distinct states 

  • Two distinct Union territories 

  • The union territory and a state 

  • imports of products and services 

  • Two locations: one in India and one outside of it 

  • To developers or SEZ units



Q5. What is a zero-rated supply under GST?

Exporting goods and/or providing services to a SEZ developer or SEZ Unit is referred to as zero-rated supply.



Q6. How are exempted supplies different from zero-rated supplies?

Supplies of goods and services that are exempt from taxes under Sections 6 and 11 of the GST Act are referred to as exempted supplies. Conversely, zero-rated supplies are those in which there is no GST applied to either the inputs or the finished goods.



Q7. Are self-supplies taxable under GST?

Even though there may not be consideration exchanged in certain interstate self-supplies, such as stock transfers, branch transfers, or consignment sales, they are nevertheless subject to the IGST. According to Section 22 of the model GST law, each supplier is required to register under the GST law in the State or Union territory from where he makes a taxable supply of goods or services, or both. However, if a person chooses not to register as a business vertical, intrastate self-supplies are not taxable.



Q8. Is the import of services without consideration taxable under GST?

In general, services imported without payment will not be regarded as supplies for Section 7 of the GST Act. However, even in the absence of payment, the import of services by a taxable person in the course of conducting business from a related party or any of his other establishments outside of India will be regarded as a supply for Sl. No. 4 of Schedule I.



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