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Supply under GST includes the transfer of goods or services, whether for payment or not, in the course of business. This covers a wide range of supply methods such as sale, transfer, exchange, barter, lease, rental, or disposal.
A composite supply under GST refers to the supply of a package of goods and services from a taxable entity to a recipient. It is a combination of two or more taxable supplies of goods and services, or any combination of the two, that are naturally bundled and provided together and cannot be sold separately.
There are certain indicators that distinguish a composite supply from a regular supply. They are as follows:
If the goods or services are intended to be provided together, they are considered naturally bundled. For example, a new car with additional services like vehicle registration and free maintenance can only be sold as a package deal.
If it is the industry norm for most service providers to offer a combination of goods and services as a package, then it is considered naturally bundled. This could include the meals provided on every flight by an airline.
The price for the bundled goods and services remains the same whether the customer chooses to purchase them individually or as part of the package. Additionally, the goods and services included in a package cannot be sold separately.
Mixed supply under GST refers to a combination of goods or services offered for a single price, which can also be supplied separately and independently. For instance, a gift basket containing dry fruits, sweets, chocolates, cakes, etc., where each of these items can be sold independently. However, if these goods are sold separately, it is not a mixed supply. To determine the nature of a mixed supply, it is necessary to determine whether the items are naturally bundled together. If not, then it is classified as a mixed supply since the bundle of goods or services does not meet the requirements for a composite supply.
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Composite supply and mixed supply differ mainly in terms of principal supplies and individually available supplies.
The principal supply is the primary component of the supply, such as a water purifier that is essential for other services to be provided. Having a principal supply is optional in a mixed supply package like a gift basket.
On the other hand, in mixed supply, each item or service can be supplied separately without affecting the supply of any other item or service. For instance, cashews and almonds are classified as dry fruits but can be supplied individually. However, selling one package component in a composite supply, like napkins in a restaurant or towels in a hotel, may not be practical.
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Understanding mixed and composite supply is crucial under GST as it directly impacts the taxability of goods and services. These concepts help determine the GST rates and ensure compliance with tax laws.
A mixed supply involves two or more goods or services supplied together but are not naturally bundled. The highest applicable GST rate among the items in the supply is levied. For example, a combo pack of chocolates and toys is a mixed supply since each can be sold separately.
On the other hand, a composite supply includes two or more goods or services naturally bundled and supplied together as a single package. Here, the tax rate of the principal item governs the entire supply. For instance, a contract for transportation, including food and accommodation, is a composite supply.
Knowing these concepts avoids incorrect tax classification, which can lead to penalties. Additionally, it simplifies tax filing by ensuring accurate input tax credit claims. Thus, recognizing the difference is vital for businesses to optimize tax liabilities and maintain compliance.
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Bundled supply refers to the supply of multiple goods or services together in a package. Under GST, it could either qualify as a mixed supply or a composite supply, depending on how the items are related.
A composite supply is a naturally bundled offering where all components are essential for the primary item. For instance, a flight ticket that includes free meals and check-in baggage is a composite supply. The primary service—air travel—determines the applicable GST rate.
In contrast, a mixed supply involves unrelated items supplied together. They are not naturally bundled, and each item can be sold independently. For example, a festival hamper containing dry fruits, cookies, and a bottle of juice constitutes a mixed supply, taxed at the highest rate among the items.
The GST framework uses the concept of bundled supplies to ensure consistent taxation. Classifying supplies correctly as composite or mixed avoids incorrect tax rates and enables proper input tax credit claims. Businesses must evaluate the nature of their offerings to determine the appropriate category and remain compliant.
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Mixed and composite supplies differ in how they are taxed and the nature of their components.
Understanding these differences helps businesses apply the correct tax treatment, ensuring compliance and avoiding penalties. Proper classification is essential for accurate tax computation and effective input tax credit utilization.
The time of supply determines when GST liability arises for a transaction. It establishes the point at which a business must account for GST, ensuring timely tax payments.
For goods, the time of supply is the earliest of:
For services, the time of supply follows a similar rule:
In cases of reverse charge, the time of supply is the earlier of the payment date or 60 days from the invoice date.
Accurate determination of the time of supply is essential to avoid late payment penalties and ensure compliance. Businesses should align their accounting systems to track transactions efficiently and meet GST deadlines.
Composite supply and mixed supply may seem similar at first glance, but they are two distinct concepts under GST. Composite supply is akin to naturally bundled services, while mixed supply refers to the supply of goods or services combined for a single price, which can also be supplied separately. These provisions have been put in place to ensure a uniform tax system across the country and facilitate the smooth functioning of the process under GST.
BUSY is a simple, yet powerful GST / VAT compliant Business Accounting Software that has everything you need to grow your business.