Goods and Service Tax

Dr.Bharath V
Unit 1: Basics of Taxation
Tax – Meaning and types, differences between direct and indirect taxation, brief history of indirect taxation in India,
structure of Indian taxation.

Unit 2: GST- Framework and Definitions

Introduction to Goods and Services Tax, Constitutional Framework, Orientation to CGST, SGST and IGST, Meaning
and Scope of Supply, Types of Supply. Exempted goods and services from GST.
Unit 3: Time, Place and Value of Supply
Time of Supply – in case of Goods and in case of Services - Problems on ascertaining Time of Supply; Place of
Supply – in case of Goods and in case of Services (both General and Specific Services) – Problems on Identification
of Place of Supply; Value of Supply – Meaning, Inclusions and Exclusions. Problems on calculation of ‘Value of
Supply’.
Unit 4: GST Liability and Input Tax Credit
Rates of GST – Classification of Goods and Services and Rates based on classification, Problems on computation of
GST Liability. Input Tax Credit – Meaning, Process for availing Input Tax Credit – Problems on calculation of Input
Tax Credit and Net GST Liability.

Unit 5: GST Procedures

Registration under GST, tax invoice, levy and collection of GST, Composition Scheme, due dates for payment of
GST. GST Returns, types of returns, monthly returns, annual return and final return, Due dates for filing of returns.
Final Assessment. Accounts and Audit under GST.
 Introduction to tax

In a Welfare State, the Government takes primary responsibility for the welfare of its citizens, as in matters of health
care, education, employment, infrastructure, social security and other development needs. To facilitate these,
Government needs revenue.

Taxation is the primary source of revenue to the Government for incurring such public welfare expenditure. In other
words, Government is taking taxes from the public through its one hand and through another hand; it incurs welfare
expenditure for public at large.

However, no one enjoys handing over his hard-earned money to the government to pay taxes. Thus, taxes are
compulsory or enforced contribution to the Government revenue by public. The government may levy taxes on
income, business profits or wealth or add it to the cost of some goods, services, and transactions.
 What is Tax?
 Tax refers to a mandatory financial contribution to the country’s revenue, imposed by the government
on the income of people, business profits, activities or included in the cost of goods, services or
transactions.

 The taxes are the primary source of government revenue, which is used to finance government
expenditure on the provision of education, health care, public utility services, development activities
like construction of roads, dams, canals, highways, expressways, etc.
Types of Tax
 Types of Tax
Direct Tax: A direct tax is a tax paid by a person on whom it is
legally imposed. In direct tax, the person paying and bearing tax is the
same. It is the tax on income and property.

Indirect tax: An Indirect tax is a tax imposed on one person but

partly or wholly paid by another. In indirect tax, the person paying and
bearing tax is different . It is the tax on consumption or expenditures.
 Difference between Direct Taxes and Indirect Taxes
Direct Taxes Indirect Taxes

1. Payer of tax and sufferer of tax 1. Payer of tax not sufferer of tax
one and same (i.e. impact and whereas sufferer of tax is not
incidence on the same person) paying directly to the
Government (i.e. impact on
one head and incidence on
other head)
2. Income based taxes 2. Supply based taxes
3. Rate of taxes are different 3. Rate of duties are not differ
from person to person from person to person
4. Entire revenue goes to Central Government 4. Revenue source to Central Government of
of India India as well as State Governments (i.e.
CGST and SGST)

5. Previous year income assessed in the 5. There is no previous year and assessment
assessment year year concept

6. Central Board of Excise and Customs

6. Central Board of Direct Taxes (CBDT) is (CBEC) is an important part of Department
an important part of Department of of Revenue. w.e.f. 1-2-2019, The Central
Revenue. Board of Excise & Customs is being
renamed as the Central Board of Indirect
Taxes & Customs (CBIC). (i.e. CBEC
renamed as CBIC).

7. Progressive nature. 7. Regressive nature.

 Rationale for transition to GST

 GST is a value added tax levied across goods and services. The GST regime intends to subsume most indirect taxes
under a single taxation regime.

 The broad objectives of GST are to widen the tax base, eliminating cascading of taxes, and increase compliance
through lowering of overall tax burden on the goods and services and reduce economic distortions caused by inter-
state variations in taxes

 In the existing framework of Indian constitution the authority to levy both direct and indirect taxes is divided between
central government and state governments, Central government levies indirect taxes such as custom duty on imports
of goods, Excise duties on manufacture of goods, central sales tax on interstate transactions and service tax on
provision of specified services etc.

 While the state government levies value added tax (VAT), state excise, luxury taxes on hotel, entry tax/octroi on the
entry of goods in specified areas, ancillary taxes like entertainment taxes etc.

 A fundamental Flaw of the previous indirect structure is the multiple taxes levied by central government
and state government at different levels of supply chain.
 This multiplicity of taxes at the state and central levels has resulted in a complex indirect tax structure in the country.

 First, there is no uniformity of tax rates and structure across states,

 second there is cascading of taxes due to tax on tax no credit of excise duty and service tax paid at the state level
sales tax or VAT and Vice-Versa.

 Further, no credit of state taxes paid in one state can be availed in other states, Hence, the prices of goods and
services get artificially inflated to the extent of this tax on tax.

 such multiple taxes with different rates and different tax bases not only make tax structure highly complicated but
also make it difficult to comply and administer resulting in high compliance cost.
 Difference between previous Indirect tax regime and Goods and Services Tax structure
Sl Basis Previous Taxation System GST System
No
1 Tax Under Separate Laws, Tax is levied by central There is no separate tax levied
Structure government and state government on goods for goods and services. GST is a
and services, In the previous taxation system common tax applicable to both
import of goods into India is subject to a levy of these. In the GST system till
of customs duty and the person importing the goods and /or services
the goods is liable to pay customs duty at the reaches the consumer this GST
applicable rates. tax would allow smooth and
continuous tax credit at all levels.
2 Place of Origin based taxation. Destination based
Taxation taxation.
3 Cascading This problem arises because credit of CST In the GST tax regime this
effect and many other taxes are not allowed. situation will not arise due to
seamless flow of credit from
production level to consumption
level.
4 Scheme Separate laws for charging separate tax. One law for charging tax.
5 Tax rates Different tax rates for different taxes. There will be uniform GST tax rate across
all states.
6 Tax burden Tax burden is high for the individual to Tax burden is low because of single tax.
pay so many taxes.
7 Compliance Tax compliance is complex due to Tax compliance is easier because of one
multiplicity of tax. law.
 SUPPLY CHAIN

Manufacturer Wholesaler Retailer Consumer

Comparison between Multiple Indirect Tax System and Goods and Services Tax

Particulars Without GST Particulars Without GST Particulars Without GST

With GST With GST With GST
Manufacturer to
Wholesaler
Cost of Production 5000 5000
Add: Profit Margin 500 500
Manufacturer price 5500 5500
Add: Excise Duty@ 12% 660 0
Total Value (a) 6160 5500
Add: VAT @12.5% 770 0
Add: CGST@6% 0 330
Add: SGST @6% 0 330
Invoice Value 6930 6160
Particulars Without GST With Particulars Without GST Particulars Without GST
GST With GST With GST
Wholesaler to Retailer
cost of goods to wholesaler (a) 6160 5500
Add: Profit Margin@10% 616 550
Total Value (b) 6776 6050
Add: VAT@12.5% 847 0
Add: CGST@6% 0 363
Add: SGST@6% 0 363
Invoice Value 7623 6776
Particulars Without GST With Particulars Without GST Particulars Without GST
GST With GST With GST
Retailer to Consumer
Cost of Goods to Retailer (b) 6776 6050
Add: Profit Margin@10% 677.6 605
Total Value (c) 7453 655
Add: VAT@12.5% 931.7 0
Add: CGST@6% 0 399.3
Total Price to the consumer 8385.3 7453.6
Saving to consumer 931.7
 Genesis of GST in India
The GST has already been introduced in nearly 160 countries and France was the first to introduce GST
in the year 1954. In view of numerous benefits GST brings in to the economy, introduction of GST has
been on the political agenda of the country for quite some time.
The idea of GST was first mooted in the year 2000 during the prime ministership of Shri Atal Bihari
Vajpayee and a committee was set up headed by then West Bengal Finance minister Shri Asim Dasgupta
to design a GST model.
In 2003, the Vajpayee Government set up another task force under Shri Vijay Kelkar to
recommend tax reforms.

On February 28, 2006, the then union Finance minister P.Chidambaram in his budget for 2006-07
proposed that GST would be introduced from April 1, 2010.
The Empowered committee of state finance ministers (EC), which had formulated the design of state VAT,
was requested to come up with a roadmap and structure for the GST.

the EC released its first discussion paper (FDP) on GST in November.2009. The FDP spelt out the features
of the proposed GST and has formed the basis for the present GST regime.
As introduction of GST required constitutional amendment, the political consensus
could not be garnered for a long time.
The efforts to introduce GST in India picked up momentum after the formation of the
present BJP government.
The constitution (122 Amendment) bill, 2014 was introduced in Lok Sabha on
December 19, 2014 and was passed by Lok Sabha in May 2015.
the revised constitutional amendment bill was moved on August 1, 2016. The bill
was passed by the Rajya Sabha on August 3, 2016 and in the Lok Sabha on August
8, 2016.
After ratification by required number of state legislature and assent of the president,
the constitutional amendment was notified as constitution (101st Amendment) Act
2016.

On September 8, 2016 the constitutional amendment paved the way for introduction of
Goods and Services Tax in India. Finally India has moved into GST on July 1st, 2017.
 Meaning and concept of Goods and Services Tax

GST is a value added tax levied on supply i.e., manufacture or sale of goods and provision of
services.
GST offers comprehensive and continuous chain of tax credits from the producer's point/service provider's
point upto the retailer's level/consumer’s level thereby taxing only the value added at each stage of supply
chain.

The supplier at each stage is permitted to avail credit of GST paid on the purchase of goods and/or services
and can set off this credit against the GST payable on the supply of goods and services to be made by him.
Thus, only the final consumer bears the GST charged by the last supplier in the supply chain, with set-off
benefits at all the previous stages.

Since, only the value added at each stage is taxed under GST, there is no tax on tax or cascading of taxes
under GST system. The same can be understood better with the help of the following

I. Goods and Services Tax (GST) will be on ‗supply‘ of goods and/or services, in India. Area up to 200
nautical miles inside sea in India for purpose of GST.
II. For supplies within the State or Union Territory – (a) Central GST (CGST) will be payable to central
Government and (b)State GST(SGST) or UTGST (Union Territory GST) will be payable to State Government
or Union Territory (as applicable). Area up to 12 nautical miles inside sea is part of state or Union territory
which is nearest.

III. For inter-state supplies i.e. Supply between one state or Union Territory to another state or Union
Territory, Integrated GST (IGST) will be payable to Central Government. IGST is applicable if supply
beyond 12 nautical miles but up to 200 nautical miles.

IV. GST is based on VAT concept of allowing input tax credit of tax paid on inputs, input services
and capital goods, for payment of output tax. This will avoid cascading of taxes.

v. GST is consumption based tax i.e. tax is payable in the state Where goods and/or services are finally
consumed.

VI. The rates of GST- 0%, 5%, 12%, 18% and 28%
VII Goods and Services Tax Council (GSTC) is apex constitutional body which will decide
rules and policies of GST.
GST Structure
States:
• There are 28 states under the GST framework.
• States levy State GST (SGST) along with Central GST (CGST) on intra-state
supplies.

Union Territories (UTs):

• There are 8 Union Territories included under GST.
• UTs without a legislature (e.g., Lakshadweep, Chandigarh, Daman & Diu,
Ladakh, A& N, Dadra & Nagar Haveli) levy Union Territory GST (UTGST)
along with CGST.
• UTs with legislatures (J &K, Delhi, Puducherry) function like states and levy
SGST.
NEED FOR GST IN INDIA
Deficiencies in the value added taxation system
• Certain transactions were subject to double taxation and were taxed
as both goods and services

• Under the earlier tax regime, software was subject to both service tax
and VAT. This was so because both sale of goods and provision of
service were involved and therefore taxable event under both the
Statutes i.e. respective VAT law and service tax law got triggered. This
aspect has been taken care of under GST law.
Ex. Double Taxation in the Earlier Tax Regime
Custom Software:
• Custom software is tailor-made as per the client's requirements.
• Under the old tax regime:
• The service aspect of creating and delivering custom software was subject to
service tax.
• If the software was delivered on physical media (like a CD or pen drive), it was
also treated as the sale of goods and attracted VAT.
• This led to double taxation, as both service tax and VAT were levied
on the same transaction.
• Packaged Software (Off-the-Shelf Software):
• Packaged software, such as Microsoft Office or antivirus software,
involves a mix of:
• The tangible component (the physical CD/DVD or USB drive).
• The intangible component (the licensing or right to use the software).
• Under the old tax regime:
• The tangible component was subject to VAT.
• The licensing component was treated as a service and subject to service tax.
• This created confusion and increased the tax burden for businesses
and consumers.
Under GST
• GST Unified Taxation:
• GST subsumed both VAT and service tax, creating a single tax for all
goods and services.
• Software transactions, whether custom or packaged, are taxed
uniformly under GST as a supply of service or supply of goods,
depending on the nature of the transaction.

• Custom Software: Treated as a service and taxed under GST at 18%.

• Packaged Software: Treated as goods (with a license to use) and
taxed at 18% if supplied electronically or on physical media.
Cascading Effect
• Under the earlier indirect tax regime, the Central Sales Tax (CST)
created distortions because:
• CST Was Non-VATABLE: CST was levied on inter-state sales, and the
tax paid on purchases (CST) could not be claimed as an input tax
credit. This increased the overall cost of goods and led to a cascading
tax effect.
• Origin-Based Tax: CST was an origin-based tax, meaning the tax
revenue accrued to the state where the goods were manufactured,
not where they were consumed. This was contrary to the principle of
consumption-based taxation.
Example: CST's Cascading Nature
Consider the following scenario:
Step 1: Inter-State Purchase
• A dealer in Delhi purchases goods from a manufacturer in Punjab.
• The cost of the goods is ₹1,000.
• CST at 2% is levied on the sale, amounting to ₹20.
• Total cost to the dealer: ₹1,000 + ₹20 = ₹1,020.
Step 2: Intra-State Sale
• The dealer in Delhi sells the goods within Delhi for ₹1,200.
• VAT (Value Added Tax) is charged at 12.5% on the sale price, resulting in an
output VAT liability of: ₹1,200 × 12.5% = ₹150.
No Input Tax Credit for CST
• The dealer cannot claim credit for the ₹20 CST paid on the inter-state purchase.
• Hence, the dealer must pay the full VAT amount of ₹150 out of pocket.
• Net Tax Paid:
• CST: ₹20 (non-creditable).
• VAT: ₹150 (full amount, since no input credit for CST is available).
• Total tax paid: ₹20 + ₹150 = ₹170.

• Cascading Effect of CST:

• The ₹20 CST becomes part of the dealer's cost and is taxed again
when the goods are sold within Delhi, leading to a tax on tax.
Under the GST regime
• No CST: CST was abolished, and inter-state sales are now subject to
Integrated GST (IGST).

• Input Tax Credit Allowed: GST is a seamless system where input tax
credit can be claimed for IGST paid on inter-state purchases. This
eliminates the cascading effect of taxes.

• Consumption-Based Tax: GST is a consumption-based tax, meaning

the tax revenue accrues to the state where the goods or services are
consumed.
Inter-State Purchase:
• The dealer in Delhi purchases goods from Punjab for ₹1,000.
• IGST at 18% is levied, amounting to ₹180.
• Total cost to the dealer: ₹1,000 + ₹180 = ₹1,180.
Intra-State Sale:
• The dealer sells the goods within Delhi for ₹1,200.
• CGST (9%) and SGST (9%) are levied on the sale price: ₹1,200 × 9% = ₹108 (CGST) +
₹108 (SGST) = ₹216.
• Total output tax liability: ₹216.
Input Tax Credit Utilization:
• The dealer can claim the IGST of ₹180 paid on the purchase as input tax credit.
• Net tax payable = ₹216 (output tax) − ₹180 (input tax credit) = ₹36.
• Net Tax Paid:
• The dealer only pays ₹36 as tax, compared to ₹170 under the old regime.
Features of the Goods and Services Tax:
• 1.Indirect tax that is comprehensive: A complete indirect tax is the GST. Under the previous
indirect tax scheme, it absorbed 17 indirect taxes imposed by the Central and State governments.
The Goods and Services Tax (GST) has combined multiple taxes into a single, cohesive tax. As a
result, the GST has created a single tax system.

• 2.Same GST rates apply across the nation: One Nation, One Tax, One Market is the motto of the
GST. The GST regime maintains uniform GST rates across the nation. In the past, the states had
varied VAT/Sales Tax rates.
• 3. No Tax on due to Input Tax credit: The Value Added Tax family includes the Goods and Services
Tax. The increased value of the items is subject to GST. Additionally, the Input Tax Credit, or ITC for
short, is permitted to prevent the tax cascade effect. Any registered taxable person conducting
business wherever in India is eligible to receive a credit for tax on inputs that are allowed for him.
This credit will be applied to the individual's electronic credit ledger in the government's records.
There is no tax on tax as a result.
• 4. Consumption or Destination Based Tax: GST is payable in the state in which goods and services
are finally consumed. Thus, it is a consumption or destination based tax.
• 5. Tax on Supply of Goods and Services: GST is a tax on supply of goods
and services, or both, except taxes on supply of alcoholic liquor for
human consumption. At present petroleum products will be out of GST.
Petroleum products can be brought into the GST network if the GST
Council so decides. Petroleum products means petroleum crude, high
speed diesel, motor spirit, i.e., petrol, natural gas and aviation turbine
fuel.
The word used is “Supply” as against the earlier concept of tax on the
manufacture of goods or on sale. Therefore, stock transfers and branch
transfers will also come under the GST net. GST is charged by the
registered person/tax payer from the purchaser of goods and services.
• 6. GST Collected is Payable to the Government: GST is collected on
supply of goods and services. GST collected on supply of goods and/or
services, after deduction of GST paid on purchases of good and/or
services, is payable to the Government.
• 7. Multiple Rate Structure: GST has multiple rate structure. GST rates for
goods include 5%, 12%, 18%, 28% . GST rates for services are 5%, 12%,
18% and 28%.
 Advantages or benefits of implementation of Goods and Service Tax in India
• 1.Growth in International Investment : The implementation of the Goods and Services Tax brings India
in line with worldwide tax regulations, making it easier for Indian enterprises to sell on a global scale.
• 2.A Single Tax Structure: The removal of numerous levies from the Indian tax system was one of the
main objectives of the GST implementation. There were a number of taxes in place before the GST was
established, including service tax and VAT. All of these fees were removed when the GST was
implemented. There is just one tax now. GST rates for various commodities varies despite the existence
of multiple slabs, which frequently causes confusion.
• 3. Reduced Need for Compliance: Out of the approximately eleven returns for the GST, only four are
basic taxes that are applicable to all registered taxpayers, irrespective of their business type. GSTR-2 and
GSTR-3 are automatically populated, however only the primary GSTR-1 is manually populated to make
submitting these reports easier.
• 4. Easy Access: The GST site is available to everybody at any time, sitting anywhere. This makes filing
returns easier. This is quite advantageous for all kinds of enterprises.
• 5. Removal of cascading: A system of seamless tax credits across the value chain and across state lines
would ensure that there is minimum tax cascading. This would lower the unintentional costs of
conducting business.
• 6. Transparency: The tax administration has begun working without corruption. Transparency has also
resulted from allowing sales invoices to disclose the tax applied.
DISADVANTAGES OF GST
• 1. Increased Costs: GST requires firms to upgrade their current
accounting software to ERP or GST-compliant software in order to
keep their operations running. However, firms should keep in mind
that purchasing, installing, and training staff to utilize GST-compliant
software can be costly.

• 2. GST brought about a rise in operational costs

• GST changed the way taxes are paid and returns are filed. Businesses
needed to employ tax professionals who had expertise to stay GST-
complaint. This gradually increased costs for small businesses as they
had to bear the additional cost of hiring experts.
• GST came into effect in the middle of the financial year
• Initially, as GST was implemented on the 1st of July 2017, businesses followed
the old tax structure for the first 3 months (April, May, and June), and GST for
the rest of the financial year 2017-18.
• Businesses found it hard to get adjusted to the GST regime, and some of them
ran these tax systems parallelly, resulting in confusion and compliance issues.
• Adapting to a complete online taxation system
• Unlike earlier, businesses are had to switch from pen and paper invoicing and
filing to online return filing and making payments. This was tough for some
smaller businesses to adapt to.
• The process for GST return filing on ClearGST is easy to follow. Business owners
need to only upload their invoices through easy-import options, and the
software will populate the return forms automatically with the information
from the invoices for an error-free end-to-end filing. Any errors in invoices will
be clearly identified by the software in real-time, thus increasing efficiency and
timeliness.
Constitutional Framework
The Goods and Services Tax (GST) is a value-added tax system introduced in India to replace multiple
indirect taxes levied by the central and state governments. The constitutional framework for GST in
India is provided by the 101st Constitutional Amendment Act of 2016. Here are the key elements of
the constitutional framework for GST:

1. Constitutional Amendment:
 The 101st Constitutional Amendment Act, 2016, was enacted to introduce GST in India.
 It amended various articles of the Indian Constitution to provide for the concurrent power of
the central and state governments to levy and collect the Goods and Services Tax.

2. Article 246A:
 Article 246A was inserted into the Constitution to confer concurrent powers to both the
Parliament and the State Legislatures to make laws with respect to goods and services tax.
3.Distribution of Legislative Powers:
 The amendment defines the respective areas of legislative powers of the Parliament and the State
Legislatures regarding the imposition of GST.
 The Parliament has the exclusive power to make laws on the goods and services tax concerning the
supply of goods and services in the course of inter-state trade or commerce.

4.GST Council:
 The amendment established the Goods and Services Tax Council, which is a joint forum of the
central and state governments. It is chaired by the Union Finance Minister and includes the finance
ministers of the states.
 The GST Council is responsible for making recommendations on important issues such as tax rates,
exemptions, threshold limits, and more.

5.Integrated Goods and Services Tax (IGST):

 The Parliament has the power to levy Integrated Goods and Services Tax (IGST) on inter-state
supplies of goods and services. IGST is designed to ensure seamless tax credit in the supply chain
and avoid tax cascading.

6.Compensation to states:
 The 101st Amendment Act guarantees compensation to states for any revenue loss they may incur
due to the implementation of GST for a period of five years. This compensation is provided through
the Goods and Services Tax (Compensation to States) Act.
7.Dual GST structure:
 The GST system in India follows a dual structure, with both the central and state
governments levying and collecting taxes simultaneously on a common base.
 The Central GST (CGST) is levied by the central government, and the State GST (SGST)
is levied by the state governments on intra-state supplies of goods and services.
 IGST is levied on inter-state supplies.

8. Taxable Event:
 The taxable event under GST is the "supply" of goods and services, which replaces the
earlier taxable events like the sale of goods, provision of services, and manufacture of
goods
Orientation to CGST, S/UT GST, IGST
The Goods and Services Tax (GST) system in India follows a dual
structure, where both the central and state governments have the authority
to levy and collect taxes on the supply of goods and services. This is
achieved through three components: Central GST (CGST), State/UT GST
(S/UTGST), and Integrated GST (IGST). Here's an orientation to each of
these components:
1. Central GST (CGST)
 CGST is the tax collected by the Central Government on intra-state supplies of goods and
services.
 The revenue collected through CGST goes to the central government.
 It is governed by the Central Goods and Services Tax Act,2017 which outlines the rules and
regulations for the levy and collection of CGST.
2. State/UT GST (S/UT GST)
 S/UT GST is the tax collected by the State Government on intra-state supplies of goods and services.

 The revenue collected through S/UT GST goes to the respective state government where the supply
occurs.

 Each state has its own S/UT GST Act, which specifies the rules and regulations for the levy and
collection of SGST.

3.Integrated GST (IGST)

 IGST is the tax collected by the Central Government on inter-state supplies of goods and services.

 It is levied when goods or services move from one state to another.

 The revenue collected through IGST is then shared between the central and state governments as per
the rates decided by the GST Council.
 Intra state transactions:
 For transactions within a state (supply of goods or services within the same state), both CGST and SGST are
levied.
 The total tax rate is the sum of CGST and SGST.

 Inter state transactions:

 For transactions between states (supply of goods or services from one state to another), IGST is levied.
 The tax is collected by the central government, and the revenue is then shared with the concerned states.

 GST Council:

 The GST Council, consisting of representatives from both the central and state governments, plays a crucial role in
determining tax rates, exemptions, and other important aspects related to GST.

 Input Tax Credit:

 One of the key features of GST is the concept of Input Tax Credit, where businesses can claim credit for the taxes
paid on inputs (purchases) against the taxes collected on outputs (sales). This helps in avoiding tax cascading or
tax on tax.

 Compliance:
 Businesses need to comply with the provisions of both central and state GST laws, and the filing of returns
involves reporting transactions separately for CGST and SGST.
 Introduction to Supply
A taxable event is any transaction or occurrence that results in a tax consequence.
Before levying any tax, taxable event needs to be ascertained. It is the foundation
stone of any taxation system; it determines the point at which tax would be levied.

Under the earlier indirect tax regime, the framework of taxable event in various
statutes was prone to judgement of interpretations resulting in litigation since
decades.

The controversies largely related to issues like whether a particular process

amounted to manufacture or not, whether the sale was pre-determined sale, whether
a particular transaction was a sale of goods or rendering of services etc.
The GST laws resolve these issues by laying down one comprehensive taxable event i.e. “Supply”
- Supply of goods or services or both.

Various taxable events namely manufacture, sale, rendering of service, purchase, entry into a territory of
State etc. that existed prior to introduction of GST have been done away with in favour of just one event i.e.
Supply.
The GST Law, by levying tax on the ‘supply’ of goods and/or services, departs from the historically
understood concepts of ‘taxable event’ under the State VAT Laws, Excise Laws and Service Tax Law i.e.
sale, manufacture and provision of services respectively.
 Supply - Under GST
Supply of goods or
Supply should be
service. Supply of Supply should be
make in the course or
anything other than made for a
furtherance of
goods or service does consideration
business
not attract GST

Supply should be Supply should be

Supply should be a
made by a taxable make within the
taxable supply
person taxable territory
 Supply of goods or service. Supply of anything
other than goods or service does not attract GST
• Section 2(52) and Section 2(102) of the CGST Act, 2017.
– Money
– Securities
– Transactions in Immovable Property (Sale of Land/Buildings)
– Salaries and Wages
– Gifts Within a Threshold to Employees (up to Rs.50,000)
– Alcoholic Liquor for Human Consumption
– Government Services
 Supply should be made for a consideration
• Section 7(1)(a) of the CGST Act, 2017, “the supply of goods or services
or both made or agreed to be made for a consideration in the course
or furtherance of business.”
• Supply With consideration example
– Sale of Goods or Services
– Barter Transactions
– Leasing or Renting of Property
– Commission or Fees
• Supply Without Consideration
– Permanent Transfer or Disposal of Business Assets
– Supply Between Related Persons or Distinct Persons
– Gifts to Employees Exceeding ₹50,000
 Supply should be make in the course or
furtherance of business
• Section 7(1)(a) of the CGST Act, 2017
– Sale of Goods or Services
– Business Transactions Between Branches (Distinct Persons)
– Leasing or Renting Commercial Property
– Business Promotion Activities
– Import of Services for Business Use
 Supply should be made by a taxable person
Person-Sec 2(84)-person includes—
(a) An individual;
(b) A Hindu Undivided Family;
(c) A company;
(d) A firm
(e) A Limited Liability Partnership;
(f) An association of persons or a body of individuals, whether incorporated or not, in India or outside
India;
(g) Any corporation established by or under any Central Act, State Act or Provincial Act or a Government
company as defined in clause (45) of section 2 of the Companies Act,2013;
(h) Anybody corporate incorporated by or under the laws of a country outside India;
(i) A co-operative society registered under any law relating to cooperative societies;
(j) A local authority;
(k) Central Government or a State Government;
(l) Society as defined under the Societies Registration Act, 1860;
(m)Trust;
 Supply should be a taxable supply
• Section 2(108) of the CGST Act, 2017, which states: “Taxable
supply means a supply of goods or services or both which is
leviable to tax under this Act.”
• Nature of the supply: Is it goods, services, or both?
• Consideration: Is it made for a monetary or non-monetary
consideration?
• Exemptions: Is the supply exempt under GST law?
• Taxability: Is GST leviable, and at what rate?
Examples of Taxable and Non-Taxable Supplies
Supply Taxable (Yes/No)
Sale of a laptop by a retailer
Renting of residential property
Sale of land
Export of goods
Free supply of samples (with ITC)
Commission received by an agent
Donation to a charity
Sale of alcoholic liquor for human
consumption
Concept of Supply
 "Goods" under Section 2(52) of the GST Act

• Section 2(52) of the GST Act defines "goods" as every kind of

movable property except money and securities. However, it
also includes certain other items such as actionable claims,
growing crops, grass, and things attached to or forming part
of the land, provided they are agreed to be severed before
supply or under a contract of supply.
 Key Components of the Definition
• Movable Property :Any property that can be moved from one
place to another without losing its identity or functionality.
• Actionable Claims: Outstanding Invoices, Bank Loans, Life
Insurance Policies
• Growing Crops and Grass
• Things Attached to Land
 "Services" Under GST (Section 2(102) of the CGST Act)

• Under GST, "services" are defined as anything other than

goods, money, and securities, but the definition explicitly
includes certain activities related to the use or conversion of
money for which a separate consideration is charged.
 Key Components of the Definition “Service”
• Exclusion of Goods, Money, and Securities:
• Goods: Movable property, growing crops, actionable claims,
etc., are classified separately as "goods."
• Money: Legal tender used solely for payment purposes (e.g.,
currency notes or coins) is excluded unless it is used in an
activity where a consideration is charged (e.g., foreign
exchange services).
• Securities: Financial instruments such as stocks, bonds, or
debentures are excluded from the scope of services.
 Inclusion of Activities Related to the Use or
Conversion of Money

• Activities involving the use of money (e.g., interest charged on

loans, banking services).
• Conversion of money from one form, currency, or
denomination to another, if a separate consideration is
charged.
• Separate Consideration: The activity becomes a "service" only
when a fee or charge is levied for performing the activity.
 Illustrate the Definition
• Banking Services (Use of Money)( Annual fee)
• Currency Conversion
• Loan Processing Fee
• Services Not Considered as Money: Use of payment gateways,
Selling prepaid mobile recharge cards
Example
• Use of Payment Gateways Scenario: A customer uses a payment
gateway (e.g., Razorpay, Phonepay, or Google Pay) to pay for an online
transaction. The payment gateway charges a fee to the merchant for
processing the payment.

• GST Applicability: The service fee charged by the payment gateway is

taxable under GST at 18%. This is because the service provided by the
payment gateway is not money itself but a service facilitating the use of
money.
Example
• Selling Prepaid Mobile Recharge Cards Scenario: A telecom operator or distributor
sells prepaid mobile recharge cards to customers. The card allows customers to use
mobile services such as calls, data, or SMS.

• GST Applicability: The sale of prepaid recharge cards is considered a supply of

telecommunication services and is taxable under GST at the applicable rate (usually
18%).

• Note: Although money is used to purchase the card, the recharge card represents a
service entitlement (e.g., data or call time), which is a taxable supply.
 Examples of Qualifies as Services
Supply Taxable (Yes/No)
Banking fees or charges
Currency exchange services
Loan processing fees
Online payment gateway charges
Pure money transfer (e.g., cash
withdrawal)
Buying/selling shares or bonds
 Concept
of Supply

Section 7 Section 8 Schedule I Schedule II Schedule III

Activities or Activities or transactions

Taxability of Activities to be
Meaning and transactions to be which shall be treated
treated as supply
composite and even if made without
treated as supply of neither as supply of
Scope of Supply goods or as supply of goods nor as supply of
mixed supplies consideration services
services
 Scope of Supply: (Sec 7)
• Generic meaning of supply includes all forms of supply of goods
and /or services and includes agreeing to supply when they are for a
consideration and in the course or furtherance of business (as
defined under Section 7 of the Act). It specifically includes:
(i) Sale
(ii) Transfer
(iii)Barter
(iv) Exchange
(v) License
(vi) Rental
(vii) Lease
(viii) Disposal.
 1. Sale
• Sale involves the transfer of ownership of goods or services for
monetary consideration.
• Example: Mr.A sold laptop worth Rs.1,00,000 and issued invoice in
favour of Mr.B. Now ownership is laptop transferred to Mr.B. such
transcatoins shall be coved in sale. It is a supply of goods leviable to
GST

• A garment shop sells a shirt for ₹1,000 to a customer. GST is

charged at the applicable rate (e.g., 5% or 12% depending on the
item).
 2. Transfer
• A transfer involves handing over goods or services to another
party, sometimes without any monetary consideration.

Example
A company transfers computers worth ₹2,00,000 from its Bangalore
branch to its Chennai branch located in a different state. Even though
this is an internal transfer, GST is applicable as it is considered a
deemed supply under GST.
 3. Barter
It means, the exchange of goods and productive services for other
goods productive services, without the use of money.
Ex: Mr.A a practicing CA provided service to M/s B Ltd. Dealer of
laptops. In return M/s B Ltd. given to Mr.A two laptops. Here, two-way
supply takes place. Mr.A is making taxable supply of service and M/s B
Ltd. Is making taxable supply of goods. Hence, tax is payable by both
parties.

A web designer creates a website for a restaurant in exchange for free

meals worth ₹25,000. GST applies on both the web design service and
the meals provided.
 4. Exchange
• When two persons mutually transfer the ownership of one thing for
the ownership of another, neither thing not both thing being money
only, the transaction is called on exchange.
• Exchange offers on products such as TV, mobile phones,
Refrigerators, are leviable under GST

Ex. Mr.A is a dealer of New phones. He supplied for Rs.20,000 to Mr.B

along with exchange of an old phone and if the price of the new phone
without exchange is Rs.24,000, the open market value of the new
phone is Rs.24,000. Mr.A is liable to pay GST on Rs.24,000. Mr.B also
liable to pay GST on Rs.4000 , if he is registered person.
 5. Licence
• Where one person grants to another, or to definite number of
other person, a right to do or continue to do in or upon the
immovable property of the granter, the right is called a licence.

• Ex. Mr. A developer of IT software and holder of licence

thereon. Licence to use software was given to different clients
for Rs.18 Lakhs,
• Hence, Mr.A is liable to pay GST whether he transfer such
right permanently or temporarily as the case may be.
 6. Rentals
• Rental involves temporarily giving goods or property to
another party in exchange for periodic payments.
Example
A landlord rents out a commercial office space for ₹1,00,000 per
month. GST at 18% is charged on the rental income.

A car rental company rents a vehicle to a customer for ₹3,000 per

day. GST applies to the rental charges based on the applicable
rate (e.g., 5% for transportation services).
 7. Lease
• Leasing involves allowing another party to use goods, property, or
equipment for a specified period in exchange for regular payments.

Example :A construction company leases heavy machinery (e.g.,

cranes) to a contractor for ₹1,50,000 per month. GST at 18% applies
to the lease amount.

A property owner leases a piece of land to a factory for 5 years for

₹5,00,000 annually. GST applies to the lease amount as it is
considered a supply of services.
 8. Disposal
• Disposal refers to the permanent transfer or disposal of goods (often
scrap or surplus) for consideration.

Example
A manufacturing company sells scrap metal generated during production
to a scrap dealer for ₹50,000. GST is charged at the applicable rate for
scrap materials (e.g., 18%).

A retailer disposes of damaged goods (worth ₹10,000) to a local vendor.

GST applies based on the value of the disposed goods.
 Section 8- Taxability of composite and mixed
supplies
• Composite Supply is defined under Section 2(30) of the CGST
Act, 2017. It refers to a supply comprising two or more goods
or services (or both) that are naturally bundled and supplied
together in the ordinary course of business, where one of the
supplies is the principal supply.

• Natural Bundling, Principal Supply, Single Tax Rate

Example
• Booking of Air ticket which involves cost of the meal to be
provided during travel will be composite supply and tax will be
calculated on the principal supply which in this case is
transportation of passengers through flight.
Transportation of passengers (principal supply).
Onboard meals and beverages.
• The principal supply here is passenger transportation. Hence,
the entire supply will be taxed at the rate applicable to the
transportation of passengers.
Example: 2
• M/s A ltd. Entered into a contract with M/s Ltd. for supply of
goods. Where goods are packed and transported with
insurance. The supply of goods, packing materials, transport
and insurance is a composite supply and supply is goods is a
principal supply.
Example: 3

• A five star hotel provides four days and three night package,
with breakfast. This is a composite supply as the package of
accommodation facilities and breakfast is a natural
combination in the ordinary course of business for a hotel.

• In this case, the hotel accommodation in the principal supply

and breakfast is supplementary to the hotel accommodation.
Example 4:
• Mr. Ravi being a dealer in laptops, sold a laptop bad along with
the laptop to a customer, for Rs. 55000. CGST and SGST for
laptop @ 18% and for laptop bag @28%. What would be the
rate of tax leviable? Also find the GST liability.
 Mixed Supply
• Mixed Supply is defined under Section 2(74) of the CGST Act,
2017. It refers to a combination of two or more goods or
services (or both) that are supplied together for a single price,
but they are not naturally bundled and could be supplied
independently.

• No Natural Bundling, Independent Nature, Single Price, Tax

Rate
Example:1
• Diwali gift hamper which consist of different items like sweets,
chocolates, cakes, dry fruits packed in one pack is mixed supply as
these items can be sold separately and it shall be treated as supply
of that particular item which attract the highest rate of tax.

• A retailer sells a gift hamper containing:

Chocolates (taxed at 5%),
Aerated drinks (taxed at 28%),
Cookies (taxed at 18%).
• Since the items are not naturally bundled and can be sold
separately, this is a mixed supply. The highest tax rate (28% for
aerated drinks) will apply to the entire gift hamper.
Example :2
• M/s A Ltd. A dealer of offer combo packs of shirt, watch,
wallet, book and they are bundled as a kit and this kit is
supplied for a single price and supply of one item does not
naturally necessitate the supply of other elements.

• Tax rate for shirt, watch, wallet and book at 12%, 18%, 5% and
Nil respectively.
 Difference between Composite supply and Mixed supply
Aspect Composite Supply Mixed Supply
Definition A supply of two or more goods or services A supply of two or more goods or
that are naturally bundled and supplied services that are not naturally bundled
together. but supplied together.

Bundling Nature Naturally bundled and supplied together Not naturally bundled; items can be
in the ordinary course of business. supplied independently.
Principal Supply One of the supplies is the principal supply, No principal supply; all items are treated
which determines the nature of the entire as independent and unrelated.
supply.

Tax Rate Applicability Taxed at the rate applicable to the Taxed at the highest rate applicable to
principal supply. any item in the supply.
Pricing Usually priced based on the principal Priced as a single amount for all items
supply. together.
 Composite or Mixed supply?

• Mr. A booked a Rajdhani train ticket, which includes meal.

• Space bazar offers a free bucket with detergent purchased. Is

assume rate of GST for detergent @28% and bucket 18%.
Composite or Mixed supply?
Composite or Mixed supply?
 Schedule I activities to be treated as supply even if made
without consideration
1. Permanent transfer or disposal of business assets where input tax credit has been availed
on such assets.
2. Supply of goods or services or both between related persons or between distinct persons
as specified in section 25, when made in the course or furtherance of business: Provided
that gifts not exceeding fifty thousand rupees in value in a financial year by an employer
to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods- (a) by a principal to his agent where the agent undertakes to supply
such goods on behalf of the principal; or (b) by an agent to his principal where the agent
undertakes to receive such goods on behalf of the principal.

4. Import of services by a taxable person from a related person or from any of his other
establishments outside India, in the course or furtherance of business.
 Schedule II- Activities to be treated as supply of
goods or supply of services

1.Transfer-
(a)any transfer of the title in goods is a supply of goods;
(b)any transfer of right in goods or of undivided share in goods
without the transfer of title thereof, is a supply of services;
(c)any transfer of title in goods under an agreement which
stipulates that property in goods shall pass at a future date upon
payment of full consideration as agreed, is a supply of goods.
 Activities to be Treated as Supply of Goods
• Transfer of Ownership:
– The transfer of the title in goods is treated as a supply of goods.
– Example: Selling a car, furniture, or any other tangible asset.

• Transfer Involving Future Payment:

– Transfer of goods under an agreement stipulating that property in
the goods will pass at a future date upon full payment.
– Example: Hire purchase agreements.
 Activities to be Treated as Supply of Services

• Transfer Without Ownership (Renting movable property)

• Use or Enjoyment of Intellectual Property (Licensing)

• Works Contract Services ( maintaining )

• Lease, Tenancy, or Licensing (renting immovable property)

 Schedule III- Activities or transactions which
shall be treated neither as a supply of goods nor a
supply of services

• 1. Services by an employee to the employer in the course of or

in relation to his employment.

• 2. Services by any court or Tribunal established under any law

for the time being in force.
• 3. (a) the functions performed by the Members of Parliament,
Members of State Legislature, Members of Panchayats, Members of
Municipalities and Members of other local authorities;
• (b) the duties performed by any person who holds any post in pursuance
of the provisions of the Constitution in that capacity; or
• (c) the duties performed by any person as a Chairperson or a Member
or a Director in a body established by the Central Government or a State
Government or local authority and who is not deemed as an employee
before the commencement of this clause.
• 4. Services of funeral, burial, crematorium or mortuary including
transportation of the deceased.
• 5. Actionable claims, other than lottery, betting and gambling.
 Activities or Transactions Under Schedule III

• Services by an Employee to the Employer

• Court or Tribunal Services

• Sale of Land and Completed Buildings

• Actionable Claims

• Funeral, Burial, Crematorium, or Mortuary Services

Example
M/s Z Ltd. originally purchased computers for ₹10,00,000 and
availed ₹1,80,000 GST ITC. On donation, it must pay GST on the
market value of the computers at the time of donation (say,
₹5,00,000).

M/s Pharma Pvt. Ltd. distributes free medicine samples to

doctors. If medicines worth ₹50,000 are distributed and ITC was
claimed, GST (12%).
Example
• M/s XYZ Ltd. rents out a commercial office space to a software
company. If the monthly rent is ₹1,00,000. GST (18%)

• M/s ABC Ltd. gives its employees luxury watches worth

₹60,000 each as a Diwali gift. GST rate on watches is 28%.

• A cosmetics brand distributes free sample perfumes to

customers.
Example
• A mobile store offers a ₹5,000 discount on a new phone if the
customer exchanges their old phone.

• A store sells a TV + Sound System combo for ₹50,000.

• M/s ABC Ltd. pays monthly salaries to its employees.

• A company is fined by a court for environmental violations.

• A person sells their used refrigerator to a neighbor.

Example
• A person wins a legal claim settlement for ₹10 lakhs from an
insurance company.
• A company gives a Diwali gift worth ₹40,000 to an employee.
• A funeral service provider organizes a cremation ceremony for
a deceased person.
• An investor sells 100 shares of a company on the stock
exchange.
• A Member of Parliament (MP) receives a salary and
allowances from the government.
 Characteristics of Supply
• 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 consideration

• Supply should be made in the course of business or in the interest

of growing a business
 Types of Supply
Taxable supply
• Taxable supply refers to a supply of goods and/or services
which is chargeable to tax under the GST Act.
• Supplies which are exempt or subject to NIL rate of tax will not
be treated as taxable supplies.
• However, exempt supplies shall be included for the purpose of
computing the aggregate turnover to determine the threshold /
composition Limits.
 Exempt supply
• Under the GST Act, Exempt Supply refers to any supply of
goods or services or both that attracts a nil rate of tax, or that
is wholly exempt from tax under Section 11 of the CGST Act,
2017 or Section 6 of the IGST Act, 2017, or that is non-taxable.
Goods Exempted under GST:
• Fresh fruits, vegetables, and food grains.
• Milk, curd, butter, and eggs.
• Salt and jaggery.
• Books and printed newspapers.
• Handloom products.
• Raw silk, khadi fabrics, and certain textiles.
• Live animals.
Services Exempted under GST:
• Healthcare services provided by hospitals, doctors, or
paramedics.
• Educational services up to higher secondary levels or those
provided by institutions such as IITs or IIMs (as specified).
• Services provided by religious institutions, such as conducting
prayers or renting premises for religious events.
• Public transportation (non-AC buses, metro, and railways).
• Renting of residential property for personal use.
• Services by a charitable trust or NGO for public welfare (e.g.,
free medical camps).
• Services provided by the Reserve Bank of India.
 Exempt Supply
• Nil Rated Supplies:
Example: Fresh milk, fresh vegetables, and grains.
• Wholly Exempt Supplies:
Example: Educational services by schools or healthcare services by
hospitals.
• Non-Taxable Supplies:
Example: Alcohol for human consumption and petroleum products
(until notified).
• No Input Tax Credit (ITC):
Input Tax Credit cannot be claimed on inputs, input services, or
capital goods used in making exempt supplies.
• Includes Exported Goods/Services (Under Specific Conditions)
 Zero-Rated Supply in GST
• A Zero-Rated Supply refers to supplies of goods or services (or
both) on which the GST rate is 0%, but the supplier is allowed
to claim input tax credit (ITC) on inputs used for making such
supplies. Zero-rated supplies are covered under Section 16 of
the IGST Act, 2017.
• Ex. Exports of goods or services
• Supplies made to Special Economic Zones (SEZs) (developers
or units).
 Continuous supply of goods/services
• Defined under Section 2(32) of the CGST Act, 2017, it refers to
the supply of goods where:
• The goods are supplied continuously or recurrently over a
period of time.
• The supplier issues invoices periodically, in line with contract
terms.
• Pipeline Supply of Gas/Oil and Electricity Supply/ Supply of raw
materials, etc.
 Address of delivery-Sec 2(2)
• Address of delivery- means the address of the recipient of
goods or services or both indicated on the tax invoice issued by
a registered person for delivery of such goods or services or
both.

• It is understood that the address of delivery would be a crucial

pointer towards the location of goods at the time of delivery to
the recipient.
 Inward/Outward supply
• Definition (Section 2(67) of CGST Act, 2017):
"Inward supply" means the receipt of goods or services or
both by a person, whether by purchase, acquisition, or any
other means, with or without consideration.

• Definition (Section 2(83) of CGST Act, 2017):

"Outward supply" means the supply of goods or services or
both by a person in the course or furtherance of business.
 Supplier- Section 2(105)

• Supplier: in relation to any goods or services or both, shall

mean the person supplying the said goods or services or both
and shall include an agent acting as such on behalf of such
supplier in relation to the goods or services or both supplied
 Recipient
• For Goods: The person who receives the goods, whether they are
the buyer or any other person authorized to receive the goods on
their behalf.
• In case of goods sold on approval, the recipient is the person to
whom the goods are sent for approval, even if the approval has not
yet been given.

• For Services: The person who receives the services, whether they
are the recipient in the case of a direct contract or someone
authorized to receive the services on their behalf.
• The recipient can also be someone who benefits from the services
provided, even if they are not the direct contract holder.
 Aggregate Turnover
• Under Section 2(6) of the Goods and Services Tax (GST) Act,
"Aggregate Turnover" is defined as the total turnover of a
person, which includes the value of all taxable supplies,
exempt supplies, exports, and interstate supplies made by
them, across all their business entities.
Threshold Limits
• For Goods: ₹40 lakhs (aggregate turnover) for businesses engaged in the
supply of goods in most states.
• ₹20 lakhs (aggregate turnover) for businesses in the special category states
• For Services:
• ₹20 lakhs (aggregate turnover) for businesses providing services in most
states.
• ₹10 lakhs (aggregate turnover) for businesses in the special category
states.

• Special Category States like Puducherry, Meghalaya, Mizoram, Tripura,

Manipur, Sikkim, Nagaland, Arunachal Pradesh and Uttarakhand, Jammu
and Kashmir, Ladakh and Assam etc., have lower thresholds for GST
registration.
 Inter/Intra State supply
• The location of the supplier and the place of supply determines
whether a supply is treated as an Intra State supply or an Inter
State supply.

• Determination of the nature of supply is essential to ascertain

which type of GST is payable (i.e. CGST/SGST or IGST).
 Deemed Supply
1. Permanent transfer or disposal of business assets where input tax credit has been availed
on such assets.
2. Supply of goods or services or both between related persons or between distinct persons
as specified in section 25, when made in the course or furtherance of business: Provided
that gifts not exceeding fifty thousand rupees in value in a financial year by an employer
to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods- (a) by a principal to his agent where the agent undertakes to supply
such goods on behalf of the principal; or (b) by an agent to his principal where the agent
undertakes to receive such goods on behalf of the principal.

4. Import of services by a taxable person from a related person or from any of his other
establishments outside India, in the course or furtherance of business.
 Related Persons Sec (15)
• Holding & Subsidiary Companies – (Tata Sons & Tata Motors).
• Partnership Firms ( ABC & Co. and its partners).
• Common Control by a Third Party –same investor holding ≥
25% shares.
• Family Members in Business
• Sole Distributors & Agents
• Employer and Employee
 Distinct Persons- Sec (25)

• Same Business with Multiple GSTINs

• Head Office & Branch Office Transactions

• Two Business Verticals under Same PAN

 Composite and Mixed supplies

• Composite Supply is defined under Section 2(30) of the CGST Act,

2017. It refers to a supply comprising two or more goods or
services (or both) that are naturally bundled and supplied
together in the ordinary course of business, where one of the
supplies is the principal supply.

• Mixed Supply is defined under Section 2(74) of the CGST Act, 2017.
It refers to a combination of two or more goods or services (or
both) that are supplied together for a single price, but they are not
naturally bundled and could be supplied independently.
 Reverse Charge under GST
• RCM (Reverse Charge Mechanism) in GST (Goods and Services
Tax) is a tax mechanism where the recipient of goods or
services, rather than the supplier, is liable to pay the GST.

• This system is typically applied in specific cases, such as when

the supplier is unregistered or in certain notified situations
where the government wants to ensure that tax is collected
from the recipient.
 Reverse Charge under GST
 Normally, GST is to be collected by the person who is selling good and services. But in some cases GST is to be
collected by the purchaser of goods/service and not by seller. This is called Reverse Charge Mechanism, RCM in
short.
 The person who is required to pay tax under reverse charge has to compulsorily register under GST irrespective of
the aggregate limit.
Example of RCM
• Scenario: Purchase of Services from an Unregistered Supplier
• Let’s say a registered business purchases legal services from an
unregistered legal consultant. Under normal circumstances,
the supplier would collect GST from the buyer, but in this case,
the consultant is unregistered.

• In such a case, the business (the recipient) is liable to pay GST

on the legal services under the Reverse Charge Mechanism
(RCM).
 Step-by-Step Process
• Supplier ---- Recipient
• GST Rate
• Tax Payment
• Input Tax Credit (ITC)
Example
• Goods Transport Agency (GTA): If a registered business
receives goods transport services from an unregistered
transporter, the business must pay GST under RCM.

• Import of Services: If a business imports services from outside

India, the recipient must pay GST under RCM.

• Director’s Services: Services provided by a director to a

company may be subject to RCM.
 Reverse Charge on Goods under Section 9 (3)
Sr No Description of Goods Supplier of Goods Recipient of Supply
1 Cashew Nuts, not shelled Agriculturist Any Registered Person
or peeled

2 Bidi Wrapper Leaves Agriculturist Any Registered Person

(Tendu)

3 Tobacco Leaves Agriculturist Any Registered Person

4 Silk Yarn any person who Any Registered Person

manufactures Silk Yarn
from Silk Cocoons for
Supply of Silk Yarn

5 Supply of Lottery State Govt, Local Lottery Distributer or

Authority Selling Agent
 Composition Levy
• The Composition Levy is a simplified tax scheme under GST
designed for small businesses to reduce compliance and tax
burdens. Instead of calculating tax on each transaction,
businesses pay GST at a fixed percentage of their turnover
under this scheme.
• Section 10 of the CGST Act, 2017 governs the Composition
Levy.
• It allows eligible taxpayers to pay GST at a lower fixed rate
without claiming Input Tax Credit (ITC).
 Eligibility
• Turnover Limit: Goods (1.5 crores ) service (50 lakhs)
• Business Allowed:
– Manufacturers,

– Traders (dealers, shopkeepers),

– Restaurants (not serving alcohol),

– Service providers (with turnover ≤ ₹50 lakh)

NOT Eligible
• Inter-state suppliers (businesses selling outside their state).

• Businesses engaged in e-commerce (like Amazon, Flipkart,

etc.).

• Those dealing in non-taxable goods (e.g., petrol, diesel,

alcohol).
GST Rates Under Composition Levy
 Benefits of Composition Levy

• Lower tax rates than the regular GST

• Quarterly tax payments (instead of monthly)

• Less paperwork – Fewer returns to file

• No need to maintain detailed records like Input Tax Credit (ITC)

claims.
 Disadvantages of Composition Levy
• No Input Tax Credit (ITC) – Cannot claim ITC on purchases

• No Inter-State Sales – Can sell goods/services only within the same

state.

• Cannot collect GST from customers – Businesses pay tax from their
own pocket.

• Cannot deal in non-taxable or exempt goods like alcohol, petrol,

etc.
 GST Exemptions

• GST exemptions are specific goods or services that are exempt from
the application of GST. In other words, there are certain goods and
services that are not covered under the ambit of GST Act.

• These exemptions change from time to time. The government can

grant exemptions for various reasons like alleviating the tax burden
on essential goods and services or supporting specific sectors.
 Types of GST Exemptions
1. Absolute Exemption
Certain goods or services are fully exempt from GST, regardless
of the supplier or recipient.
Example:
• Unprocessed food items (grains, milk, fresh vegetables).
• Healthcare services (medical treatment by hospitals).
• Education services (school tuition).
2. Conditional Exemption
• Some exemptions apply only under specific conditions (e.g., supply by a
particular entity).
Example:
• Services provided by charitable trusts for the poor.
• Transportation of agricultural produce by rail or road.

3. Exemption Based on Threshold

• Businesses with low annual turnover are exempt from GST registration
and payment.
Example:
• Businesses with a turnover of less than ₹40 lakh (goods) or ₹20 lakh
(services) in most states.
• North-Eastern & special category states: Threshold is ₹20 lakh (goods) and
₹10 lakh (services).
 List of GST Exemption on Goods
Types of goods Examples
Natural products Honey, fresh and pasteurized milk, cheese, eggs, etc.
Vegetables Tomatoes, potatoes, onions, etc.
Fruits Bananas, grapes, apples, etc.
Dry fruits Cashew nuts, walnuts, etc.
Tea, coffee and spices Coffee beans, tea leaves, turmeric, ginger, etc.
Grains Wheat, rice, oats, barley, etc.
Seeds Flower seeds, oil seeds, cereal husks, etc.
Sugar Sugar, jaggery, etc.
Water Mineral water, tender coconut water, etc.
Baked goods Bread, pizza base, puffed rice, etc.
Fertilizers Goods and organic manure
 List of GST Exemption on Services
Types of services Examples
Agricultural services Cultivation, supplying farm labor, harvesting, warehouse-related activities, renting
or leading agricultural machinery, services provided by a commission agent or the
Agricultural Produce Marketing Committee or Board for buying or selling agriculture
produce, etc.

Government services Postal service, transportation of people or goods, services by a foreign diplomat in
India, services offered by the Reserve Bank of India, services offered to diplomats,
etc.

Judicial services Services offered by the arbitral tribunal, partnership firm of advocates, senior
advocates to an individual or business entity whose aggregate turnover is up to INR
40 lakhs

Educational services Transportation of faculty or students, mid-day meal scheme, examination services,
services offered by IIMs, etc.
Medical services Services offered by ambulances, charities, veterinary doctors, medical professionals,
etc. does not include hair transplant or cosmetic or plastic surgery.