12 Sep 2018Posted By: Mudit Handa


What is the Provision of Free Supply under GST?

The provisions under GST authority have been meticulously framed and have been modified periodically as to make them more consumer-centric. The GST council has hitherto regularly reworked various provisions under the Goods & Service Tax regime as regards GST registration and GST return filing procedure.

 

In a bid to make the GST regime much more consumer-friendly and opportune for an average taxpayer, the GST council had proposed modifications in the GST rules with respect to the applicability of GST on the free supply of goods in the FMCG retail sector. The council had proposed to remove the GST liability on free supplies. However, the decision in this regard will be taken in the 30th GST meeting that is scheduled to be held on 30th September 2018.

 

#1. Why is it important to know about GST provisions on free supplies?

As we all know that the festive season has approached once again! The retail outlets across India are flocked with the entire range of gift hampers consisting of various gift items clubbed together.

 

  • For instance, sweets can be clubbed with religious idols, or toiletries can be combined with clothes & accessories and the like.
  • Now, an average consumer might get perplexed about the applicability of GST on the entire gift hamper. As a matter of fact, a large number of naive customers complain about unfair levying of GST on gift hampers.

 

So, it is very imperative to know how the free supplies are treated under the GST Law.

 

#2. How are the free supplies are treated under the GST Act?

Broadly, the ‘free supplies’ refers to those goods that are supplied without a consideration. The concept of free supply of goods is explained u/s 17(5) of the CGST Act-2017. As per the provision, the input credit can't be availed on the goods offered as a free supply. This is likely to be reversed in the forthcoming 30th GST meet. The CGST Act classifies the free supplies under 2 categories-

  • Mixed supply
  • Composite supply

 

#3. What is meant by ‘Mixed supply’ under the GST law?

The concept of “mixed supply” is given u/s 2(74) of CGST Act-2017. A mixed supply refers to the supply of 2 or more individual of goods/services or their combination for a single price by any trader who has the GST registration. Such goods/services can be sold individually also.

As of now, the input credit cannot be availed on the mixed supplies.

 

#4. How can the concept of ‘Mixed supply’ be practically understood?

The concept of ‘Mixed supply’ can be Illustrated with the help of a case study.

If a Diwali gift hamper comprising of sweets, chocolates, cakes, dry fruits, cold drinks etc. is supplied for one price, it is a mixed supply. All these items can also be supplied separately. So, they not dependent on each other.

 

#5. What is meant by ‘Composite supply’ under the GST law?

The concept of “composite supply” is given u/s 2(30) of CGST Act-2017. The term ‘Composite supply’ refers to a supply of 2 or more taxable goods/services that are naturally bundled in the ordinary course of business, and one of them is a principal supply.

 

#6. How can the concept of ‘Composite supply’ be practically understood?

The concept of ‘Composite supply’ can be Illustrated with the help of a case given below-

If a television is packed and delivered along with insurance, then the supply of TV, Carton, transportation service and insurance, if clubbed together, is a composite supply. Here, the television will be treated as a principal supply.

 

#7. How is GST charged on the Mixed supply?

As per the GST law, GST on a mixed supply is the tax rate of that item which has the highest GST rate.

In the above case of Diwali gift hamper comprising of sweets, chocolates, cakes, dry fruits, cold drinks etc. we see that GST rate of cold drinks is highest, i.e. 28%. Thus, GST@28% will be charged on the hamper.

 

#8.How is GST charged on the ‘Composite supply?

In case of Composite supply, GST will be levied on the principal supply.

 

With that, you will be truly conversant with the applicability of GST on free supplies.

 

If you need any guidance as regards GST registration in India or GST return filing process, feel free to contact us at 8881-069-069.

Comments



Posted By Krishna Murthy Belagumba G
Posted Date 2018-09-16 13:28:56

Good information


Posted By Mudit Handa
Posted Date 2018-09-17 10:45:37

Thank you, Sir! Keep up with the latest updates on business & taxation.


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