Understanding what is taxable event under GST (Goods and Services Tax) is a must for all business owners and employees dealing with the financial aspects of the business. The inception of the GST regime in India solved many complications in previous tax laws and brought all taxes under one roof: GST.
However, with the coming of an entirely new tax regime, which is simpler, came new definitions and terms that left many people in a state of confusion. One such important topic in need of clarification is ‘taxable event under GST’.
Simply put, a taxable event under the Goods and Services Tax is the supply of goods and services, or both, excluding the taxes on the supply of alcohol or liquor for human consumption.
The CGST Act of 2017 has various Schedules: Schedule I, Schedule II, and Schedule III, which encompass all the information one needs to understand what is a taxable event and what is not.
Supply Under Schedule I, Schedule II, and Schedule III of the CGST Act of 2017
Schedule I elaborates on an important parameter of a taxable event under GST, ‘consideration’. Schedule II talks about a list of activities that are to be treated either as the supply of goods or as the supply of services. In contrast, Schedule III informs of the activities that are neither under the supply of goods and services nor under the umbrella of a taxable event under GST.
Guiding Parameters to Identify Taxable Event Under GST
The Goods and Services Act defines supply as an inclusive term that can be better understood based on the following seven guiding parameters:
1. Supply of anything apart from goods and services is not to be included in GST
Schedule III helps understand this parameter by listing out activities that are not considered as a supply of goods or services.
- Services offered by an employee to the employer in the course of or in relation to their employment.
- Services related to funeral, burial, crematorium, or mortuary, including the transportation of the deceased.
- Building where the sale of land, as well as the sale of consideration, has been received after the completion certificate has been issued or after its first occupation.
2. Supply should be carried out during the business for its furtherance
Everything carried out within the purview of commercial transactions falls within the category of a taxable event under GST. This means that any supplies made in a personal capacity are not taxable under GST.
However, there is one exception to this parameter: an import of services for consideration, made inside or outside the course or furtherance of business, should be treated as supply.
3. Supply should be carried out within the taxable territory
For a supply to fall in the taxable event under the GST category, the place of supply should be in India except for the State of Jammu and Kashmir. The location of supply of any goods or services is identified based on Sections 10, 11, 12, and 13 of the IGST Act of 2017.
4. Supply has to be made for a consideration
The CGST Act of 2017 gives an apt definition of consideration: a consideration can be made either in money or in kind in return for the supply of goods or services received. It can be made by the recipient or by any other person.
However, the presence of a consideration is not an all-binding requisite for an activity to be termed as a taxable event under GST or, simply put, a supply of goods and services or both.
What Does Schedule-I Say About Consideration?
Schedule I of the CGST Act considers the following activities as supply even when carried out without a consideration:
- A permanent transfer or the disposal of business assets where the input tax credit has been availed on such assets.
- The 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.
- The supply of goods— (i) by a principal to his agent, where the agent undertakes the supply of such goods on behalf of the principal agent; or (ii) by the agent to their principal where the agent undertakes the receiving of such goods on behalf of the principal agent.
- Import of services during the course or for the furtherance of business, carried out by someone considered a taxable person, from a related person or any of their other establishments outside the country.
5. Supply should fall in the category of taxable supply
For a supply to be a taxable event under GST, the supply must be taxable. A taxable supply has been defined in a broad manner. It means any supply of goods or services or both, which is leviable to tax under the GST Act.
Exemptions can sometimes be provided to the specified goods or services or to a specified category of people who are carrying out the supply.
- A taxable individual should make the supply
A “taxable person” is an individual who is either registered or liable to be registered under section 22 or section 24.
So, even an unregistered person who is liable to be registered is considered a taxable person. Similarly, a person who is not liable to be registered but has gone forth with the voluntary registration and got himself registered is also considered a taxable person.
Based on the above definition of a “taxable person,” GST is only attracted by a supply being made by a taxable person. A supply taking place between two people who are not taxable persons is not a taxable event under GST.
- Composite or Mixed Supply
Supply made by a “taxable person” comprising two or more supplies of goods or services that are naturally bundled and often supplied in conjunction with each other in the ordinary course of business (one of these should be a principal supply) is termed as Composite or Mixed Supply.
As per GST Act, a mixed supply will be treated as the supply of that good or service that attracts a higher tax rate.