Composite Supply vs Mixed Supply: Understanding the Key Differences under GST
Introduction
Under the Goods and Services Tax (GST) regime, understanding the classification of supplies is crucial for businesses to comply with tax laws. Two significant terms that often create confusion are Composite Supply and Mixed Supply. Both have distinct definitions and tax implications under the GST framework, and misclassification can lead to penalties or unnecessary tax burdens.
In this blog, we’ll dive into the definitions, examples, and critical differences between composite supply and mixed supply, ensuring clarity for businesses navigating GST compliance.
What is Composite Supply?
Composite supply is defined under Section 2(30) of the CGST Act as:
- A combination of two or more goods or services, supplied together, that are naturally bundled in the ordinary course of business.
- Among these, one is the principal supply, which determines the GST rate applicable to the entire supply.
Examples of Composite Supply:
- Air Travel Package: Includes airfare (principal supply) and in-flight meals (incidental). The GST rate applicable to airfare is charged for the entire package.
- Installation of Office Equipment: The supply of printers (principal supply) with installation services included.
What is Mixed Supply?
Mixed supply, as per Section 2(74) of the CGST Act, refers to:
- A combination of two or more independent goods or services that are supplied together but are not naturally bundled.
- The highest GST rate among the items in the package is applied to the entire supply.
Examples of Mixed Supply:
- Gift Hampers: A hamper containing chocolates, cosmetics, and soft drinks, where each item has a different GST rate. The highest rate (e.g., cosmetics) is applied to the entire package.
- Festival Combo Offers: A package with unrelated items like a mobile phone and a power bank, taxed at the higher GST rate of the two.
Key Differences Between Composite Supply and Mixed Supply
| Aspect | Composite Supply | Mixed Supply |
|---|---|---|
| Definition | Naturally bundled goods or services provided together in the ordinary course of business. | Two or more independent goods or services provided together, but not naturally bundled. |
| Principal Supply | Has a principal supply that determines the GST rate. | No principal supply; taxed based on the highest GST rate among items. |
| Tax Rate | GST rate of the principal supply is applied to the entire supply. | GST rate of the item with the highest rate is applied to the entire supply. |
| Example | Air travel with in-flight meals; GST rate of air travel applies. | A gift hamper containing chocolates, cosmetics, and soft drinks; GST rate of the item with the highest tax applies. |
| Purpose of Bundling | Items are complementary and expected to be sold together. | Items are combined for convenience but do not complement each other. |
| Relevant GST Provisions | Section 2(30) and Section 8(a) of the CGST Act. | Section 2(74) and Section 8(b) of the CGST Act. |
Tax Implications of Composite and Mixed Supplies
Composite Supply:
- GST is charged at the rate applicable to the principal supply.
- Simplifies taxation for naturally bundled items.
Mixed Supply:
- GST is charged at the highest applicable rate among the items.
- Often leads to higher tax liabilities for unrelated items bundled together.
Practical Tips for Businesses
- Identify Supply Type: Assess whether goods or services are naturally bundled or independent before invoicing.
- Use Correct GST Rates: Always apply the principal supply’s GST rate for composite supplies and the highest rate for mixed supplies.
- Seek Professional Advice: Misclassification can result in penalties. Consult GST experts to avoid compliance issues.
Conclusion
Understanding the distinction between composite and mixed supply is critical for businesses to optimize their tax liabilities and remain compliant under GST laws. By correctly identifying and classifying supplies, businesses can ensure seamless operations and avoid unnecessary tax burdens.
If you’re unsure about the classification of your supplies, reach out to GST professionals for guidance.
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