The framework for implementing Goods and Service Tax (GST) in India is anchored on the principle of a standard tax treatment of supply of goods and services. To determine the exact nature and application of tax under GST, it is essential to understand three critical concepts: namely the time of supply, the place of supply and the taxable value of the supply. All of these have a significant function in determining the taxes that have to be paid effectively. It is now necessary to go into detail concerning such aspects.
1. Time of supply under GST
The time of supply is an important factor in defining a situation when a subject becomes liable to pay the tax. It enables determining when the supply of goods or services takes place and as a result making it easy to know when the tax needs to be paid. For goods and services, the time of supply varies slightly:
For goods: The time of supply is typically the earlier of:
- The date of issue of the invoice.
- The date on which the goods are removed (if it involves the movement of goods).
- The date on which the goods are made available to the recipient (if there is no movement involved).
Moreover, in case of a supply that is made against an advance receipt of payment, the time of supply is also deemed to be the time when the said advance amount was received.
For services: For services, the time of supply is either:
- The date of issue of the invoice.
- The date of receipt of payment (earliest of the two).
But if invoice is not issued within the specified timeframe then the time of supply is the date on which the service is rendered.
Through determining the time of supply, the taxpayer avoids the penalties that arise from filing late or submitting wrong returns.
2. Place of supply under GST
The place of supply is key because while making a sale, it differentiates between intra-state transactions and inter-state supplies and determines the type of tax liability that ensues- goods and services tax (Integrated GST, Central GST, or State GST).
1. GST For goods
The place of supply for goods is usually fixed at the point of time when goods reach the recipient or the point of delivery.
1. If the supply of goods is made within the same state then it is known as Inter State supply and CGST and SGST are charged.
2. Goods and services supplied in a particular state to another state are known as inter-state supply, for which IGST is charged.
There are circumstances whereby the goods supplied are delivered directly to a third party for the use of the recipient and in this case the supply is made at the place where the third party is situated.
2. GST for services
With respect to services, the location of the supply could be relatively difficult to ascertain owing to the fact that services are intangible.
1. Domestic transactions: However, the basic rule, which governs the place of supply of services, is that it is the location of the service consumer.
2. International transactions: Where the service recipient is not in India the place of supply shall be the location of the service provider unless the service is one which is considered as supplied under the provisions relating to the supply made in the course of export of services.
For some services such as transport, communication, or accommodation there are provisions to determine the place of supply.
3. Value of supply under GST
The meaning of supply value is the value on which the GST is charged upon. It is a very important factor in calculating the amount of tax for any specific one supply of goods or services.
In most cases the value of supply under the GST regime is the transaction value meaning the price paid or payable for the goods or services supplied. However, certain elements must be added to or excluded from the transaction value to arrive at the final taxable value:
Inclusions:
1. Any taxes, duties, cess, fees and charges under any other law for the time being in force but does not include GST.
2. Other costs include packing, commission and any other charges that are connected with the supply.
3. Interest charges, fees charged for late payment or penalties for delayed payment.
4. Subsidies which are related to the price (except governmental subsidies).
Exclusions:
- The first type of discount is the pre-supply or supply discount, as long as the discount is documented on the invoice.
The value of the supply is based on the transaction value but may be adjusted depending on whether the supply is made in the course of related party transactions or without charge.
Conclusion
For any business to be on the right side of the law with regards to GST, it is important to grasp the time, place and value of supply. It helps to ensure that business organizations estimate their tax liability, submit their returns within the required time and run their operations without interference.
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