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Mixed Supply & Composite Supply: How is GST charged on both these supplies?

Mixed Supply & Composite Supply: How is GST charged on both these supplies?

Anamika was always fond of making hand-made gift packages for the near and dear ones. She would buy various stuff from the market, pack it all together in a box and present it to her friends and family members on various occasions.

Soon, her interest turned up into a profession as she began an online startup. However, as the business grew, so did her stress.

Reason? Anamika couldn’t identify how to charge GST on the whole package. Usually, a gift pack would contain chocolates, candies, teddy bears or other soft toys, sometimes artificial jewelry pendants or a few other things based on the customer’s choice. 

Has it happened with you as well? Are you also supplying 2 or more goods or services or a combination of goods and services together as a package? 

Well, charging accurate GST rate in these cases can be as confusing as solving an algebraic question. 

Under GST law, these kinds of supplies are bifurcated into mixed supplies and composite supplies

No, don’t scratch your head over these terms because our today’s article will explain in detail the difference, their treatment, and other related provisions. Keep reading till the end to resolve all your queries – 

Where does the problem lie in charging accurate GST rate?

If a person is supplying goods and services separately, there isn’t any problem in charging GST rate on each individual good or service, since GST rates have been clearly defined for them. 

But, sometimes as a sales strategy or due to the industry or business nature, 2 or more goods are required to be sold together. 

Similarly, in some cases, a person has to supply service and good together. Since the good and service or 2 goods or services can’t be separately mentioned in the invoice, he has to charge a single GST rate.

What should be the GST rate? If the GST rate of good is 28% and of service is 5% or vice versa, should he charge 28% or 5% or some other rate? These are few questions that baffle every taxpayer. 

Hence, to avoid the confusion and ensure correct charging of tax rate, the GST law has defined specific tax rates to be applied in such cases. It has separated these supplies into 2 parts – Mixed Supplies and Composite Supplies. 

WizCounsel has got you covered for a better and detailed view of GST. Read our blog on what is GST and how to understand it better.

What are Mixed Supplies?

Sometimes 2 individual goods or services or a combination of them are supplied together for a single price. However, they are not bundled naturally, because each of those goods or services can be supplied individually also. 

For Example – In Anamika’s case, she can sell each of the stuff individually also in the market. However, according to customer’s demand, she is packaging them in one box and selling it a single price, hence it will be a mixed supply.

What will be the tax rate on Mixed Supplies?

GST rate on mixed supply = Highest GST rate on a good or service included in the total combination of mixed supply.  

Example: Suppose, Happy Children Ltd. supplied a family package consisting of toys (GST Rate- 18%), baby care products (GST Rate- 28%), and Cosco balls (GST Rate- 12%) at a single price. All the products can be sold separately as well.

Since baby care products have the highest GST rate, therefore the entire package will be chargeable to 28% GST

Have you still not filed GSTR-9? Hire a Chartered Accountant on WizCounsel and file the annual return at the earliest. 

What are Composite Supplies?

Composite supply means where two or more goods or services or a combination of both, are naturally bundled and supplied together in the ordinary course of business. The goods or services can’t be sold individually. 

In Composite Supply, one supply is a Principal Supply. Principal Supply is a supply of predominant good or service out of the composite supply. Other supplies are dependent on principal supply. 

How to determine a supply as a composite supply?

Composite supplies are those supplies, where the goods or services or both can’t be separated from one another. In most cases, composite supply is a regular practice followed in the industry. 

Also, in general, if the customers in the industry expect certain goods or services or their combination to be provided together as a bundled package, it will be considered a composite supply. 

One supply should compulsorily be the main or principal supplies, and rest all supplies should be dependent on the principal supplies. 

How will a composite supply be taxed? 

GST rate applicable to the Principal Supply will be charged on the composite supply. 

For Example – An electronics dealer sells AC to a customer and also installs it at his premises. Installation can’t be done if the AC is not sold. Here, the sale of AC is the principal supply, and installation service is ancillary to it.

Hence GST rate applicable on sale of AC will be charged on the whole amount of composite supply. 

Mixed Supply & Composite Supply: How is GST charged on both these supplies?

How will works contract be taxed? Is it a composite supply or a mixed supply?

Whenever a building is constructed, the contractor buys bricks, cement, etc on behalf of the builder and later charges them to him. Along with it, he also bills for the services obtained from laborers, engineers, architects, etc. 

It is one of the most suitable examples of composite supplies. However, the GST law has specifically clarified works contract as a supply of service. GST rate is specific for works contract, which will be charged on the entire invoice amount (which includes the cost of goods as well as services).   

Similarly, restaurants also provide food and serve it too. It has also been defined clearly as a supply of service with specific GST rates. 

Have any specific questions to ask or finding difficulty in segregating your supplies accurately? Consult a Tax Consultant who can analyze your business in detail and propose an optimum solution. 

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