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Hidden Taxable Supply under GST in India

Concept of Supply is extremely wide and significant under GST in India. Supply in simple words includes all activities in the nature of sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Some important inclusion or exclusion may be as under:

Inclusions:

  1. Importation of services even for personal purposes shall be taxable supply e.g. payment for the consultancy for interior of your house to a Company located in Singapore shall be subject to GST unless exempted by some notification.
  2. Importation of Goods whether or not for business shall be taxable supply if not covered under exemptions.
  3. Transaction of transfer of Goods or provision of services shall be taxable supply between related persons when made for business even without consideration. (Employer and employees are deemed to related parties) e.g. any gift by employer to employee if the value of the gift is more than INR 50,000 in value in a financial year.
  4. Transaction within same entity having different GST registration and transaction in relation to Goods between Principal and Agent without consideration shall be deemed to be taxable supply.
  5. Importation of services by taxable person from a related person or from any of his other establishment outside India (i.e. overseas branch office of an Indian HO or overseas HO of an Indian branch) in the course or furtherance of business even without consideration shall be taxable GST supply.

Exclusions:

  1. Services by Employee to employer under an employment agreement.
  2. Services by any court or Tribunal established under any law for the time being in force.
  3. Services performed by public representative like MP, MLA, personal holding any constitutional post etc.
  4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
  5. Sale of land and sale of building if building is sold after its completion or occupation.
  6. Actionable claims, other than lottery, betting and gambling.

Further, GST taxable machinery differentiate between supply of Goods and supply of Services, therefore it is important to clearly identify a transaction either supply of Goods and supply of Services. Practically, it may not be possible to classify some transaction in such a manner so some deeming provisions is being incorporated in GST Law under Schedule-II of the GST Act which classify some specified transactions to be treated as supply of Goods or supply of Services e.g. restaurant, construction job work  with or without material  shall be considered as supply of services.

Therefore, Supply as defined under GST in India includes so many business transactions which seems to be not taxable supply but when we go in the depth of such transactions, these transactions are proved to be taxable transactions and attract GST even made without consideration and even you are not in business.

We need to focus every related party transactions which are quite vulnerable under this category e.g. an individual is the owner of a business complex or a residential house and using these places for his multiple businesses and may not be charging any consideration for the same. in fact such transactions are taxable supply even when we are using our residential house for our businesses.

Another such example may be the transactions between Head office and overseas branches or vice versa say Branch office in India may be providing some services to its clients in India and it may be getting some help to implement such transactions, obviously not paying any consideration for the same; this seems to be not taxable supply but it may be covered under importation of services from Head office and taxable under GST.