Place of Supply under GST

What is place of supply under GST?

In GST, ‘supply’ is an important concept and fundamental GST rules revolve around it. Under supply, there are three elements: time of supply, place of supply and value of supply.

These elements determine what and how taxes will be charged on said supplies.We will focus on place of supply, the most important aspect of the tree.

Place of supply under GST defines whether the transaction that takes place is an intrastate transaction (within the same state) or an inter-state transaction, one that happens between two different states. Based on this, transactions of goods or services are taxed as follows:

Intrastate transactions: will be charged with SGST and CGST
Inter-state transactions: will be charged with IGST

When determining the tax that needs to be charged based on place of supply, there are two things to consider:

The location of the supplier (the registered place of business)
The place of supply (the registered place of business of the recipient)

Let’s look at two examples to understand better.

Finding the place of supply for intra-state supply of goods

A supplier of milk and eggs has its registered office in Mumbai, Maharashtra. He supplies goods to clients in Pune, Maharashtra. Since both the supplier and his clients are in the same state (Maharashtra) this will be a intrastate supply of goods, so SGST and CGST will be levied on the transactions.

Finding place of supply for inter-state supply of goods

A supplier of milk and eggs with its registered office in Mumbai, Maharashtra supplies goods to clients in Surat, Gujarat In this case, the supplier and the client are located in different states (Maharashtra and Gujarat) so the transaction is an inter-state supply of goods, meaning that IGST is levied on it.

There are different provisions for determining the place of supply of goods. They are classified based on:

1. Supply involves movement of goods
A couple of examples:

You are from Mumbai, Maharashtra and sell to a client in Maharashtra so CGST and SGST will be charged on your transaction.
You are from Maharashtra and sell to a client located in Andhra Pradesh, you will need to charge IGST.
You are from Mumbai, Maharashtra and sell to a client in Andhra Pradesh, but the clients asks you to send the goods to another Pune, Maharashtra. In this case IGST will be charged.

2. Supply involves no movement of goods
Some examples:

Your company is located in Maharashtra and you want to open up a store in Bengaluru, Karnataka. You buy a small building from a company from Bengaluru along with some pre installed equipment. Because there is no movement of goods (equipment), the place of supply is the location of the goods at the time of hand over, meaning CGST and SGST will be charged.
Your company in Mumbai asks a company from Tamil Nadu to build a special oven in your restaurant in Mumbai. In this case, the place of supply is Mumbai, so there is no movement of goods, and CGST and SGST will be charged.

3. Export and import of goods
There 2 different cases here:

Your company is located in Maharashtra and you want to open up a store in Bengaluru, Karnataka. You buy a small building from a company from Bengaluru along with some pre installed equipment. Because there is no movement of goods (equipment), the place of supply is the location of the goods at the time of hand over, meaning CGST and SGST will be charged.
Your company in Mumbai asks a company from Tamil Nadu to build a special oven in your restaurant in Mumbai. In this case, the place of supply is Mumbai, so there is no movement of goods, and CGST and SGST will be charged.

Special cases: How does GST apply to SEZ and UTGST?

SEZ is a Special Economic Zone as defined by the Indian laws. Under the GST laws, SEZ units are considered to not be a part of India and the following applies to them:

IGST Exempted: Any supply to SEZs is exempted of IGST
Import Any supply from SEZs to the rest of India will be treated as Imports and will be taxable on a Reverse Charge basis at the end of the recipient.

UTGST refers to Union Territories GST. These territories are under the governance of the Central Government, so UTGST has been introduced to replace SGST in the following union territories in India: Chandigarh, Lakshadweep, Daman and Diu, Dadra and Nagar Haveli, Andaman and Nicobar Islands.

GST Explained

What is GST bill?

GST, short for Goods and Services tax, is a new tax that will be imposed on the sale and purchase of goods and services in India. GST is meant to replace all taxes in India with a single unified tax applied to value addition instead of the total value of the product at each stage in the supply chain.

This method provides credit for the input tax paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services. As a result, this reduces the overall manufacturing cost, with the end customer paying less.

Which goods and services are exempted from GST?

With certain current taxes remaining, the following goods and services will be fully or partially exempted from the GST

What are the GST benefits for your business?

Free movement of goods: Business owners will be able to sell more in other states without having to worry about interstate transaction costs. With GST, the entry tax will be eliminated, which will save time and money spent.

What taxes does GST replace?

Currently, there are many indirect taxes that both the state and central governments are collecting on every purchase and sale.

How will GST work in practice?

The GST will follow a similar model with the one before it

What is the proposed GST rate?

GST will have a 4-tier tax structure

Why is GST being introduced in India?

One of the main reasons for GST being introduced in India is the tax burden that falls both on companies and consumers. With the current tax system, there are multiple taxes added at each stage of the supply chain, without taking credit for taxes paid at previous stages. As a result, the end cost of the product does not clearly show the actual cost of the product and how much tax was applied. This cascading structure is too complex and inefficient.

How will Inter-state transactions work in GST?

For inter-state transactions, the Centre will levy Integrated GST (IGST), which is equal to the average of the CGST and SGST rates. After applying IGST, CGST and SGST credits received from purchases, the seller will then pay the remaining IGST on the added value.

What is the exemption limit in the GST?

Businesses with turnover revenue of 20 lakhs and above will have to register and file for GST returns, with a threshold of 10 lakhs for businesses in the north east and hill states.

How will imports be handled in GST?

A combination of CGST and SGST will be applied to the import of goods and services that come to India. Tax benefits and credits will be given to the state where the imported goods and services are consumed.