Many companies sell multiple products or services in a transaction. But not all bundled sales are treated alike under GST. The tax will depend on whether the transaction is a composite supply or a mixed supply. Every business must know composite supply vs mixed supply. Misclassification may result in the payment of incorrect amounts of taxes, interest or penalties.
All the businesses registered under GST should understand these rules before they issue their invoices. Sections 2(30), 2(74), and Section 8 of the CGST Act, 2017 explain this concept. This guide defines composite supply vs mixed supply with simple definitions, practical examples and key differences.
What is Composite Supply?
“Composite supply” means two or more goods or services that a business provides under a single supply contract and normally offers together in the course of business. One is the main supply, and the others are supplementary. The whole transaction is taxed at the rate of GST on the main supply.
Key Features
- Consists of two or more items of goods or services.
- Certainly, the items are bundled.
- The principal supply constitutes one supply.
- The principal supply determines the GST rate for the entire transaction.
Example: The customer purchases an AC priced at Rs 50,000 plus Rs 2,000 for installation.
| Particulars | Amount |
|---|---|
| Air Conditioner | Rs. 50,000 |
| Installation | Rs. 2,000 |
| Total Invoice Value | Rs. 52,000 |
The installation accompanies the sale of the air conditioner, making it a Composite Supply. Businesses apply GST on the total invoice value at the rate applicable to the air conditioner
What is Mixed Supply?
A mixed supply refers to the selling of two or more distinct items or services at the same price. This usually means that the items are not necessarily bundled. It is possible to sell them individually. There being no main supply, the maximum GST rate charged on all items applies.
Key Features
- A bundle consists of two or more separate items of goods or services.
- Items of supply are not naturally segregated.
- There is no principal supply.
- The highest GST rate among the bundled items applies to the entire transaction.
Example: Festive Gift Hamper includes,
- Chocolates
- Dry fruits
- Perfume
- Juice
These products can be sold individually. Consequently, GST rules classify the hamper as a Mixed Supply, and businesses charge GST at the highest applicable GST rate.
Composite supply vs mixed supply: Key Differences
| Basis | Composite Supply | Mixed Supply |
|---|---|---|
| Nature | Naturally Pack | Not naturally bundled |
| Principal Supply | Available | Not available |
| GST Rate | Standard Rate of Supply | Highest Rate of Supply |
| Customer Intention | Purchase one main supply | Buy a few different things |
| Example | AC Set up | Gift basket |
This comparison is useful for the business to easily understand composite supply vs mixed supply after Gst registration.
How to Identify the Correct Supply?
Ask yourself these simple questions before you make an invoice.
Q1- Do the goods/services go together naturally?
If yes, then it is probably a Composite Supply.
Q2- Can you sell items one by one?
If yes then it is likely to be a Mixed Supply.
This simple test helps a business to rightly distinguish composite supply from mixed supply in most of the scenarios.
Common Business Examples
Composite Supply
- Laptop with installation
- Hotel accommodation including complimentary breakfast
- Courier and packing services
- Installation of washing machines
Mixed Supply
- Diwali hampers gift
- Corporate Gifting Boxes
- Beauty kits
- Grocery Store Promotional Packs
Conclusion
One needs to know composite supply vs mixed supply for accurate GST compliance. Proper classification helps businesses to charge the right GST rate, prepare the correct invoices and avoid unnecessary litigation. This is the first step to get your GST registration done. Businesses also need to understand the tax treatment of bundled transactions. Identifying whether a supply is composite or mixed improves compliance and simplifies business operations.
FAQs
Q1. What is the difference between composite supply and mixed supply under GST?
Under Composite Supply, businesses apply the GST rate of the principal supply to the whole transaction. In a mixed supply, there is no principal supply and thus the maximum GST rate of the goods applies.
Q2. Does Composite Supply fall under gift hamper category?
No. GST rules classify most gift hampers as Mixed Supplies because businesses can sell each product individually.
Q3. How relevant is the primary supply?
In case of Composite Supply, the GST rate on the whole transaction is based on the principal supply.
Q4. Is Gst registration a guarantee of correct GST compliance?
No, Gst registration allows a business to operate its business under GST but every transaction has to be classified properly.
Q5. Can a business have composite and mixed supplies?
Yes. There are several kinds of bundled transactions for a business. Businesses must consider the GST treatment of each transaction separately.
Moreover, if you want any other guidance relating to composite supply vs mixed supply and Gst registration, please feel free to talk to our business advisors at 8881-069-069.
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