You must have observed the market scenario where a combination of goods and services are supplied, to attract more consumers perhaps. While in service tax this is known as bundled service, in GST law it is regarded as ‘Composite supply and Mixed supply.’ A fresh mechanism introduced under the new tax reform.
What is Mixed Supply under GST?
Mixed supply comprises of two or more individual goods/ services that are bundled with each other and are supplied at a single price. In this case, the combination of goods or services are not dependent on each other owing to some natural necessity, and they can be supplied individually in the ordinary course of business.
The tax rate applicable on mixed supply depends on the goods/ service item which has the highest tax rate.
Lets understand mixed supply with an example:-
For the occasion of Father’s Day, a gifts’ shop is offering a combo pack of ‘a diary, a card holder and a tie’ bundled as a kit and it is supplied at Rs: 500. Since the supply of one item does not naturally necessitate the supply of other elements, this supply is a mixed supply. To calculate the tax rate applicable on this supply, the individual tax rate of all items will be seen and the highest rate of tax will be considered as the mixed supply. Hence, the mixed supply in this case will be taxed at 18%.
What is Composite Supply under GST?
Composite supply includes two or more goods/services, that are bundled owing to natural necessities, and supplied with each other in the course of business. To calculate tax on composite supply, one of the many goods/ services supplied should be a Principal Supply i.e. — a predominant element, while the other goods/ services – a secondary supply of a composite supply. The tax rate applicable on composite supply of goods / or services is the principal supply.
The conditions for composite supply are:
- Supply of two or more goods or services together
- It should be a natural bundle and they cannot be separated
- If the second condition is not fulfilled, then it becomes a mixed supply.
Lets understand composite supply with an example:-
Mr. Bakshi takes a 3 days and 2 nights hotel stay package, with breakfast. This is a bundled service as accommodation facility comes with a natural combination of breakfast, which means that Mr. Bakshi has opted for composite supply in the ordinary course of business for a hotel. Since the hotel accommodation attracts 18% tax and the restaurant service attracts 12% tax, the hotel accommodation is the principal supply, and the entire supply will be taxed at 18%.