Direct and Indirect Tax

DIRECT AND INDIRECT TAX,
MIXED AND COMPOSITE

SUPPLY
By: Sresth Verma 052

Simran Anchalia 050
BBA (g)
Direct and Indirect taxes
The
 Government of India imposes two types of taxes
on its citizens – direct and indirect taxes. Before we
delve into the details of differences between the two
taxes, let’s quickly recap the two types of taxes:
Direct taxes: These taxes have to be paid directly to

the government and cannot be transferred to anyone
else. Different acts govern these taxes.
Indirect taxes: These taxes are imposed on all the

goods and services, and not on income and profits. It is
collected by a retail store or an intermediary from the
consumer or one bearing the ultimate burden of the
tax.
Differences Between Direct and
Indirect Taxes
Major types of direct tax include:
 Income Tax: Levied on and paid by the same person according

to tax brackets as defined by the income tax department.
 Corporate Tax: Paid by companies and corporations on their
profits.
 Wealth Tax: Levied on the value of property that a person
holds.
 Estate Duty: Paid by an individual in case of inheritance.
 Gift Tax: An individual receiving the taxable gift pays tax to the
government.
 Fringe Benefit Tax: Paid by an employer that provides fringe
benefits to employees, and is collected by the state government.
 Indirect tax, as mentioned above, include those taxes where the
liability to pay the tax lies on a person who then shifts the tax
burden to another individual.
Some types of indirect taxes are:
Excise Duty: Payable by the manufacturer who shifts

the tax burden to retailers and wholesalers.
Sales Tax: Paid by a shopkeeper or retailer, who then
shifts the tax burden to customers by charging sales tax
on goods and services.
Custom Duty: Import duties levied on goods from
outside the country, ultimately paid for by consumers
and retailers.
Entertainment Tax: Liability is on the cinema owners,
who transfer the burden to cinemagoers.
Service Tax: Charged on services rendered to
consumers, such as food bill in a restaurant.
Mixed Supply & Composite Supply
under GST
MIXED SUPPLY
Mixed supply means two or more individual supplies of
goods or services, or any combination thereof, made in
conjunction with each other by a taxable person for a single
price where such supply does not constitute a composite
supply.
For example, supply of stationery pack containing crayons,
paints, brushes, drawing book etc. supplied at a single price
by the seller together as a package is a mixed supply
In a mixed supply, the item or service with the highest GST
rate is treated as the principal supply (whether or not it is
the main part of the bundle). The mixed supply is taxed at
the GST rate of the principal supply.
EXAMPLE
BOARDING SCHOOLS
Services provided by boarding school of
which primary supply is educational
service are coupled with many other
services namely providing dwelling units
for residence and food. This may be a
case of bundled services if the charges for
education and lodging and boarding are
inseparable
COMPOSITE SUPPLY
 Composite supply means a supply made by a taxable person
to a recipient
 consisting of two or more taxable supplies of goods or
services or both, or any combination thereof,
 which are naturally bundled
 and supplied in conjunction with each other
 in the ordinary course of business, one of which is a principal
supply.
 The tax rate of the principal supply will apply on the entire
supply.
 For e.g. Machinery (supply of goods) provided along with
warranty and maintenance contract (supply of service). Here,
there are two or more supplies, naturally bundled and supply
of machine is the principal supply.
Principal supply – as per Section 2(90) of CGST Act
means supply of goods or services which constitutes the
predominant element of a composite supply and to
which any other supply forming part of that composite
supply is ancillary.
Naturally bundled – Another important factor is that
supplies must be naturally bundled.
‘Bundled service’ means a bundle of provision of
various services wherein an element of provision of one
service is combined with an element or elements of
provision of any other service or services. The rule is –
‘If various elements of a bundled service are naturally
bundled in the ordinary course of business, it shall be
treated as provision of a single service which gives such
bundle its essential character’
Example
 A dealer sells a brand-new vehicle along
with registration, insurance, a tool kit and
first aid kit, and 4 free maintenance
services. This is a composite supply,
because vehicle insurance, registration
and free maintenance services cannot be
supplied without the vehicle (which is
the principal supply).
How to distinguish between composite supply and mixed supply?
At
 first glance, composite supplies and mixed supplies may look very
similar to each other. In both cases, we talk about supplying goods and/or
services as a bundle for a single price. But then, why have our tax
authorities gone to great lengths to differentiate them? Well, let’s see
why:
Difference No.1 - Principal supplies — In a composite supply, one item

or service is clearly the main part of the supply. In a mixed supply, no
one part is necessarily the principal supply (though the part with the
highest GST rate is treated as principal).
Difference No.2 - Individually available supplies — In a composite

supply, it wouldn’t make sense to sell the secondary parts separately
from the principal supply (for instance, the towels provided along with a
hotel room). In a mixed supply, each piece could be sold separately (for
instance, a grocery bundle containing an assortment of snacks and
drinks).
THANK YOU!

Direct and Indirect Tax

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Direct and Indirect Tax

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DIRECT AND INDIRECT TAX,

MIXED AND COMPOSITE

By: Sresth Verma 052

 Income Tax: Levied on and paid by the same person according

Excise Duty: Payable by the manufacturer who shifts

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