Unit 2: The GST model
Goods and Services Tax notes · PTU syllabus (BCOM 502-18)
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Unit summary
The GST model defines who levies which tax, on what event and on what kind of supply. This unit covers CGST, SGST, UTGST and IGST, the taxable event and concept of supply, composite and mixed supplies, provisions for levy and collection of CGST and IGST, the composition scheme and the reverse charge mechanism.
After this unit you can
- Explain the roles of CGST, SGST, UTGST and IGST
- Explain the taxable event and the scope of supply under Section 7
- Distinguish composite and mixed supplies
- Explain levy and collection, the composition scheme and the reverse charge mechanism
PTU syllabus topics
- CGST
- IGST
- SGST and UTGST
- concept of taxable event
- concept of supply
- composite supply and mixed supply
- provisions for levy and collection of CGST and IGST
- composition scheme
- reverse charge mechanism
Supplier and buyer
Same state
Different states
Tax charged
CGST + SGST
IGST
Collected by
Centre and state
Centre (shared with destination state)
Example
Delhi to Delhi
Delhi to Punjab
Topic 1
CGST, SGST, UTGST and IGST
CGST
Central GST on intra-state supplies — CGST Act, 2017
SGST
State GST on intra-state supplies — State GST Acts
UTGST
Union Territory GST in UTs without legislature (Chandigarh, Ladakh, etc.)
IGST
Integrated GST on inter-state supplies, imports and supplies to/from SEZs — IGST Act, 2017
| Type of supply | Tax levied |
|---|---|
| Within Punjab (intra-state) | CGST 9% + SGST 9% (for an 18% item) |
| Punjab to Haryana (inter-state) | IGST 18% |
| Within Chandigarh (UT) | CGST 9% + UTGST 9% |
| Import of goods | IGST 18% + basic customs duty |
| Supply to an SEZ unit | IGST (zero-rated) |
- Settlement of IGST: the Centre transfers the SGST portion of IGST to the consuming (destination) state — making GST destination-based.
Topic 2
Taxable event and the concept of supply
The taxable event under GST is supply of goods or services or both.
7(1)(a)
Sale, transfer, barter, exchange, licence, rental, lease or disposal for consideration in the course or furtherance of business
7(1)(b)
Import of services for consideration, whether or not in business
7(1)(c)
Activities in Schedule I even without consideration
Schedule II
Whether an activity is a supply of goods or services
Schedule III
Neither supply of goods nor services
- Schedule I (without consideration): permanent transfer of business assets where ITC was availed; supplies between related persons or distinct persons (branches in different states) in the course of business; principal–agent supplies; import of services from a related person abroad. Gifts up to ₹50,000 a year by an employer to an employee are not supply.
- Schedule II examples: transfer of title in goods = supply of goods; lease or rental = supply of services; works contract and restaurant service = supply of services.
- Schedule III (not supply): services by an employee to an employer; services by courts and MPs/MLAs; funeral and burial services; sale of land and (generally) completed building; actionable claims other than specified actionable claims (lottery, betting, gambling, online gaming, horse racing); high-sea sales; merchant trade.
Exam tip
For "is this a supply?" questions, check four tests: goods or services, made for consideration, in the course or furtherance of business, and taxable territory.
Topic 3
Composite and mixed supply (Section 8)
Meaning
Two or more supplies naturally bundled with one principal supply
Two or more independent supplies at one price
Tax rate
Rate of the principal supply
Highest rate among the items
Example
Goods packed, transported and insured — rate of goods applies
Gift hamper of sweets, chocolates and dry fruits at one price
Test
Naturally bundled in the ordinary course of business
Can be supplied separately
Example
A hotel offers a room with breakfast at one price — composite supply; principal supply is accommodation, so the rate for accommodation applies.
Topic 4
Levy and collection of CGST and IGST
- Section 9 (CGST) / Section 5 (IGST): tax levied on all intra-state (CGST) or inter-state (IGST) supplies on the value determined under Section 15, at rates notified on Council recommendation — CGST up to 20%, IGST up to 40%.
- Exclusions: alcoholic liquor for human consumption; five petroleum products until notified.
- Who pays: normally the supplier (forward charge); under reverse charge, the recipient; e-commerce operators pay tax on certain services (Section 9(5)) — passenger transport (cab aggregators), accommodation, restaurant services through apps.
- Threshold for registration: aggregate turnover above ₹40 lakh (goods, most states), ₹20 lakh (services), ₹20 lakh/₹10 lakh in special category states.
Topic 5
Composition scheme (Section 10)
| Feature | Provision |
|---|---|
| Eligibility | Aggregate turnover up to ₹1.5 crore (₹75 lakh in special category states) in the preceding year |
| Rates (CGST + SGST) | Manufacturers 1%, traders 1% (on taxable turnover), restaurants 5%, other service providers 6% (turnover up to ₹50 lakh — Section 10(2A)) |
| Input tax credit | Not available |
| Tax collection | Cannot collect tax from customers; issue bill of supply |
| Returns | Quarterly statement CMP-08 and annual return GSTR-4 |
| Not eligible | Inter-state outward supply, e-commerce sellers of goods, non-resident and casual taxable persons, manufacturers of ice cream, pan masala, tobacco |
- Must mention "composition taxable person, not eligible to collect tax on supplies" on the bill of supply and at the place of business.
Topic 6
Reverse charge mechanism (RCM)
Under RCM, the recipient pays the tax instead of the supplier.
Section 9(3)
Notified goods and services — e.g., goods transport agency (GTA), legal services by an advocate, sponsorship services, services by a director to a company, cashew nuts and raw cotton from agriculturists, renting of commercial property by an unregistered person to a registered person
Section 9(4)
Specified supplies from unregistered persons to specified registered persons (e.g., promoters of real estate)
Section 5(3) IGST
Import of services
- The recipient must register (no threshold) and pay tax in cash; ITC of RCM tax is available if used for business.
- Self-invoice must be issued for supplies from unregistered persons.
Example
A company in Ludhiana pays ₹1,00,000 to an advocate. The company (recipient) pays GST of ₹18,000 (CGST 9% + SGST 9%) under RCM and can claim it as ITC.
Key terms
- IGST
- Integrated GST on inter-state supplies and imports
- Supply
- Taxable event under GST — sale, transfer, barter, lease etc. for consideration in business
- Composite supply
- Naturally bundled supply taxed at the principal supply's rate
- Composition scheme
- Simplified scheme with a flat rate and no ITC
- Reverse charge
- Mechanism where the recipient pays tax
Quick revision
- Intra-state: CGST + SGST/UTGST; inter-state and imports: IGST.
- Taxable event = supply (Section 7); Schedules I, II, III.
- Composite → principal supply rate; mixed → highest rate.
- Composition: ₹1.5 crore; 1%/5%/6%; no ITC; bill of supply.
- RCM: GTA, advocate, director services, imports of services.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.What is UTGST?
- Q2.What is the taxable event under GST?
- Q3.Give two examples of supply without consideration.
- Q4.Distinguish composite and mixed supply.
- Q5.Who is not eligible for the composition scheme?
- Q6.What is reverse charge?
Long-answer questions
- Q1.Explain the GST model in India — CGST, SGST, UTGST and IGST.
- Q2.Explain the scope of supply under Section 7 with Schedules I, II and III.
- Q3.Explain the composition scheme with its conditions.
- Q4.Explain the reverse charge mechanism with examples.
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