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Prior to 2017 there was a complicated web of various taxes applicable to all goods and service providers across India. With an aim to make things less complicated for India taxpayers, and to prevent tax evasion, the government implemented the concept of Goods and Services Tax (GST) in the month of July, 2017. Place of supply is a concept stemming from these newly implemented GST laws of our nation. What is the place of supply? You ask, we answer. In simple terms, it is the place where a product or a service is supplied after purchase. In this blog we elucidate the meaning and definition of place of supply along with the role it plays in making tax laws more suitable for our country.

What is the definition of the place of supply?

Living up to its name, the definition of the place of supply is that it is a geographical location where goods or services are delivered after a sale. At a glance, it looks easy to determine the place of supply. Usually, the place of supply is the official address of a buyer. However, the location of the place of supply keeps on changing with varying circumstances. This is important because it determines the accurate tax rates applicable to buyers and sellers under the different types of GST. Moreover, knowing the final place of supply also makes it easy for the governmental authorities to keep a check on the compliance of GST laws by Indian entrepreneurs. 

Understanding the meaning of Place of Supply Concept in Business Transactions

Simply put, it refers to a place where a particular set of goods or services are delivered finally. Hence, it shows that whether you’re dealing with goods or services of any kind, place of supply will be an important concept in your business transactions. However, in business transactions, the place of supply plays an important role in deciding which type of taxation under GST will apply to the parties. These can include:

Intra State Transaction

This refers to the purchase or sale of goods and services within the territorial jurisdiction of a single state. For example, you are buying raw materials for your textile manufacturing company from a vendor in Surat, while you are based out of Ahmedabad. Since both cities fall in the same territorial jurisdiction of a single state, it is an intrastate transaction. In such matters, the CGST is applied. Its full form is Central Goods and Services Tax and hence, it is determined, deducted and governed by the central government.

Inter-State Transaction

When the sale of goods or services happens between two states, then it is an interstate transaction. For example, a person from Mumbai buying their raw materials from Rajasthan is an interstate transaction. Here, the Integrated Goods and Services Tax (IGST) is applicable. The central government is the authority responsible for levying the IGST. However, after collecting this tax the Central government distributes the appropriate taxes to the respective state governments. 

Hence, for the concept of determining the accurate type of GST applicable, understanding the place of supply is important, especially in business transactions.

Also Read: Place of Supply for Goods in Domestic Transactions: Inter-State and Intra-State Sales

Role of the Place of Supply in Taxation

As seen above, there are many components in the seamlessly introduced GST in India. The following are the major components and their applicability conditions to get a better understanding: 

Type of GSTApplicability
CGSTOn intrastate sale of goods or services in India.
SGSTPlace where the product sold is consumed
UTGSTGoverns the sale of services and goods in certain Union Territories.
IGSTOn interstate sale of goods or services in India

These various components of GST determine the tax applicable to the vendor and supplier. Also, as you can see, the applicability of these depends on two things:

  • Location of the supplier; and 
  • The final place of supply.

Once you know both , you can determine which type of GST is applicable. Boom! now, easily calculate your exact applicable taxation on the sale or purchase of goods or services. Apart from determining the tax liability, the role of place of supply in taxation extends to : 

Prevention of double taxation on a single sale or purchase; and

Equal and systematic distribution of revenue generated from tax to different states across the country.

Also Read: Place of Supply and Taxation in Goods Transactions: GST Rates and Compliance Obligations

Determination of Place of Supply and why is it important?

By now it is evident that there is a lot of significance attached to the accurate determination of place of supply to ensure the proper implementation of the GST laws in India. The table below helps in understanding the significance of the determination of accurate place of supply. 

FactorBenefit of Accurate Determination
Accuracy in TaxationAllows the application of the correct type of GST from IGST, CGST, UTGST, and SGST
Compliance with the LawsEnsures that all businesses are compliant with the GST Laws. This also helps in reducing the tax evasion by various companies. 
Avoid Legal ComplicationsInaccurate determination of the place of supply can lead to errors in determining the taxable amount. This leads to legal penalties. So, accurate determination will help in avoiding the monetary and reputational damages. 
Clarity in Import or ExportKnowing the Place of Supply can verify if the business transaction is international or not. This will make determination of tax liability easy. 
Consistency Accurate determination of place of supply makes it easy to keep the applicability of taxation online consistent across the boundaries of the nation. 
Avoid Tax DisputesIf there is no consistency in the place of supply, it may lead to disputes amongst the vendors and suppliers regarding the Input Tax Credit (ITC) and GST matters. So, accuracy in place of supply helps in avoiding tax disputes. 

Also Read: How Is The Place Of Supply Determined For Services?

Consideration of Place of Supply per GST Regulations

By now, it is evident that the primary purpose of place of supply is seamless adherence to the GST regulations in the country. So, the GST laws in India also pans out different rules to facilitate accurate determination of the place of supply. Keep the following points in mind while determining the place of supply as a regulatory consideration:

For Goods

The final location of delivery is important to know the place of supply of goods. When a seller is selling goods within the boundaries of India, the place of supply is normally always the registered office address of the buyer.. However, if  the seller decides to export their goods from India to any other country or territory, the place of supply shall be the location of goods before or at the time of delivery. 

For Services

The regulatory considerations for determining the place of supply in the service sector depend on the type of services availed. So, the place of supply regulatory considerations here are a bit more complex than for the goods sector. If the person availing the services has also obtained GST Registration, the place of supply will be their address. However, if the person is not GST registered, and there is no fixed location, the place of supply will be determined after considering the differing laws for various types of service. For example, a tour and travel agency shall adhere to the norms of transportation in India. Whereas, an advertising agency will have to adhere to the advertising laws. 

Special Considerations

Certain territories in India are special zones. Hence, there are also certain specific considerations to understand and determine the meaning of place of supply in such jurisdictions. Besides, there are also certain services like providing education etc where the GST laws give beneficial exceptions. 

What is the impact of the Place of Supply on Cross Border Transactions? 

A cross-border transaction happens when the supplier and client are located in different countries. A supply from India to any other country is usually taxed at 0% GST when an importer and exporter code is furnished by the exporter. However, it is not applicable for certain excluded business transactions. 

A major concern here is the determination of the place of supply to avail benefits of the IEC registration for the exporters of India. Still, in international business transactions determining the final place of supply is a bit more complex because it also includes different territories and multiple jurisdictions. Hence, making it mandatory for all budding and established entrepreneurs to be aware of what is the place of supply and its role. The following three factors play a vital role in the determination of the final place of supply in international transactions:

  • Location of the supplier;
  • Nature of transaction; and
  • Location of the recipient. 

What is the need for a Place of Supply under GST?

In a rapidly developing country like India, even entrepreneurs must take up their responsibilities of maintaining legal and regulatory compliance as a primary duty. The following are some of the reasons that make it important for business owners to understand what is a place of supply: 

  • Determines the jurisdiction for GST liability;
  • Facilitates calculation of the payable GST component;
  • Avoids Tax and Legal Disputes among the buyers and sellers; 
  • Prevents Tax Evasion;
  • Determines the international nature of a business transaction; and 
  • Lastly, it creates a sense of uniformity in the application of taxes across India. 

Conclusion

To conclude, understanding the meaning and definition of place of supply is a necessity for all business owners, self-employed consultants and more. The reason being, the fact that it will reduce a lot of effort from your end in determining your final tax liabilities. You can easily understand the definition of place of supply and the role it plays in this article. However, the actual determination may still seem confusing. So, you can always rely on software tools like CaptainBiz that will give you accurate determination of the place of supply along with managing your GST compliance. Contact us today. 

FAQs

  1. What is the place of supply in GST?

In GST, the place of supply is the final place of delivery of particular goods or services. The place of supply helps in determining which type of GST is applicable. 

  1. What is an example of a place of supply?

Place of supply in layman terms is usually the place where goods are received after a purchase. Still, the IGST Act provides many rules for determining this. For example, if person A residing in Ludhiana, Punjab buys a car from B who is situated in Maharashtra, the place of supply will be Ludhiana. 

  1. What role does the place of supply play in GST?

Place of supply decides the GST component from IGST, CGST, UTGST, and SGST. Moreover, it also eases the calculation of the tax payable and helps in the input tax credit, if applicable. 

  1. What is the place of supply for sale or purchase of  immovable property?

As far as property matters are concerned, the location of property in question is the final place of supply.  

  1. What is a place of supply for providing educational services?

In such a case, the place of supply is the location where the education is provided, ie., the registered address of a school, institution, etc. 

  1. What is the place of supply if I am not GST registered?

If you are an unregistered goods or service provider, you will not have to worry about the place of supply. In this matter, the party with active GST registration may determine their registered address as the final place of supply for GST calculation.

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Diksha Shastri Legal Executive
Diksha is a seasoned writer of all things Law, Finance and Business. She aims to make things easy for the readers.

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