Composite Supply

Composite Supply is a GST term that describes a bundle of two or more supplies (goods or services) that are naturally bundled and supplied together in the normal course of business, where one is the principal supply.

The GST rate of the principal supply applies to the entire composite supply. Understanding composite supply is important because it determines the applicable GST rate and whether Input Tax Credit can be claimed correctly. What is a Composite Supply? A typical example is a hotel stay package: the hotel provides a room (principal supply of accommodation service) along with breakfast, Wi-Fi, and parking — these are all naturally bundled with accommodation and cannot be sold separately in the normal course of business. The entire bundle is taxed at the rate applicable to accommodation services (typically 18% for luxury hotels, 12% for standard hotels). The key test for a composite supply is: the supplies are bundled in the normal course of business, they cannot be split, and one supply is the principal supply. The principal supply is the one that provides the essential character of the bundle. For example, a fast-food combo meal (burger + fries + drink) — the burger is the principal supply and the entire combo is taxed at the rate applicable to the burger (food products at 5% or 12% GST). If supplies are not naturally bundled and are merely invoiced together, they are not a composite supply — they are separate supplies taxed at their individual rates. For instance, if a mobile phone dealer sells a phone along with a screen protector and a cover in a single invoice, but these are not naturally bundled (the cover and protector are optional add-ons), each item is taxed at its own GST rate — the phone at 18%, the cover and protector at 18% as general goods (since they are not food items). For Input Tax Credit purposes, in a composite supply, the ITC is attributed to the principal supply. If a hotel is charged GST on its purchase of breakfast ingredients (5% rate), it can claim ITC at 5% and the output GST on the hotel room (18%) can be charged to the guest, as the principal supply is accommodation service. The matching of ITC rates with output tax rates is an important compliance consideration. The Composite Supply provision benefits businesses by simplifying tax rates on bundles. Without this provision, a hotel would have to charge different GST rates on each component of the room package — creating complex invoices and accounting. By treating the bundle as the accommodation service at its rate, GST compliance is simplified. The Composite Supply rules were designed to ensure that GST on bundled products is calculated fairly and practically, without loopholes that allow lower-rated items to be bundled with higher-rated ones to reduce the overall tax burden.