New Presumptive Taxation Scheme – Concept and Applicability

The New Presumptive Tax Scheme introduced under Section 44BBD by the Finance Act, 2025, is a simplified taxation regime for non-resident assessees who are engaged in providing services or technology in connection with electronics manufacturing in India. In essence, this scheme offers certainty, simplicity, and ease of compliance to foreign service or technology providers supporting India’s electronics sector development.

Table of Contents

1. A New Scheme for Non-residents Engaged in the Business of Providing Services or Technology
2. Presumptive Taxation Regime
3. The Non Obstante Clause Overriding Sections 28 to 43A
4. Non-resident is Engaged in the Specified Business

Check out Taxmann's Master Guide to Income Tax Act which offers a comprehensive analysis of both fundamental and advanced provisions of the Indian Income-tax Act. It addresses new presumptive schemes for non-residents, expanded Virtual Digital Assets provisions, and revised TDS/TCS rules with practical illustrations. Integrating landmark rulings, notifications, and CBDT circulars (1922–February 2025) provides historical depth and authoritative clarity. The book's four-part structure—Commentary, TDS/TCS Tables, Circulars & Notifications, and Landmark Rulings—ensures intuitive cross-referencing and swift navigation. Backed by Taxmann's legacy of precise legal scholarship, this resource is helpful for tax professionals, lawyers, and corporate tax departments.

The Finance Act, 2025 introduces a presumptive tax for non-residents engaged in the business of providing services or technology for setting up electronics manufacturing facilities in India. This provision has been inserted with effect from 01-04-2026 and shall apply from the assessment year 2026-27.

The section inserted by the Finance Act, 2025 reads as follows –

“Special provision for computing profits and gains of non-residents engaged in business of providing services or technology for setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India.

44BBD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43A, where an assessee, being a non-resident, engaged in the business of providing services or technology in India, for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India––

(a) to a resident company which is establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India, under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology; and

(b) the resident company satisfies the conditions prescribed in this behalf,

a sum equal to twenty-five per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business of the non-resident assessee chargeable to tax under the head “Profits and gains of business or profession”.

(2) The amounts referred to in sub-section (1) shall be the following –

(a) the amount paid or payable to the non-resident assessee or to any person on his behalf on account of providing services or technology; and

(b) the amount received or deemed to be received by the non-resident assessee or on behalf of non-resident assessee on account of providing services or technology.

(3) Notwithstanding anything in sub-section (2) of section 32 and sub-section (1) of section 72, where a non-resident assessee declares profits and gains of business for any previous year under sub-section (1), no set off of unabsorbed depreciation and brought forward loss shall be allowed to the assessee for such previous year.”

On paraphrasing, the presumptive scheme under section 44BBD provides as follows –

(a) The provisions of section 44BBD shall apply with effect from the assessment year 2026-27;

(b) This provision is a presumptive tax regime;

(c) The provision starts with a non-obstante clause overriding sections 28 to 43A of the Act;

(d) The provision applies to a non-resident engaged in the business of providing specified services or technology;

(e) Such services or technology are provided to a resident company for the specified business;

(f) The presumptive business income of the non-resident assessee shall be 25% of the specified amounts;

(g) The specified amount shall be calculated as per the method provided in the provision;

(h) The provision overrides section 32(2) and section 72(1) to restrict the set off of unabsorbed depreciation and brought forward loss for such previous year.

1. A New Scheme for Non-residents Engaged in the Business of Providing Services or Technology

To position India as the global hub for electronics system design and manufacturing, a comprehensive program for developing the semiconductors and display manufacturing ecosystem in India was approved by the Government of India. The Ministry of Electronics and Information Technology has notified schemes to set up such facilities in India.

In this context, the non-residents will be providing support in setting up such electronics manufacturing facilities by deploying the technology and providing support services. Thus, to ensure certainty and promotion of this industry, a presumptive taxation regime for such non-residents has been introduced in Section 44BBD.

Accordingly, with effect from the assessment year 2026-27, the Finance Act, 2025, has inserted a new section 44BBD in the Income-tax Act, 1961, relating to a special provision for computing the profits and gains of non-residents engaged in the business of providing services or technology for setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, articles, or things in India.

2. Presumptive Taxation Regime

The words “presumptive basis” are used in the marginal notes of sections 44AD and 44ADA. Though the marginal note of section 44BBD does not use these words, the Explanatory Memorandum to the Finance Bill, 2025, describes section 44BBD as a

“Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility”.

There is no definition of “presumptive taxation” in any provision of the Act. It is a simplified taxation system that departs from the standard/regular system of starting with the net profit as per the books of account maintained by the assessee and making various allowances and disallowances under the regular provisions of Chapter IV-D of the Act.

Ehtisham Ahmad & Nicholas Stern, in “The Theory and Practice of Tax Reform in Developing Countries” define “Presumptive Taxation” as follows –

“The term presumptive taxation covers a number of procedures under which the ‘desired’ base for taxation (direct or indirect) is not itself measured but is inferred from some simple indicators which are more easily measured than the base itself.”

Victor Thuronyi, in “Presumptive Taxation of the Hard to Tax”, defines ‘Presumptive Taxation’ as under –

“Presumptive taxation involves the use of indirect means to ascertain tax liability, which differ from the usual rules based on the taxpayer’s accounts. The term ‘presumptive’ is used to indicate that there is a legal presumption that the taxpayer’s income is not less than the amount resulting from the application of the indirect method.”

Presumptive tax provisions are of two types –

(a) a presumptive tax based on a rebuttable presumption that income/profit from a business is not less than that presumed by the provision based on observable indicators like gross receipts/turnover/capacity. The assessee can rebut the presumption and claim that his profit is lower than the amount presumed under the Section by maintaining accounts and getting them audited under Section 44AB;

(b) a presumptive tax based on an irrebuttable presumption that income/profit from a business is what is presumed under the section based on observable indicators. Here, the assessee cannot claim or prove that his actual profit is less than the amount presumed under the section.

Examples of type (a) presumptive taxation schemes are sections 44AD, 44ADA, 44AE, 44BB and 44BBB. Sections 44B, 44BBA, 44BBC and 44BBD are examples of the type (b) presumptive taxation based on irrebuttable presumptions.

3. The Non Obstante Clause Overriding Sections 28 to 43A

Section 44BBD is expressed to operate notwithstanding anything to the contrary contained in sections 28 to 43A. Thus, it does not override sections other than those under sections 28 to 43A, including section 43CB/section 145(2) under which ICDSs are notified.

3.1 Applicability of ICDS

FAQ No. 3 of CBDT’s Circular No. 10/2017, dated 23-3-2017, clarifies as under –

Does ICDS apply to non-corporate taxpayers who are not required to maintain books of account and/or those who are covered by the presumptive scheme of taxation, like sections 44AD, 44AE, 44ADA, 44B, 44BB, 44BBA, etc. of the Act?

ICDS is applicable to specified persons having income chargeable under the head ‘Profits and gains of business or profession’ or ‘Income from other sources’. Therefore, the relevant provisions of ICDS shall also apply to the persons computing Income under the relevant presumptive taxation scheme. For example, for computing the presumptive income of a partnership firm under section 44AD of the Act, the provisions of ICDS on Construction Contract or Revenue recognition shall apply for determining the receipts or turnover, as the case may be.

FAQ No. 3, as above, clarifies that the provisions of ICDS-III/ICDS-IV shall apply to determine receipts or turnover for the purposes of provisions prescribing a presumptive scheme of taxation, such as sections 44AD, 44AE, 44ADA, 44B, 44BB, 44BBA, etc. of the Act.

3.2 Would Other Disallowance Provisions Apply?

Section 44BBD(1) begins with a non obstante clause that

“Notwithstanding anything to the contrary contained in sections 28 to 43A…”.

Section 44B(1) contains an identical non-obstante clause, which the CBDT has explained in its Circular No. 169, dated 23-6-1975, as follows –

38. It should be noted that the new section 44B overrides the provisions of sections 28 to 43A only and, accordingly, other provisions (including those relating to aggregation of income and set off or carry forward and set off of losses) will continue to apply in the case of non-residents deriving profits from shipping business. In this connection, it may be mentioned that unabsorbed depreciation allowance is carried forward under section 32(2) and the unabsorbed depreciation allowance of earlier years is treated as part of the depreciation allowance admissible in the relevant previous year. Since the provisions of section 32 are specifically overridden by the new section 44B, the unabsorbed depreciation for earlier years will not be allowed in determining the profits and gains for the assessment year 1976-77 and subsequent years. Losses incurred in earlier years, other than the losses due to depreciation will, however, be allowed to be set off against the profits for the assessment year 1976-77 and subsequent years subject to the fulfilment of the existing conditions in this behalf.

The non obstante clause overriding sections 28 to 43A will mean that 25% presumptive profit under section 44BBD will be treated as having been arrived at after making disallowances referred to in section 40, section 40A and the Explanations below section 37(1). Section 44BBD is not expressed to override section 43B. Therefore, disallowances under section 43B, including Clause (h) of section 43B (disallowance for outstandings to Micro and Small Enterprises as at balance sheet date not paid within due date under MSMED ACT), shall apply to assessees covered under the presumptive tax scheme under section 44BBD.

3.3 Would the Provisions of Tax Audit Under Section 44AB Apply?

Tax audits under section 44AB serve no useful purpose when the assessment is made on a presumptive basis. They serve a useful purpose for the Income Tax Department only when the assessee’s income is computed under the regular provisions based on the books of account maintained by the assessee, and allowances and disallowances are to be made according to the requirements of sections 28 to 43A. This is clear from CBDT’s Circular No. 387, dated 6-7-1984, which explains the rationale for the introduction of section 44AB as follows –

“17.1 Compulsory audit of accounts of certain persons carrying on business or profession – Accounts maintained by companies are required to be audited under the Companies Act, 1956. Accounts maintained by co-operative societies are also required to be audited under the Co-operative Societies Act, 1912. There is, however, no obligation on other categories of taxpayers to get their accounts audited.

17.2 A proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably saving the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the Assessing Officers thus saved could be utilised for attending to more important investigational aspects of a case.”

That is the reason why provisions like sections 44ADA, 44AE and 44BBB exempt the assessee from tax audit under section 44AB when his income is liable to be computed on a presumptive basis under those sections and require tax audit only when the assessee opts out of those presumptive tax provisions. Regarding section 44BBD, there is no a specific exemption for tax audit under section 44AB as no consequential amendment has been made to the second proviso to exempt assessees covered by section 44BBD.

Section 44AC (as existed prior to the assessment year 1993-94), which deemed a certain amount of profits related to the purchase price as assessable profits from the business of trading in certain goods, was challenged, inter alia, on a ground that the provisions raised a conclusive presumption of law that the assessee will make a net taxable income of the specified amount and this presumption was not allowed to be rebutted. Kerala High Court upheld the vires of the provisions in T.K. Aboobacker v. Union of India [1989] 145 Taxman 420 (Ker.). A. Sanyasi Rao v. Government of Andhra Pradesh [1989] 43 Taxman 271 (AP) (affirmed by Supreme Court in [1996] 219 ITR 330) and in K.M. Joseph Binoy (No. 1) v. Union of India [1992] 194 ITR 449 (Ker.)/P. Kunhammed Kutty Haji v. Union of India [1990] 48 Taxman 386 (Ker.) held the provisions to be constitutional by reading it down and observing that it would be upon the assessee to prove in the assessment proceedings his real assessable income.

However, section 44BBD does not incorporate a provision permitting a rebuttal of presumption by undergoing an audit under section 44AB. Thus, it is felt that the new provision may not stand the test in case of a challenge to its vires.

3.4 Will Section 44BBD Override DTAA?

In view of Section 90(2), where the central government has entered into a DTAA with the government of any foreign country, then in relation to the assessee to whom such agreement applies, the provisions of the Income-tax Act shall apply only to the extent they are more beneficial to that assessee. In other words, if the provisions of the DTAAs are more beneficial to such assessee, such beneficial provisions supersede the provisions of the Income-tax Act and vice versa.

The CBDT¹ has clarified that the correct legal position is that where a specific provision is made in the DTAA, that provision will prevail over the general provisions contained in the ITA, except where ITA provisions are more beneficial. Further, the circular specifically pointed out the provisions of the DTAA, which states that the laws in force in either of the countries shall continue to govern the taxation of income in the respective countries except where express provision to the contrary is made in the DTAA. Accordingly, where the DTAA provisions are more beneficial, the income and tax shall be computed by following the provisions of the DTAA, irrespective of the provision of the ITA.

Thus, in view of Section 90(2), the DTAA will override Section 44BBD, except where Section 44BBD is more beneficial. However, Section 90(2A) overrides this provision by providing that the provisions of the General Anti-Avoidance Rule (GAAR) would apply to the assessee covered by the provisions of DTAA, even if such provisions are not beneficial.

3.5 No Exemption From Payment of Advance Tax and Return Filing

Section 44BBD does not confer exemption from other provisions of the Act, i.e., obligation to pay advance tax, file the return of income, etc.

4. Non-resident is Engaged in the Specified Business

The provision applies to a non-resident engaged in the business of providing services or technology in India for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, articles or things in India. The provision requires the fulfilment of the following conditions to become eligible for the presumptive tax regime of section 44BBD –

(a) The assessee should be a non-resident;

(b) It is engaged in the business of providing services or technology in India.

(c) Such services or technology are provided for the purposes of setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, articles or things in India.

4.1 Non-resident

The presumptive tax scheme applies to a non-resident assessee. In view of section 6, the following assessees can claim this scheme –

(a) An individual not being a resident or not ordinarily resident.

(b) A HUF if the control and management of its affairs is situated wholly outside India during the year.

(c) A foreign company whose place of effective management is outside India during the year.

(d) Every other person (i.e., firm, AOP, etc.) if the control and management of its affairs are situated wholly outside India during the year.

4.2 Engaged in the Business of Providing Services or Technology

Section 44BBD requires that the non-resident is “engaged in the business of providing services or technology in India”. The pre-requisites of this expression are –

(a) Engaged in the business;

(b) Providing;

(c) Services or technology;

(d) In India.

4.2a Engaged in the business – The phrase ‘engaged in the business’ implies that it does not contemplate an isolated act or transaction. It contemplates that the person carries on the business as a continuous process. A single act of sale cannot be said to establish that a person is engaged in a particular business. It means a continuity of transactions and not a single casual or solitary transaction². A person can be said to be engaged in any business when he is engaged mainly or principally in that business³. ‘Commencement of business’ is different from ‘engaged in business’. Commencement of business can be said to be from the date when production starts but a party is ‘engaged in business’ from the day it gets involved in the setting up of the business⁴. The extent of activity would also be a relevant factor, and if such activity is at an extended scale, it may be suggestive of being ‘engaged in business’⁵.

The definition of “engaged in business” requires a continuity and regular exercise of activity. However, it does not consider the duration for which such activities have been carried out. Where an entity is in the process of commencing a business of providing services or technology, it can be said to be engaged in the said business as long as it intends to carry it for a continuous period. Any single act of providing services or technology not connected to the business of the non-resident may not be eligible for the presumptive scheme of section 44BBD.

4.2b Business – Section 2(13) defines the term “business” as including any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture.

The word ‘business’ has a very broad meaning and may be used in many different connotations. Following are the key features of any business –

(a) Systematic and Organized activity – The word ‘business’ is one of wide import and it means an activity carried on continuously and systematically by a person by the application of his labour and skill with a view to earning an income⁶. In taxing statues it is used in the sense of an occupation or profession, which occupies time, attention and labour of a person, normally with the object of making a profit⁷.

(b) Profit motive not essential – Though the element of profit is generally present in ‘business’ but the motive of making profit or actual earning of profit is not an essential ingredient of business.

(c) Business includes trade, commerce and manufacture – Trade implies buying goods and selling them to make profit. If such transactions are done on a large scale, it is called commerce. Manufacture involves the bringing into existence of a new product, which may have a different physical or chemical composition and is understood differently in common and commercial parlance⁸.

(d) Business includes Adventure in Nature of Trade – Even a single and isolated transaction may fall within the definition of business as being an adventure in the nature of trade, provided the transaction bears clear indication of trade.

4.2c Business v. Profession – The expression ‘business’ though extensively used in taxing statutes is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit⁹. The expression ‘business’ does not necessarily mean trade or manufacture only; it is being used as including within its scope professions, vocations and calling for a fairly long time¹⁰.

A profession is an occupation requiring either purely an intellectual skill or manual skill, controlled by the intellectual skill of the operator. The term ‘profession’ has been explained by various Courts. Following are the key features of any profession –

(a) Personal Qualification – All professions are businesses, but all businesses are not professions. Only those businesses are professions the profits of which are dependent mainly upon the personal qualifications and in which no capital expenditure is required or only capital expenditure of a comparatively small amount is required¹¹.

(b) Profession includes Vocation – A vocation, as normally understood, is a calling in which a person passes his life. It may even be stated to a way of living or a sphere of activity for which one has a special fitness, though it is not necessary that the activity should be indulged in for the purposes of livelihood¹². Social work and preaching religion may amount to a vocation.

(c) Distinction between business and profession is of no importance – Distinction between business, profession and vocation is of no importance in the computation of taxable income. What does not amount to ‘profession’ may amount to ‘business’, and what does not amount to ‘business’ may amount to vocation. The Act treats them on an equal footing and the charging provisions for computing taxable income are the same for all of them.

For the purpose of section 44BBD, the business should include a profession provided all other conditions are satisfied. The presumptive scheme should be available to all professions and may not be limited to the professions as specified in section 44AA because where the legislature intended to limit the benefit to the specified professions it would have mentioned the same as it did in section 44ADA. Section 44ADA scheme is available to the professions specified in section 44AA and not for all professions.

4.2d Providing – “Provide” is defined in Century Dictionary and Encyclopedia, Volume 6, pages 4804 and 5051 as under –

1. To make, procure or furnish for future use; obtain so as to have ready on hand when needed;
2. To furnish supplies or prerequisites; put into a state of preparation.

In Webster’s Dictionary, to provide is defined as “to make ready for future use,” “to furnish,” “to supply,” “to make suitable,” “furnishing a thing suitable for the use of another,” “to prepare,” “to furnish with things proper or necessary.”

To “provide” is not the same as “make available”, a litmus test that is used for the taxability of the fees for technical services (‘FTS’) under the DTAA.

Some DTAAs (viz. Canada, Netherlands, Portugal, Singapore, UK, USA, etc.) provide that services qualify as FTS only if they “make available” technical knowledge, experience, skill, know-how, processes or consist of developing and transferring a technical plan or technical design. The term “make available” is nowhere defined under the tax treaties. The most important guidance concerning the meaning of the term “Make Available” comes from the protocol attached to the India-USA DTAA, which states that –

“Generally speaking, technology will be considered “made available” when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available.”

While specific facts in each case could lead to a different conclusion, the common understanding from various High Courts¹³ and Tribunal decisions is that the service recipient must be able to apply the technical knowledge or skill without recourse to the service provider (foreign entity) to satisfy the make available test. Some decisions¹⁴ emphasise the transfer of technology or know-how being a necessary ingredient of the “make available” condition.

The Delhi High Court, in the case of International Management Group (UK) Ltd. v. CIT [2024] 164 taxmann.com 225 (Delhi), provided the distinction between the two phrases of ‘providing a service’ and ‘make available’. The High Court held that

“The make available prescription bids us to make a conscious distinction between a mere service provision and the impartation of lasting expertise. The offer of service or advise does not fundamentally alter the recipient’s capabilities. These services, while potentially valuable, do not endow the recipient with new skills or knowledge which could be independently deployed in the future. The kernel of “make available” must therefore be recognised to be a transfer of technology or skills rather than a temporary reliance on external support.”

The term ‘provide’ is wider in scope than ‘make available’. “Provide” generally
implies the act of supplying or furnishing something. “Make available” carries a more specific meaning. It suggests providing a service and equipping the recipient with the ability to independently use the knowledge, technology, or skill in the future. Every service provided to the recipient may not alter the recipient’s capabilities to apply the same independently unless the know-how behind it is made available. In the context of the objective behind introducing this new provision to position India as the global hub for electronics system design and manufacturing, a comprehensive program for developing the semiconductors and display manufacturing ecosystem in India, the construction, managerial, talent hunting, SaaS, legal services, etc. do not make available something which can be applied independently. However, providing the designs, drawings, SOPs, structure, etc., of a manufacturing process, say, a semiconductor chip, could be said to make available the knowledge that can be applied in future. For the presumptive tax scheme under section 44BBD, both the services, whether they make available the knowledge to the recipient or not, should be eligible.

4.2e Services – The word ‘services’ has not been defined in the Income Tax Act. This term has been defined in Article 366(26A) of the Constitution of India as “Services” means anything other than goods. As per Article 366(12), “goods” includes all materials, commodities and articles.

As per Concise Oxford English Dictionary, it means –

(i) perform routine maintenance or repair work on (a vehicle or machine);

(ii) provide a service or services for.

It is an act of helpful activity help, aid or to do something. It also includes supplying utilities or commodities. According to New Webster’s Dictionary, Delux Encyclopaedia Edition, inter alia, ‘services’ mean – “an act of helpful activity”.

The word ‘service’ has a multiplicity and a variety of meanings and different significations. It is not a simple word with a simple meaning, but rather, it is a broad term of description, which varies in meaning according to the sense in which it is used, the context in which it is found, and the sense in which it is used must be determined from the context. Thus, the courts have found it impracticable to attempt a definition by which to test every case that may arise.

The Courts have attempted to define the word ‘services’ as follows –

(a) The term has a variety of meanings. It may mean any benefit or any act resulting in promoting interest or happiness. It may be contractual, professional, public, domestic, legal, statutory, etc. The concept of service is very wide [Lucknow Development Authority v. M.K. Gupta, 1994 AIR 787, 1994 SCC (1) 243].

(b) In the case of rendering any kind of service, the intellectual aspect plays the dominant role. The vocation of a lawyer, doctor, architect or Chartered Accountant (there are other similar vocations also) involves deep intellectual exercise; any physical skill involved in their vocational activities is minimal. A dancer’s performance no doubt involves physical movement, but all the movements are projections of the talent, which is natural or acquired by training. A surgery certainly involves physically visible and tangible work, but, inherently, it is the mental skill developed by the intellectual exercise that permits the operation [S.R.F. Finance Ltd. v. CBDT, (1994) 76 Taxman 432 (Del)].

(c) Providing a service is generally in connection with intellectual rather than physical aspects [Gitanjali Exports Corporation Ltd. v. ADCIT¹⁵].

(d) The word “services” denotes that it is an activity to help achieve something or result in something useful or purposeful [Bosch Ltd v. ITO, (2012) 28 taxmann.com 228 (Bang Trib)].

(e) The term ‘service’ generally means service of any description which is made available to potential users and includes the provision of facilities. Such a term has a variety of meanings. It may mean any benefit or any act resulting in promoting or serving interest of the recipient. It may be contractual, professional, public, domestic, legal, and statutory etc. [CCE v. BSBK Pvt. Ltd. 2010 (253) ELT 522 (Tri-LB)]

An intriguing situation may arise in the case of a “composite” or “mixed” supply, wherein services are supplied along with the goods. The Income-tax Act does not provide guidance on classifying the bundled supply as a supply of goods or services. However, the Goods and Services Tax Act of 2017 provides guidance on this matter.

Please note that it is not a sound principle of construction to interpret expressions used in one Act with reference to their use in another Act. Another Act can be used to interpret a statute only when it is shown that the two situations are similar¹⁶. For academic discussions, the relevant provisions of the GST Act have been considered to understand the principles laid down for classifying.

To classify a supply as either composite or mixed under GST, it is important to understand their definitions and essential ingredients.

(a) A ‘composite supply’ involves two or more taxable supplies of goods or services or both, made by a taxable person to a recipient. These supplies are naturally bundled. Factors indicating natural bundling include the customer’s expectation of receiving a package, the majority of suppliers offering similar bundles, and elements not being available separately. They are supplied in conjunction with each other in the ordinary course of business. One of the supplies must be a principal supply, which is the predominant element to which other supplies are ancillary. There cannot be more than one principal supply. Determining the principal supply involves identifying the essential nature of the composite supply. The principal supply determines the tax rate.

(b) A ‘mixed supply’ consists of two or more individual supplies of goods or services. These supplies are made in conjunction with each other by a taxable person for a single price. It does not constitute a composite supply, which means none of the supplies is predominant and is not naturally bundled. A single price is charged for the bundle. The tax rate is determined by the supply with the highest GST rate.

In explaining the scope of the concept of naturally bundled, the CBEC in its education guide has provided the following indicators that can be used to determine whether two or more services are naturally bundled or not –

(a) Perception of the recipient of supplies needs to be considered i.e., the recipient expects to receive services as a package;

(b) Majority of the suppliers in that area of business are providing such similar supplies as a bundle;

(c) If the nature of supplies is such, that one of the supplies is predominant and other supplies are ancillary to it and provided in order to ensure a better supply of goods/services;

---

* Section 44BBD. 

1. Circular No. 333, dated 02-04-1982.
2. Remington Rand of India Ltd v. Tahil Ali [1976] 27 Jab. LJ (SC) 127.
3. Regional Provident Fund Commissioner, Bombay v. Shri Krishna Metal Manufacturing Co. AIR 1962 SC 1536 cited in National Projects Construction Corporation Ltd. v. CWT, (1969) 74 ITR 465 (Del).
4. CIT v. KBD Sugars & Distillers Ltd (Formerly Karnataka Breweries & Distilleries Pvt. Ltd.) [2016] 66 taxmann.com 84 (Karnataka)
5. National Projects Construction Corporation Ltd. v. CWT [1969] 74 ITR 465.
6. Barandra Prashad Ray v. ITD (1981) 129 ITR 295 (SC).
7. State of Andhra Pradesh v. H. Abdul Bakshi and Bros. (1964) 15 STC 644 (SC).
8. CIT v. Best Chem and Limestone Industries Pvt. Ltd. (1994) 210 ITR 883 (Raj.).
9. Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC).
10. Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC).
11. CIT v. PVG Raju (1975) 101 ITR 465 (SC).
12. K. Ramaswami Gounder v. CIT (1987) 163 ITR 94 (Mad.).
13. International Management Group (UK) Ltd. v. CIT [2024] 164 taxmann.com 225 (Delhi).
14. US Technology Resources (P.) Ltd. v. CIT [2018] 97 taxmann.com 642 (Kerala).
15. ITA Nos. 6947 & 6948/Mum/2011, ITA Nos. 6781 & 6783/Mum/2011, ITA Nos. 6949 & 6950/ Mum/2011, ITA Nos. 6785 & 6787 /Mum/2011.
16. Harshad S. Mehta v. State of Maharashtra [2001] 8 SCC 257.