Supply under GST: formula sheet

Key formulas

Core test of supply (Section 7(1)(a))

Supply = Goods or services + Form (sale, transfer, barter, exchange, licence, rental, lease, disposal) + Consideration + In course or furtherance of business

Add the condition that the supply is made in the taxable territory. All elements must be present for an ordinary supply.

Import of services (Section 7(1)(b))

Import of services for a consideration = Supply, whether or not in the course or furtherance of business

The business condition is not required here. Consideration is still required.

Schedule I (Section 7(1)(c))

Specified activities in Schedule I made without consideration = Supply

Applies even when no consideration is received. Business link is part of items such as supplies between related or distinct persons, and import of services from a related person or from the taxable person's establishment outside India, which must be in the course or furtherance of business.

Section 7(2) exclusions

Schedule III activities and notified Government or local authority activities = Not a supply

Check these before computing tax.

Role of Schedule II

Schedule II decides: supply of goods or supply of services

It classifies a transaction. It does not decide whether it is taxable.

Consideration (Section 2(31), in words)

Consideration = Payment in money or otherwise for the supply, by the recipient or any other person, plus any monetary value of an act or forbearance in response to or for inducement of the supply

Excludes subsidy given by the Central or State Government. Deposit is consideration only if the supplier applies it as consideration for the supply.

General rule of supply

Supply = activity + consideration + course or furtherance of business

Section 7(1)(a). Schedule I overrides the consideration condition for four listed activities.

Schedule I entry 1

Permanent transfer or disposal of business assets on which ITC has been availed = supply, even without consideration

If no ITC was availed on the asset, entry 1 does not apply. This entry is tested on business assets with ITC availed, not on the business-nexus wording used in entries 2 and 4. A disposal for consideration is dealt with under Section 7 and Schedule II.

Schedule I entry 2

Supply of goods or services or both between related persons or distinct persons, in the course or furtherance of business = supply, even without consideration

Covers goods, services or both. Distinct persons include a head office and its branch in different States, which are registered separately. The business-nexus condition is expressly stated in this entry.

Schedule I entry 3

Goods supplied by a principal to his agent, or by an agent to his principal = supply, even without consideration

Applies only where the agent undertakes to supply or receive the goods on behalf of the principal. The key condition is the agency. Treat the general business nexus under Section 7 separately.

Schedule I entry 4

Import of services from a related person or from own establishment outside India, in the course or furtherance of business = supply, even without consideration

Applies to services only, not goods. The business-nexus condition is expressly stated in this entry.

Gift to employee

Gifts not exceeding ₹50,000 in a financial year by an employer to an employee are not treated as supply (stated in the text of Schedule I entry 2); if the total exceeds ₹50,000, the whole value is treated as supply

The limit is part of the text of Schedule I entry 2, which deals with related persons. Employer and employee are related persons under the Explanation to Section 15. Apply the limit to total gifts to the employee in the year.

Valuation of free supply

Value is determined under Section 15 and the valuation rules, using the open market value or similar value

Where there is no price, use the rules for supplies between related persons.

Para 1(a): Transfer of title in goods

Transfer of title in goods = supply of goods

Outright sale or transfer of ownership.

Para 1(b): Right to use without title

Transfer of right in goods without transfer of title = supply of services

Example: renting a machine where ownership stays with the owner.

Para 1(c): Title under agreement

Transfer of title in goods under an agreement which stipulates that property will pass at a future date upon payment of full consideration = supply of goods

Covers hire purchase. Treated as supply of goods.

Para 2: Land and building

Para 2(a): lease, tenancy, easement, licence to occupy land = supply of services. Para 2(b): lease or letting out of a building, including a commercial, industrial or residential complex, for business or commerce, either wholly or partly = supply of services

The building limb needs the letting to be for business or commerce. Renting of immovable property is also listed in Para 5(a). Sale of land is not covered here; sale of land is in Schedule III (neither goods nor services).

Para 3: Treatment or process

Treatment or process applied to another person's goods = supply of services

Job work is the common example.

Para 4(a): Transfer or disposal of business assets

Goods forming part of business assets, transferred or disposed of by or under the directions of the person carrying on the business so that they no longer form part of those assets, whether or not for consideration = supply of goods

Applies even if no consideration is received.

Para 4(b): Private or non-business use of business goods

Goods held or used for the business, put to private or non-business use by the owner or permitted by him, whether or not for consideration = supply of services

Do not mix this with Para 4(a). Disposal is goods; private use is services.

Para 4(c): Cessation of taxable person's business

Where a person ceases to be a taxable person, goods forming part of the assets of his business are deemed to be supplied by him in the course or furtherance of business immediately before he ceases = supply of goods

Exceptions: the business is transferred as a going concern to another person, or the business is carried on by a personal representative who is deemed to be a taxable person.

Para 5(b): Construction of a building for sale

Construction of a complex, building, civil structure or part of it, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of the completion certificate, where required, by the competent authority, or after its first occupation, whichever is earlier = supply of services

Other limbs of Para 5 are also supply of services: renting of immovable property (Para 5(a)), temporary transfer or permitting use of IPR (Para 5(c)), development, design, programming, customisation, adaptation, upgradation, enhancement of IT software (Para 5(d)), and agreeing to refrain from an act or to tolerate an act (Para 5(e)).

Para 6(a): Works contract

Works contract (as defined in Section 2(119)) = supply of services

It is a contract for building, construction, fabrication, erection, installation, repair, etc. of immovable property, where goods are transferred in the execution of the contract.

Para 6(b): Supply of food or drink as part of a service

Supply (by way of or as part of any service) of goods, being food or any other article for human consumption or any drink, for cash, deferred payment or other consideration = supply of services

Applies to restaurant, outdoor catering and similar supplies.

Legal basis

Section 7(2)(a) read with Schedule III: activities in Schedule III = neither supply of goods nor supply of services

If the activity is in Schedule III, no GST arises on it. For land and building, remember the ITC link under Section 17(3).

Employee entry

Employee → employer service, in the course of or in relation to employment = not a supply

This entry covers only the employee's service to the employer under employment. It does not cover services under a separate contract. Gifts by an employer to an employee are not part of Schedule III. They are a Schedule I matter: para 2 of Schedule I covers supplies between related persons (employer and employee are related persons for this purpose), and the ₹50,000 gift exclusion is a proviso to that para 2. Keep it out of your Schedule III analysis. Supplies for consideration are dealt with under the general supply provisions.

Land and building entry

Sale of land = not a supply. Sale of building = not a supply only if entire consideration is received after completion certificate or first occupation, whichever is earlier

Sale before completion is construction service under Schedule II. Lease or rent of land or building is a service. Under Section 17(3), the value of sale of land and sale of building is included in exempt supply value for ITC reversal.

Actionable claims

Actionable claim = not a supply, except lottery, betting and gambling

Lottery, betting and gambling remain supplies and are taxable.

Court and Tribunal

Services by any court or Tribunal established under any law = not a supply

Court fees collected by the court are outside GST. Services supplied to a court, such as a lawyer's services, are separate and may be taxable.

Funeral services

Funeral, burial, crematorium, mortuary services, including transport of the deceased = not a supply

Applies to these services as listed, not to every related purchase.

Non-taxable territory entry

Supply of goods from one place in a non-taxable territory to another place in a non-taxable territory, without the goods entering India = not a supply

This is paragraph 7 of Schedule III, inserted by the Finance Act, 2023 with effect from 1 October 2023. The key condition is that the goods never enter India.

Imports-linked entries (paragraph 8)

Para 8 of Schedule III: (a) supply of warehoused goods before clearance for home consumption; (b) high seas sales; (c) supply by a consignee, by endorsement of documents of title, after dispatch from the foreign port but before clearance for home consumption = not a supply

All three sit in paragraph 8. The words 'before clearance for home consumption' are written into limbs (a) and (c). Limb (b), high seas sales, does not carry those words, but a high seas sale is also a sale made before clearance. Read the exact wording of each limb.

Composite supply (defined in Section 2(30); taxed under Section 8(a) CGST)

Tax on whole bundle = Rate applicable to the principal supply

Needs two or more taxable supplies that are naturally bundled and supplied together in the ordinary course of business, with one principal supply.

Mixed supply (defined in Section 2(74); taxed under Section 8(b) CGST)

Tax on whole bundle = Rate of the supply that attracts the highest rate of tax

Needs two or more individual supplies made in conjunction with each other for a single price, not forming a composite supply. By definition, a composite supply is not a mixed supply.

Principal supply (Section 2(90) CGST)

Principal supply = the supply of goods or services that constitutes the predominant element of a composite supply and to which other supplies are ancillary

This is the definition test in the Act. Identify it by the main purpose of the buyer.

Tax on the bundle

Tax = Total taxable value of the bundle × Rate of principal supply (composite) or highest rate (mixed)

The single rate is applied to the total taxable value of the bundle.

Basic test of supply

Supply = activity covered by section 7 + consideration + course or furtherance of business

Schedule I deems certain activities as supply even without consideration. Import of services for consideration is a supply even if not in business.

Meaning of business

Business (section 2(17)) = limb (a) trade, commerce, manufacture, profession, vocation, adventure, wager or similar activity, whether or not for a pecuniary benefit + limb (b) incidental or ancillary activity + the later limbs as listed in the definition

'Whether or not for a pecuniary benefit' belongs to limbs (a) and (b). The later limbs are business as deemed by the definition: (c) activity in the nature of (a) without volume, frequency, continuity or regularity, (d) commencement or closure of business, (e) club facilities to members, (f) admission to premises, and further limbs for office-holder services, race clubs, and Government and local authority activities as public authorities. Read each limb's own wording.

Club or association supply

Facilities or benefits given by a club, association or society to its members for a subscription or other consideration = business (section 2(17)(e)); the subscription = consideration for a supply

The mutuality argument does not apply under GST. Section 7(1)(aa) of the CGST Act has not been notified, so do not rely on it.

Import of services

Supplier located outside India + recipient located in India + place of supply in India (section 2(11), IGST Act)

All three conditions must hold. Under section 7(1)(b) of the CGST Act, import for consideration is a supply whether or not it is for business.

Schedule I import entry (para 4)

Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business, without consideration = supply

The conditions are: import of services, related person or own establishment outside India, and course or furtherance of business. The recipient need not be registered.

Quick revision

• Supply is the taxable event under GST, defined in section 7 of the CGST Act, 2017.
• The general rule needs a supply made for consideration, in the course or furtherance of business. Import of services for a consideration is a supply even if it is not in the course or furtherance of business (section 7(1)(b)).
• Activities specified in Schedule I, made or agreed to be made without consideration, are also treated as supply (section 7(1)(c)).
• Schedule I lists activities treated as supply even without consideration.
• Schedule I (para 2) covers supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business. Under section 25, establishments of the same person in different States or Union territories are distinct persons. So are a registered establishment in India and an establishment of that person outside India.
• Schedule I (para 4) also covers import of services by a taxable person from a related person, or from any of his other establishments outside India, without consideration, if made in the course or furtherance of business.
• Schedule II decides whether an activity is a supply of goods or a supply of services.
• Schedule III lists activities treated as neither supply of goods nor services, so no GST applies.
• A composite supply (section 2(30)) is a supply made by a taxable person to a recipient, made up of two or more taxable supplies of goods or services or both, naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is the principal supply. The principal supply is the supply that is the predominant element of the composite supply, and the other supplies are ancillary to it. That is why, under section 8, the whole composite supply is taxed as the principal supply.
• A mixed supply (section 2(74)) is two or more individual supplies of goods or services, or any combination, made by a taxable person in conjunction with each other for a single price, which is not a composite supply. Under section 8, it is taxed at the rate of the supply with the highest rate.
• Always decide first whether there is a supply, then classify it.
• In descriptive answers, state the provision, apply the facts, and end with a clear conclusion.
• Check the facts for words such as business, consideration, related person and import of services before you decide.

Common mistakes

• Treating supply as the same as sale. Fix: Remember that sale is just one form. Barter, exchange, licence, lease and disposal are also supply.
• Saying every free transaction is not a supply. Fix: Always test Schedule I. Supplies between related persons or distinct persons in the course or furtherance of business are supplies even without consideration.
• Saying a free transfer is never supply because there is no consideration. Fix: Whenever consideration is missing, run through the four Schedule I entries before concluding.
• Treating every disposal of a business asset as supply under Schedule I. Fix: Check for ITC on the asset. If none was availed, entry 1 does not apply. A disposal for a price is still tested under Section 7 and Schedule II.
• Calling a works contract a supply of goods because goods are used in it. Fix: Remember: a works contract under Section 2(119), which is a contract on immovable property, is a supply of services under Schedule II. Goods used in it do not change the label.
• Treating renting of machinery as a supply of goods. Fix: Ask if title passes. If only right to use passes, it is a supply of services.
• Treating lease or rent of land as covered by Schedule III. Fix: Remember: sale of land is outside GST, but renting, leasing or licensing land or a building is a supply of service unless separately exempted.
• Saying every sale of a building is outside GST. Fix: Check the completion certificate or first occupation date. A sale before that, or with consideration received partly before it, is a supply of construction service.
• Taxing each item in the bundle at its own rate. Fix: Once you classify the bundle as composite or mixed, apply a single rate to the whole value.
• Using the highest rate for a composite supply. Fix: Remember: composite means principal supply rate. Mixed means highest rate.

Exam tips

• Write the structure Provision, Facts, Conclusion in every case-based answer. Name Section 7(1) and the relevant schedule to earn step marks.
• In MCQs, look for words like 'without consideration', 'between related persons' and 'import of services'. These point to Schedule I or Section 7(1)(b).
• Always list the elements you checked: form, consideration, business, taxable territory. Even a partly right answer can earn marks.
• For comparison questions on supply versus sale, give three points: scope of forms, need for consideration (Schedule I exceptions), and treatment of free or related-party transfers.
• Do not quote item numbers of schedules unless you are certain. Naming the schedule and describing the item in plain words is safe.
• Write the entry number and name of Schedule I in your answer. Examiners look for the provision before the conclusion.
• In scenario questions, underline the words without consideration, related person, ITC availed and outside India. They point to the entry.
• For gifts to employees, always total all gifts in the financial year before comparing with ₹50,000.