Indirect Tax Laws · Supply under GST

Schedule I of CGST Act: Supply Without Consideration

Updated 5 October 2026 · Fact-checked

Schedule I lists four activities that count as supply under GST even when no consideration is paid: permanent transfer of business assets on which ITC was availed, supplies between related or distinct persons, supplies between principal and agent, and import of services from related persons. Test each fact against these four heads, then check the conditions.

Understand Schedule I: Supplies Without Consideration

Normally, GST applies to a supply made for consideration. Section 7 of the CGST Act widens this. It also covers activities specified in Schedule I, made or agreed to be made without consideration. Schedule I is a list of such deemed supplies.

Think of why it exists. Without it, a business could move goods to a related company for free, or give away assets on which it took credit, and escape tax. Schedule I closes these gaps.

The four heads are:

Permanent transfer or disposal of business assets where ITC has been availed on those assets.
Supply between related persons or distinct persons (as per section 25), made in the course or furtherance of business.
Supply of goods between principal and agent, where the agent undertakes to supply the goods on behalf of the principal, or to receive the goods on behalf of the principal.
Import of services by a taxable person from a related person or from his other establishment outside India, in the course or furtherance of business.

The key point is that every head has a condition. For assets, ITC must have been availed. For related and distinct persons, the supply must be in the course or furtherance of business. For principal-agent, it covers goods only. For imports, the supplier must be a related person or the taxpayer's own establishment outside India. If the condition fails, Schedule I does not apply, though the transaction may still be a supply on other grounds.

There is one important relief. Para 2 of Schedule I covers supplies between related persons, and employer and employee are related persons. The same para carves out gifts by an employer to an employee not exceeding ₹50,000 in value in a financial year. Such gifts are not treated as a supply. The test is on the total value of gifts to that employee in the year. Where the total exceeds ₹50,000, the exclusion does not apply and the gifts are a supply under Schedule I. Show the yearly total in your answer.

Related persons are those described in the Explanation to section 15. They include officers or directors of one another's businesses, legally recognised partners, employer and employee, any person who directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them, one who controls the other, two persons who are both controlled by a third person, two persons who together control a third person, and members of the same family.

Key rules to remember

Head 1: Business assets: Permanent transfer or disposal of business assets + ITC availed on them = supply without consideration; If no ITC was availed on the asset, this head does not apply.
Head 2: Related or distinct persons: Supply between related persons or distinct persons (section 25) + in course or furtherance of business = supply; Applies to goods and services. Related persons are as per the Explanation to section 15. Distinct persons include establishments of the same entity registered in different States.
Employee gift relief: Gifts from employer to employee: total ≤ ₹50,000 in a financial year = not treated as supply; total > ₹50,000 = exclusion not available, gifts are a supply; The carve-out is in para 2 of Schedule I itself. Employer and employee are related persons, so gifts are tested under Schedule I, head 2. Track the total per employee per financial year.
Head 3: Principal and agent: Goods supplied by principal to agent (agent to supply on principal's behalf) or by agent to principal (agent to receive on principal's behalf) = supply; Applies to goods only, not services.
Head 4: Import of services: Import of services from related person or from own establishment outside India + by a taxable person + in course or furtherance of business = supply; The recipient must be a taxable person. Tax on the import of services is payable by the recipient on reverse charge under section 5(3) of the IGST Act.

How to solve Schedule I: Supplies Without Consideration questions

Use this method for any question that asks whether a free or low-value transaction is a supply under Schedule I.

1Identify what moved: goods, services, or business assets. Note who gave and who received.
2Check if there is consideration. If there is none, look to Schedule I. If consideration exists, section 7 may already apply and Schedule I is not needed.
3Match the facts to one of the four heads: asset disposal, related or distinct persons, principal-agent, or import from related person.
4Test the condition of that head: ITC availed for assets, course or furtherance of business for heads 2 and 4, goods only for head 3.
5For gifts to employees, add all gifts given to that employee in the financial year and compare the total with ₹50,000. If the total does not exceed ₹50,000, it is not a supply. If it exceeds ₹50,000, the exclusion in para 2 of Schedule I does not apply and the gifts are a supply.
6Conclude clearly whether it is a supply. Then say if it is goods or services, and whether tax is paid by the supplier or, in case of import of services, by the recipient on reverse charge under section 5(3) of the IGST Act.
7Mention the value to be taken as per the valuation provisions, and note any ITC restriction, such as on goods given away as gifts.

Quickest way: Four-head scan

When to use it: Use in MCQs and short case scenarios where you have about two minutes.

Ask: is there any consideration? If not, go on.
Ask: asset, related or distinct person, agent, or import? That gives the head.
Ask the one condition for that head: ITC on asset, business course, goods only, or related overseas supplier.
For gifts, compare the yearly total per employee with ₹50,000. Up to it, not a supply. Above it, the exclusion does not apply and the gifts are a supply under Schedule I.
Write a one-line conclusion: supply or not a supply, with the head name.

Common mistakes in Schedule I: Supplies Without Consideration

Treating every free transfer as a supply.
Students remember that Schedule I covers supplies without consideration and stop there.
Fix: Always test the condition of the head. A disposal of an asset without ITC availed, for example, is not covered by head 1.
Applying the ₹50,000 gift limit per gift instead of per financial year.
The limit is read as a cap on one gift.
Fix: Add all gifts to the same employee in the financial year. If the total exceeds ₹50,000, the exclusion in para 2 of Schedule I is not available and the gifts are a supply.
Applying the gift relief to gifts to customers, vendors or directors.
The word gift is read loosely.
Fix: The relief covers only gifts from an employer to an employee. Other gifts must be tested separately under section 7 and Schedule I.
Applying the principal-agent head to services.
Students assume Schedule I covers goods and services in all heads.
Fix: Head 3 covers goods only. Head 2 covers both goods and services.
Forgetting the business condition in heads 2 and 4.
Focus stays on the relationship between the parties.
Fix: Check that the supply is in the course or furtherance of business. A purely personal transfer between relatives is not covered.
Ignoring branches as distinct persons.
Branch transfers are seen as internal and not a supply.
Fix: Establishments of the same entity registered in different States are distinct persons under section 25. Free stock transfer between them is a supply.

Worked examples

Example 1

Aarav Ltd gives gifts to employees in a financial year. Meera receives a gift worth ₹30,000 at Diwali. Rohan receives ₹35,000 at Diwali and ₹20,000 on his work anniversary. Examine the GST position.

Show the solution

The gifts are from employer to employee with no consideration. Employer and employee are related persons, so test under Schedule I, head 2, and the ₹50,000 gift exclusion in para 2.
The exclusion is applied per employee on the total gifts in the financial year.
Meera: total ₹30,000. This does not exceed ₹50,000, so the gifts are not treated as a supply.
Rohan: total = ₹35,000 + ₹20,000 = ₹55,000. This exceeds ₹50,000, so the exclusion is not available.
Because the exclusion does not apply, the gifts to Rohan are a supply without consideration under Schedule I and are liable to GST, on a value determined under the valuation provisions.
ITC on goods given away as gifts is also restricted under section 17(5)(h).

Answer: Meera's gifts are not a supply. Rohan's gifts, totalling ₹55,000, exceed the ₹50,000 limit, so the exclusion does not apply and they are a supply under Schedule I, liable to GST.

Example 2

Kiran Industries has its head office in Pune and a branch in Chennai, both registered under the same PAN in different States. In the current year it (a) sends goods free of cost from Pune to Chennai for the branch's business; (b) permanently gives away a machine to a charitable trust, having claimed ITC on it; (c) permanently gives away an old vehicle on which no ITC was claimed. Which are supplies under Schedule I?

Show the solution

(a) Pune and Chennai are distinct persons under section 25, because the registrations are in different States. The goods move in the course of business with no consideration. Head 2 applies, so it is a supply.
(b) A machine is a business asset. It is permanently disposed of, and ITC was availed on it. Head 1 applies, so it is a supply.
(c) The vehicle is a business asset permanently disposed of, but no ITC was availed. The condition of head 1 fails, so it is not a supply under Schedule I.
Check (c) for any other ground, and confirm none arises from the facts, since there is no consideration.

Answer: Transactions (a) and (b) are supplies under Schedule I, heads 2 and 1. Transaction (c) is not a supply under Schedule I because no ITC was availed on the vehicle.

Exam tips

Write the head number or name first, then the condition, then the conclusion. Examiners reward this structure.
In case scenarios, hunt for the trigger words: free of cost, gift, branch in another State, agent, overseas parent. They signal the head.
For gifts, always do the per-employee yearly total in your working, even if the answer looks obvious.
For the descriptive answer, state both the rule and the exception, for example heads 1 to 4 and the ₹50,000 gift relief.
For MCQs on head 4, remember that both the related-person link and the business purpose are needed, and that tax on the import of services is payable by the recipient on reverse charge under section 5(3) of the IGST Act.

Practice questions from Supply under GST

Schedule I: Supplies Without Consideration in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Schedule I: Supplies Without Consideration: frequently asked questions

Is a gift to an employee a supply under GST?

Employer and employee are related persons, so gifts are tested under Schedule I. Para 2 of Schedule I carves out gifts from employer to employee not exceeding ₹50,000 in a financial year, and these are not treated as a supply. If the total gifts to that employee in the year exceed ₹50,000, the exclusion does not apply and the gifts are a supply.

Is the ₹50,000 gift limit per gift or per year?

It is applied on the value of gifts in a financial year. Add all gifts to the same employee in that year and compare the total with ₹50,000. If the total is above ₹50,000, the exclusion is not available and the gifts are a supply under Schedule I.

Who are related persons for Schedule I?

Related persons are those described in the Explanation to section 15. They include officers or directors of each other's business, legally recognised partners, employer and employee, persons where any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them, persons where one controls the other, persons both controlled by a third person, persons who together control a third person, and members of the same family. Distinct persons, such as branches in different States, are covered by section 25.

Is import of services from a related person without consideration taxable?

Yes, if a taxable person imports services from a related person or from his own establishment outside India in the course or furtherance of business. It is treated as a supply even without consideration. Tax on the import of services is payable by the recipient on reverse charge under section 5(3) of the IGST Act.

Does Schedule I apply when I dispose of an asset on which I took no ITC?

Head 1 does not apply, because it needs ITC to have been availed on the asset. Check the other provisions of section 7 if there is any consideration.