Taxation · Supply under GST

Supply without Consideration and Schedule I under GST

Updated 4 October 2026 · Fact-checked

Supply normally needs consideration. Schedule I of the CGST Act, 2017 treats four activities as supply even without it: permanent transfer of business assets with ITC availed, supplies between related or distinct persons, goods supplied or received by an agent on the principal's behalf, and import of services from a related person. Entries 2 and 4 state business nexus expressly.

Understand Supply without Consideration and Schedule I

Section 7 of the CGST Act, 2017 defines supply. The general rule is that a supply is made for a consideration and in the course or furtherance of business. A free transfer would normally fall outside GST.

Schedule I is the exception. It says that the four listed activities are supply even if made without consideration. So for these, you do not ask whether money was paid. You only check whether the activity fits the schedule.

The four entries are:
- Permanent transfer or disposal of business assets, where input tax credit (ITC) has been availed on those assets. Entry 1 deems such a transfer or disposal to be a supply even without consideration. A disposal for consideration is covered by Section 7 and Schedule II in the usual way.
- Supply of goods or services or both between related persons or between distinct persons, when made in the course or furtherance of business.
- Supply of goods by a principal to his agent, or by an agent to his principal, where the agent undertakes to supply or receive such goods on behalf of the principal.
- Import of services by a person from a related person or from any of his establishments outside India, in the course or furtherance of business.

Business nexus is expressly stated in entries 2 and 4. They apply only when the activity is in the course or furtherance of business. Entry 1 is different. It concerns business assets on which ITC was availed, so the key check there is the ITC condition. For entry 3, the key condition is the agency: the agent must undertake to supply or receive the goods on behalf of the principal. The general business nexus under Section 7 is a separate test, so treat it separately and do not assume the words of entries 2 and 4 appear in entry 3.

Gifts from employer to employee are a common trap. Employer and employee are related persons under the Explanation to Section 15, so entry 2 can apply to such gifts. The text of Schedule I entry 2 itself states that gifts not exceeding ₹50,000 in value in a financial year by an employer to an employee are not treated as supply. If the gifts to an employee in the year add up to more than ₹50,000, this carve-out does not apply, and the whole value of the gifts is treated as supply. It is not only the excess that is taxed.

The list of related persons is in the Explanation to Section 15. Read that list before concluding that two persons are related.

Keep two ideas separate. Schedule I only deems the activity to be supply. Whether tax is actually payable then depends on valuation, rate, exemption and place of supply.

Key rules to remember

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.

How to solve Supply without Consideration and Schedule I questions

Use this order for any question on supply without consideration. It stops you from missing a condition.

1Identify the activity: transfer of an asset, supply to a branch or related party, supply to or by an agent, or import of services.
2For entries 2 and 4, check that the activity is in the course or furtherance of business. A purely private act is not supply under these entries. For entry 1, the test is business assets on which ITC was availed. For entry 3, the test is the agency, and general business nexus under Section 7 is treated separately.
3Match it to one of the four Schedule I entries. Read the exact condition of that entry.
4For asset disposal, check whether ITC was availed on the asset. For agents, check the agency terms. For imports, confirm the service comes from a related person or own overseas establishment.
5For related persons, confirm the relationship against the list in the Explanation to Section 15 (for example, legally recognised partners, employer and employee, or one person controlling the other). For distinct persons, check separate registrations.
6For gifts by an employer to an employee, add all gifts to that employee in the financial year and compare with ₹50,000, as stated in the text of Schedule I entry 2. Employer and employee are related persons under the Explanation to Section 15.
7State that the activity is supply, then comment on value, rate and any exemption, citing the CGST Act, 2017.
8Write a clear conclusion: taxable supply or not, with the reason.

Quickest way: Four-entry check with the ITC and ₹50,000 filters

When to use it: Use this for MCQs and short written answers where the facts are brief and one entry decides the answer.

Ask first: is there money? If yes, normal Section 7 applies. If no, go to Schedule I.
Run the four entries: asset, related or distinct person, principal-agent, import of services.
Apply the one filter that kills most wrong options: ITC availed for asset disposal; services only for import; business nexus for entries 2 and 4; agency condition for entry 3.
For employee gifts, add up the year and compare with ₹50,000.
In the written answer, use the format: provision, facts, conclusion. Quote Schedule I and Section 7 by name to earn step marks.
In MCQs with no negative marking, pick the option that applies Schedule I even without consideration, unless a stated condition fails.

Common mistakes in Supply without Consideration and Schedule I

Saying a free transfer is never supply because there is no consideration.
Students remember the general rule of Section 7 and forget the Schedule I override.
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.
Students miss the condition that ITC must have been availed on the asset.
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.
Applying the import of services entry to imports of goods.
The word import is read loosely.
Fix: Entry 4 covers services only. Imports of goods are dealt with under customs and IGST rules.
Taxing only the excess over ₹50,000 when gifts to an employee cross the limit.
Students treat the limit like a basic exemption in income tax.
Fix: Once total gifts to the employee in the year exceed ₹50,000, the gift carve-out in Schedule I entry 2 no longer protects them and the whole value is treated as supply.
Forgetting that a branch in another State with separate registration is a distinct person.
Students think one legal entity cannot supply to itself.
Fix: Under GST, establishments in different States with separate registrations are distinct persons, so stock transfers between them are supply.
Applying Schedule I entries 2 and 4 to supplies that are not in the course or furtherance of business.
Students focus on the relationship or the overseas link and ignore the business condition.
Fix: Confirm the business nexus first for entries 2 and 4, especially for gifts and transfers by individuals. For entry 3, check the agency condition.

Worked examples

Example 1

A company in Pune has a branch in Gujarat, separately registered under GST. The head office sends goods to the branch at no charge for sale there. Is this a supply under GST?

Show the solution

The head office in Maharashtra and the branch in Gujarat have separate registrations.
They are therefore distinct persons.
Goods are sent in the course of business.
There is no consideration, but Schedule I entry 2 treats supply of goods or services or both between distinct persons in the course or furtherance of business as supply even without consideration.
Value is determined under Section 15 and the valuation rules, and as it is a movement between States, it is an inter-State supply.

Answer: Yes. It is a supply under Schedule I, entry 2, and it is an inter-State supply.

Example 2

A trader gifted a mobile phone worth ₹30,000 to his employee in August and a watch worth ₹28,000 in January, in the same financial year. Treat the gifts as made in the course or furtherance of business. Is GST payable on the gifts?

Show the solution

A trader and his employee are employer and employee. They are related persons under the Explanation to Section 15.
The gifts are made without consideration, in the course or furtherance of business, between related persons. So Schedule I entry 2 can treat them as supply.
The text of entry 2 states that gifts not exceeding ₹50,000 in value in a financial year by an employer to an employee are not treated as supply.
Total gifts = ₹30,000 + ₹28,000 = ₹58,000.
₹58,000 is more than ₹50,000, so this carve-out in entry 2 does not apply.
The whole value of ₹58,000 is treated as supply and is taxable, not just the excess of ₹8,000.

Answer: GST is payable on the gifts, on a total value of ₹58,000.

Exam tips

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.
Do not give section numbers you are unsure of. Name Schedule I and Section 7 of the CGST Act, 2017, which are safe.
In MCQs, check the one condition attached to each entry. A wrong option usually fails that condition.

Practice questions from Supply under GST

Supply without Consideration and Schedule I in other exams

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

Supply without Consideration and Schedule I: frequently asked questions

What is Schedule I of the CGST Act?

Schedule I lists four activities that are treated as supply even when made without consideration. They are permanent transfer of business assets on which ITC was availed, supplies between related or distinct persons, goods supplied or received by an agent on behalf of the principal, and import of services from a related person. Entries 2 and 4 expressly require the activity to be in the course or furtherance of business. Entry 3 depends on the agency.

Are gifts up to ₹50,000 to employees taxable under GST?

Schedule I entry 2 states that gifts not exceeding ₹50,000 in value in a financial year by an employer to an employee are not treated as supply. If the total in the year goes above ₹50,000, the whole value is treated as supply and not just the excess. Add all gifts given to that employee during the year.

Who are related persons under GST?

The Explanation to Section 15 lists them. Examples include officers or directors of one another's businesses, legally recognised partners, employer and employee, and persons where one controls the other. Read the list carefully before concluding on a case.

Is every business asset sale a supply under Schedule I?

No. Entry 1 deems the permanent transfer or disposal of business assets to be a supply even without consideration, but only where ITC has been availed on the asset. A disposal for a price is covered by Section 7 and Schedule II in the usual way.