Direct and Indirect Taxation · Concept of Supply including Composite and Mixed Supplies

Supply without Consideration and Schedule I of CGST

Updated 10 October 2026 · Fact-checked

Under section 7(1)(c) of the CGST Act, activities listed in Schedule I are supply even without consideration. They are: permanent transfer of business assets on which ITC was availed, supplies between related or distinct persons, principal-agent supplies of goods, and import of services from a related person. Check each activity's condition, then apply it.

Understand Supply without Consideration and Schedule I

Normally, supply needs consideration. Section 7(1)(a) covers supplies made for a consideration, in the course or furtherance of business. So a free transfer would fall outside GST. Schedule I is the exception.

Section 7(1)(c) says supply includes the activities specified in Schedule I, made or agreed to be made without a consideration. The law deems these to be supply even though no money moves. The Schedule has four entries, and each has its own condition. Learn the conditions, because the exam tests them.

The four entries, in plain words:

Permanent transfer or disposal of business assets where input tax credit (ITC) has been availed on those assets.
Supply between related persons or between distinct persons (distinct persons as under section 25), when made in the course or furtherance of business. Gifts from an employer to an employee are the classic case, with an annual limit of ₹50,000 per employee.
Supply of goods between principal and agent, where the agent undertakes to supply or receive 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.

Note the difference from section 7(1)(b). Import of services for a consideration is supply whether or not it is in the course or furtherance of business. The Schedule I import entry covers the no-consideration case, and it needs a business link and a related person or foreign establishment.

The supplied statute text covers section 7 only, not the Schedule I wording. The entries above are stated in plain words, so revise them from your ICMAI material before the exam.

Key rules to remember

Rule for supply without consideration: Supply = activity listed in Schedule I (section 7(1)(c)), even if consideration = nil; If the activity is not in Schedule I and there is no consideration, it is not supply.
Business asset transfer: Permanent transfer or disposal of business assets is supply only if ITC was availed on them; No ITC availed means no supply under this entry.
Related or distinct persons: Supply between related persons or distinct persons, in course or furtherance of business = supply; Related persons are as explained in the valuation provisions. Distinct persons are as in section 25, for example registrations of the same entity in different States.
Employee gifts: Gifts to an employee in a financial year ≤ ₹50,000 = not supply; above ₹50,000 = supply; The limit applies per employee per financial year, with gifts added together. In exam answers, tax the full value of the gifts once the limit is crossed.
Principal and agent: Goods supplied principal → agent or agent → principal, where the agent supplies or receives on the principal's behalf = supply; This covers goods only, not services.
Import from related person: Import of services from a related person or other establishment outside India, in course or furtherance of business = supply; Applies even if no consideration is paid.

How to solve Supply without Consideration and Schedule I questions

Use this order for any question asking whether a free or low-value transaction is a supply.

1Check for consideration. If there is consideration and a business link, section 7(1)(a) applies and Schedule I is not needed.
2If there is no consideration, match the transaction to one of the four Schedule I entries. If none fits, it is not supply.
3Test the condition for that entry: ITC availed, related or distinct persons, agent acting for the principal, or the import from a related person or foreign establishment.
4Confirm the business link. Related-person and import entries need the course or furtherance of business.
5For employee gifts, add all gifts to each employee in the financial year and compare with ₹50,000, employee by employee.
6Check Schedule III. Activities listed there are neither goods nor services, even if they look like supply.
7Conclude clearly: supply or not, and give the reason. If asked for tax, compute it on the value of the supply at the stated rate.

Quickest way: Four-entry checklist

When to use it: Use in MCQs and short-answer parts where you must decide in under a minute.

Say the four entries to yourself: assets with ITC, related or distinct persons, principal-agent goods, import from a related person.
Pick the entry the facts point to.
Look for the trap: no ITC on the asset, gifts of ₹50,000 or less, services between principal and agent, or an unrelated foreign supplier.
If the trap is present, answer 'not supply'. Otherwise, answer 'supply'.

Common mistakes in Supply without Consideration and Schedule I

Treating every free transfer of assets as supply.
Students remember 'permanent transfer' and forget the ITC condition.
Fix: Always ask whether ITC was availed on the asset. No ITC means no supply under this entry.
Taxing only the excess over ₹50,000 on employee gifts.
The limit is read like a basic exemption.
Fix: The limit is a test, not a deduction. Once total gifts to an employee exceed ₹50,000 in the year, treat the full value as supply.
Comparing the ₹50,000 limit with a single gift instead of the year's total.
Students read the question gift by gift.
Fix: Add all gifts to the same employee in the financial year, and do not pool across employees.
Applying the principal-agent entry to services, or to an agent who does not act for the principal.
The entry is remembered as 'principal-agent supply' without detail.
Fix: It covers goods only, and the agent must undertake to supply or receive them on behalf of the principal.
Treating import of services from an unrelated foreign supplier for free as Schedule I supply.
Students mix section 7(1)(b) and Schedule I.
Fix: Import for consideration falls under section 7(1)(b). The Schedule I import entry needs a related person or other establishment outside India and a business link.
Ignoring the business link for related-person supplies.
Students focus on the relationship alone.
Fix: State that the supply is in the course or furtherance of business. A private family gift outside business is not covered.

Worked examples

Example 1

Sundaram Textiles Ltd gives Diwali gifts to two employees in a financial year. Ravi receives gifts of ₹35,000 in total. Meena receives gifts of ₹20,000 in October and ₹40,000 in March. Is any gift a supply? If so, compute GST at an assumed combined rate of 18%.

Show the solution

Employer and employee are related persons, and the gifts are made in the course or furtherance of business, so the Schedule I related-person entry applies.
Ravi: total gifts = ₹35,000, which is within ₹50,000. Not a supply.
Meena: total gifts = ₹20,000 + ₹40,000 = ₹60,000, which is above ₹50,000. Supply.
The full ₹60,000 is treated as the value of supply.
GST = ₹60,000 × 18% = ₹10,800.

Answer: Ravi's gifts are not a supply. Meena's gifts of ₹60,000 are a supply, and GST at the assumed 18% is ₹10,800.

Example 2

Classify each as supply or not under Schedule I, giving reasons. (a) Bharat Engineering Pvt Ltd permanently gives away a machine to a charitable trust for no payment; it had availed ITC on the machine. (b) The same company gives away a computer on which it never availed ITC. (c) Bharat Engineering sends goods to its agent, who will sell them for the company, for no consideration. (d) A Pune company gets free consultancy services from its parent's office in London for its business.

Show the solution

(a) Permanent disposal of a business asset with no consideration, and ITC was availed. This is Schedule I supply.
(b) Permanent disposal with no consideration, but no ITC was availed. The ITC condition fails, so it is not supply under this entry.
(c) Goods go from principal to agent, and the agent undertakes to supply them on the principal's behalf. This is Schedule I supply, even without consideration.
(d) The services come from a related person's establishment outside India, in the course or furtherance of business. This is import of services from a related person, so it is Schedule I supply.

Answer: (a) supply; (b) not supply, as no ITC was availed; (c) supply; (d) supply.

Exam tips

In MCQs, the ITC condition on asset transfers and the ₹50,000 gift limit are the favourite traps. Check them first.
Quote section 7(1)(c) when you say Schedule I activities are supply without consideration. It earns the step mark.
For gift problems, show a small table or lines per employee with the annual total. Then state the conclusion.
Give the reason for every 'not supply' answer, for example 'no ITC availed' or 'within ₹50,000'.
If tax is asked, state the rate you assume when the question gives none, and compute on the full value of the supply.

Practice questions from Concept of Supply including Composite and Mixed Supplies

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

Is a gift to an employee above ₹50,000 a supply under GST?

Yes. Employer and employee are related persons, and the gift is made in the course or furtherance of business. Gifts up to ₹50,000 in a financial year to an employee are not a supply. Once the total passes ₹50,000, treat the full value as supply in your exam answer.

What does section 7(1)(c) say about Schedule I?

It says supply includes the activities specified in Schedule I, made or agreed to be made without a consideration. So these activities are treated as supply even when nothing is paid.

Are supplies between a head office and a branch in different States supply without consideration?

They can be. Establishments of the same entity registered in different States are distinct persons under section 25. Supply between distinct persons in the course or furtherance of business is a Schedule I supply even without consideration.

Does the principal-agent entry cover services?

No. The entry covers supply of goods between a principal and an agent, where the agent undertakes to supply or receive the goods on behalf of the principal.