Direct and Indirect Taxation · Levy and Collection of CGST and IGST

Taxable Event, Supply and Taxable Person under GST

Updated 10 October 2026 · Fact-checked

Under GST, the taxable event is the supply of goods or services or both. Supply under section 7 of the CGST Act includes sales, transfers, barters, licences, rentals and similar acts made for a consideration in the course or furtherance of business. Test any transaction against section 7, then check Schedules I, II and III.

Understand Taxable Event, Supply and Taxable Person

GST is not charged on income or on ownership. It is charged when a supply happens. That is why supply is called the taxable event. If there is no supply, there is no GST.

Section 7(1)(a) says supply includes all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal. It must be made or agreed to be made for a consideration by a person in the course or furtherance of business. The words 'agreed to be made' matter: a supply can exist before the goods move or the money is paid.

Section 7 also brings in other items. Section 7(1)(aa) covers activities or transactions by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. The person and its members are deemed to be two separate persons. Section 7(1)(b) covers import of services for a consideration, whether or not in the course or furtherance of business. Section 7(1)(c) covers the activities specified in Schedule I, made or agreed to be made without consideration.

So 'in the course or furtherance of business' is a condition for clause (a) only. It is not needed for import of services under clause (b). Schedule I activities are supplies even without consideration.

Two more filters apply. Under section 7(1A), an activity that is a supply is treated as a supply of goods or of services as per Schedule II. Under section 7(2), activities in Schedule III, and certain activities of the Government or local authorities as public authorities that are notified, are treated neither as a supply of goods nor of services. Under section 7(3), the Government may notify transactions to be treated as supply of goods and not services, or the reverse.

A taxable person is a person who is registered or liable to be registered under the Act. A registered person is one who actually holds registration. So every registered person is a taxable person, but a person who is liable to register and has not done so is also a taxable person. Use the definitions in section 2 of the Act for exact wording in the answer. The text supplied here covers section 7 only.

Key rules to remember

Basic test of supply (section 7(1)(a)): Supply under clause (a) = supply of goods or services or both (in forms such as sale, transfer, barter, exchange, licence, rental, lease, disposal) + made or agreed to be made for a consideration + by a person in the course or furtherance of business; Three elements are essential: a supply of goods or services or both, consideration, and the course or furtherance of business. The listed forms are examples ('such as'), not a closed list or a separate condition. Missing any essential element means it is not a supply under clause (a), unless clause (aa), (b) or (c) applies.
Other inclusions in supply: Section 7(1)(aa): supplies between a non-individual person and its members for consideration | Section 7(1)(b): import of services for consideration, business or not | Section 7(1)(c): Schedule I activities without consideration; Clause (b) does not need the business condition. Clause (c) does not need consideration.
Classification of a supply: Section 7(1A): activities treated as supply of goods or services as per Schedule II; This decides whether the supply is goods or services. It does not decide whether there is a supply.
Not a supply: Section 7(2): Schedule III activities, and notified public-authority activities = neither goods nor services; This overrides section 7(1). Check it before concluding a transaction is taxable.
Taxable person vs registered person: Taxable person = registered OR liable to be registered | Registered person = actually holds registration; Registered person is a subset of taxable person. This status is separate from the test of supply: it tells you who the person is, not whether a supply exists.

How to solve Taxable Event, Supply and Taxable Person questions

Use this order for any question asking whether a transaction is a supply or who is liable. First decide whether a supply exists. Then classify it. Then deal with the status of the person as a separate point.

1Identify what is being transferred or done: goods, services or both. The form it takes (sale, transfer, barter, exchange, licence, rental, lease, disposal) is illustrative, because section 7(1)(a) says supply includes all forms 'such as' these.
2Check whether there is a consideration, in cash, deferred payment or other valuable consideration. Barter and exchange count.
3If there is consideration, check that it is made by a person in the course or furtherance of business. Private or personal dealings of a non-business nature fail here.
4If there is no consideration, check whether the activity is listed in Schedule I. If yes, it is a supply even without consideration.
5Check special inclusions: import of services for consideration (section 7(1)(b)) and dealings between a non-individual person and its members (section 7(1)(aa)).
6Check section 7(2) and Schedule III. If the activity is there, it is not a supply, whatever the earlier steps showed.
7If it is a supply, classify it as goods or services using Schedule II, or a notification under section 7(3).
8State your conclusion on supply with the reason. Then, as a separate point, state whether the person is a taxable person (registered or liable to be registered). Taxable person status does not decide whether a supply exists.

Quickest way: Four-gate supply check

When to use it: Use it for MCQs and short-answer questions where you must decide quickly whether a supply exists and how it is classified.

Gate 1: Is there a supply of goods or services or both (such as sale, barter, rental, licence and so on)? The listed forms are examples, not a closed list.
Gate 2: Is there consideration, and is it made in the course or furtherance of business? If not, look for Schedule I, import of services or member supplies.
Gate 3: Is it excluded by Schedule III or a notified public-authority activity? If yes, stop: no supply.
Gate 4: If it is a supply, classify it as goods or services under Schedule II or a section 7(3) notification.
Final separate check (not a gate): is the person registered or liable to be registered? If yes, the person is a taxable person. Say this after your supply conclusion, because a supply exists or not regardless of the person's registration status.

Common mistakes in Taxable Event, Supply and Taxable Person

Saying every transaction without consideration is not a supply.
Students remember that consideration is needed and forget the exceptions.
Fix: Always check Schedule I. Section 7(1)(c) makes those activities supplies even without consideration.
Applying the business condition to import of services.
The phrase 'in the course or furtherance of business' is memorised as a universal condition.
Fix: Remember that section 7(1)(b) covers import of services for consideration whether or not in the course or furtherance of business.
Treating taxable person and registered person as the same.
Both terms are used loosely in daily practice.
Fix: A taxable person is registered or liable to be registered. A registered person actually holds registration. Say this in one line in your answer.
Ignoring Schedule III after concluding there is a supply.
Students stop once the elements of section 7(1) are met.
Fix: Section 7(2) applies 'notwithstanding' section 7(1). Always run the Schedule III check last before concluding.
Confusing the role of Schedule II with the test of supply.
Both schedules are read together in notes.
Fix: Schedule II only classifies a supply as goods or services under section 7(1A). It does not create or remove a supply.
Forgetting that a member and its non-individual body are separate persons.
Students think a club or association cannot supply to its own members.
Fix: Under section 7(1)(aa), for a person other than an individual, the person and its members are deemed separate, so supplies between them for consideration are covered.

Worked examples

Example 1

Anil, a salaried employee in Pune, sells his personal car to a friend for ₹4,00,000. Meera Traders, a registered dealer in Surat, sells goods to a customer for ₹50,000. Examine which transaction is a supply under section 7(1)(a).

Show the solution

Both transactions are sales of goods for a consideration, so the first two elements are met.
Check the business condition. Anil sells a personal car. This is not in the course or furtherance of business.
Anil's sale is not a supply under section 7(1)(a). No Schedule I item or import of services applies from the facts given.
Meera Traders sells goods in its regular business for consideration, so all elements of section 7(1)(a) are met.
The sale is not in Schedule III on the facts given, so section 7(2) does not exclude it.

Answer: Meera Traders' sale of ₹50,000 is a supply. Anil's sale of his personal car is not a supply because it is not made in the course or furtherance of business.

Example 2

Choose the correct statement. Section 7 of the CGST Act treats as supply: (A) only transactions made for consideration in the course of business; (B) import of services for a consideration whether or not in the course or furtherance of business; (C) every transaction without consideration; (D) all activities in Schedule III.

Show the solution

Option A is wrong. It ignores section 7(1)(aa), (b) and (c), which extend supply beyond business sales for consideration.
Option B matches section 7(1)(b) exactly. Import of services for a consideration is a supply even if it is not for business.
Option C is wrong. Only activities specified in Schedule I are supplies without consideration under section 7(1)(c).
Option D is wrong. Under section 7(2), Schedule III activities are treated neither as supply of goods nor of services.

Answer: Option B is correct.

Exam tips

In MCQs, watch words like 'only', 'every' and 'all'. Section 7 has exceptions both ways, so such options are often wrong.
In written answers, name the element of section 7(1) you are testing, then apply the facts. Step marks come from this structure.
Always state the conclusion on Schedule III and Schedule I explicitly, even if the facts do not trigger them.
Learn the distinction between taxable person and registered person as a one-line definition and use it whenever a question mentions registration.
Note carefully whether the question involves an individual or a non-individual person, since section 7(1)(aa) applies only to a person other than an individual.

Practice questions from Levy and Collection of CGST and IGST

Taxable Event, Supply and Taxable Person in other exams

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

Taxable Event, Supply and Taxable Person: frequently asked questions

What is the taxable event under GST?

The taxable event is the supply of goods or services or both. GST is charged when a supply takes place, not on ownership or income. Section 7 of the CGST Act defines the scope of supply.

What is the difference between a taxable person and a registered person?

A taxable person is one who is registered or liable to be registered under the Act. A registered person is one who actually holds registration. So a person liable to register but not yet registered is a taxable person but not a registered person.

Is a supply without consideration ever taxable?

Yes. Under section 7(1)(c), activities specified in Schedule I are supplies even if made without consideration. Outside Schedule I, consideration is generally needed, except for import of services where it is still required but the business condition is not.

Does import of services need to be in the course of business?

No. Section 7(1)(b) includes import of services for a consideration whether or not in the course or furtherance of business.