Chapter III - Levy and collection of tax
Section 7
Section 7: Scope of supply
Before deciding the GST rate or invoice treatment, a business must first decide whether the activity is a supply under section 7. The section covers ordinary business supplies, certain imports and specified transactions without consideration, while excluding Schedule III activities.
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This article is for general information. Refer to the Central Goods and Services Tax Act, 2017 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) For the purposes of this Act, the expression “supply” includes–– (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (aa) the 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.
Explanation.—For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another; (b) import of services for a consideration whether or not in the course or furtherance of business; and (c) the activities specified in Schedule I, made or agreed to be made without a consideration;
(1A) Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),–– (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as— (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods.
Introduction
The ordinary route is a supply of goods or services for consideration in the course or furtherance of business. The statutory examples include sale, transfer, barter, exchange, licence, rental, lease and disposal; they are illustrations, not a closed list.
Two important extensions need separate attention: import of services for consideration may be a supply even outside business, and Schedule I can deem specified activities to be supplies even without consideration. A transaction between a non-individual entity and its members or constituents for consideration is expressly covered.
Key takeaways
Start with the transaction
Identify what is provided, to whom, the consideration and whether it is in the course or furtherance of business; then test the special inclusions in section 7(1).
No consideration does not always end the enquiry
Check Schedule I before treating a free transfer or service as outside GST.
Classification comes after scope
Schedule II classifies an activity that is already a supply as goods or services; it does not itself make an excluded activity taxable.
Check explicit exclusions
Schedule III activities and notified public-authority activities under section 7(2) are treated as neither a supply of goods nor a supply of services.
Ordinary business supplies
Section 7(1)(a) covers agreed or completed supplies for consideration by a person in the course or furtherance of business. Consideration can be non-cash: the statutory list expressly includes barter and exchange.
Imports, members and supplies without consideration
Section 7(1)(b) includes import of services for consideration whether or not in the course or furtherance of business. Section 7(1)(aa) addresses supplies between a person other than an individual and its members or constituents. Schedule I lists activities treated as supply even without consideration; each proposed transaction must be matched to a specific Schedule I entry.
Schedule II classification and Schedule III exclusions
Once an activity qualifies as supply under section 7(1), Schedule II may classify it as goods or services. Section 7(2) overrides section 7(1) for Schedule III activities and for notified activities of government or local authorities acting as public authorities.
Practical decision sequence
Record the agreement, parties, consideration and business purpose. Check the specific inclusions in section 7(1), then Schedule I. Check Schedule III and any applicable government notification. Only then determine goods-versus-services treatment, place of supply, rate and any exemption.
Practical checklist
Do
- Keep the contract and consideration trail, including non-cash value.
- Document the exact Schedule I or Schedule III entry relied upon.
- For cross-border services, separately test import-of-service and place-of-supply rules.
Avoid
- Assume a free transaction is always outside GST.
- Use Schedule II alone as the charging provision.
- Conclude a transaction is taxable before checking Schedule III and applicable exemptions.
Glossary
- Consideration
- Payment or value for a supply; the Act defines it in section 2(31).
- Schedule I
- Specified activities treated as supplies even without consideration.
- Schedule III
- Activities treated as neither supply of goods nor supply of services.
Frequently asked questions
Can barter be a supply?
Yes. Section 7(1)(a) expressly includes barter and exchange when made for consideration in the course or furtherance of business.
Does every free supply fall outside GST?
No. Activities specified in Schedule I can be supplies even without consideration.
Does Schedule II itself create a supply?
No. Section 7(1A) uses Schedule II to classify certain transactions that first constitute a supply under section 7(1).
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026