Scope of Supply under GST (2026): Section 7 and Schedules I, II and III Explained

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Before GST, a single transaction could be taxed at different points under different laws - excise duty at the factory gate, service tax when a service was rendered, VAT when goods were sold. GST replaced all of that with one taxable event: supply. Whether a transaction attracts GST at all, and when, almost always comes back to whether it counts as a “supply” under section 7 of the CGST Act.

New to terms such as “consideration” or “furtherance of business”? See the technical terms explained in simple words further down.

What counts as a supply: section 7(1)

Under section 7(1) of the CGST Act, 2017 (Scope of supply), “supply” includes:

• All forms of supply of goods or services - sale, transfer, barter, exchange, licence, rental, lease or disposal - made or agreed to be made for a consideration, in the course or furtherance of business;
• Transactions between an unincorporated association or body and its own members or constituents, for cash, deferred payment or other valuable consideration - the two are legally treated as separate persons for this purpose, even though older case law under the “mutuality principle” said otherwise;
• Import of services for a consideration, whether or not it is in the course or furtherance of business; and
• The specific activities listed in Schedule I, made or agreed to be made even without any consideration.

The two conditions that matter most

For an ordinary transaction (not one of the Schedule I exceptions), two elements must both be present:

1. Consideration - something of value is paid or payable in return.
2. In the course or furtherance of business - it happens as part of carrying on a business, not a private, personal transaction.

If either element is missing, it is not a supply, and GST does not apply:

• A person selling their own used personal table to a dealer is not making a supply - there is consideration, but it is not in the course of business.
• A person giving free tuition to neighbourhood children as a hobby is not making a supply - there is no consideration at all.

Schedule I: supply even without consideration

Four specific situations are treated as supply even though no consideration changes hands:

1. Permanent transfer or disposal of business assets on which input tax credit was claimed.
2. Supply between related persons, or between “distinct persons” (as defined in section 25) in the course or furtherance of business - except that gifts up to Rs 50,000 in value in a financial year, from an employer to an employee, are specifically excluded and are not treated as a supply.
3. Principal-agent transactions in goods - a principal supplying goods to its agent for onward supply, or an agent receiving goods on the principal’s behalf.
4. Import of services by a taxable person from a related person, or from any of their own establishments outside India, in the course or furtherance of business - here the “no consideration needed” rule applies, unlike the general import-of-services rule under section 7(1)(b), which does require consideration.

Schedule II: is it a supply of goods, or of services?

Some transactions sit at the boundary between “goods” and “services.” Schedule II settles the classification, which matters because goods and services can carry different GST rates and different place-of-supply rules. Key examples:

Schedule III: neither goods nor services at all

Schedule III is the negative list - transactions GST does not touch, because they are treated as neither a supply of goods nor a supply of services:

• Services by an employee to their employer, in the course of employment
• Services of any court or Tribunal
• Functions performed by a Member of Parliament, State Legislature, Panchayat, Municipality or other local authority, in that capacity
• Duties performed by a Chairperson, Member or Director of a body set up by a Central or State Government or local authority, where they are not an employee
• Services of funeral, burial, cremation or mortuary, including transporting the deceased
• Sale of land, and, subject to a specific exception for part-payment before completion, sale of a building
• Actionable claims, other than specified actionable claims (such as lottery, betting and gambling)

A 2019 amendment, with retrospective effect from 1 July 2017, added three more entries that are now settled, enacted law, not a pending proposal:

• Supply of goods from a place outside India’s taxable territory to another place outside it, without entering India
• Supply of warehoused goods to any person before clearance for home consumption, including goods warehoused in a Special Economic Zone or a Free Trade Warehousing Zone before export or supply to the domestic area
• Supply of goods by the consignee to another person, by endorsing the title documents, after dispatch from a port outside India but before clearance for home consumption

A further amendment added two insurance-specific entries, also now in force:

• Apportionment of co-insurance premium between the lead insurer and a co-insurer for jointly supplied insurance services, provided the lead insurer pays the full GST on the entire premium
• Ceding commission deducted by a reinsurer from the reinsurance premium paid by the insurer, provided GST is paid on the gross reinsurance premium inclusive of that commission

Composite supply and mixed supply

Section 7(1A) sends any activity that is a supply (under sub-section 1) on to Schedule II for classification, but a separate question - how several items bundled into one supply are taxed - is answered under section 8 of the Act:

• Composite supply: two or more items naturally bundled together in the ordinary course of business, with one principal item. The whole supply is taxed at the principal item’s rate. Example: a gift box of dry fruits, with the box and wrapper supplied only along with the dry fruits - taxed at the dry fruits’ rate.
• Mixed supply: two or more independent items sold together for a single price, where each could just as easily be sold separately and is not a composite supply. The whole supply is taxed at whichever item’s rate is highest. Example: a festive hamper of cakes, chocolates and aerated drinks, each available separately - taxed at the highest rate among them.

How CSM & Co LLP can help

Whether a transaction is a supply at all, and if so which rate and classification applies, is often the first and most consequential question in a GST dispute - getting it wrong at the invoicing stage is far cheaper to fix than after an assessment. Please reach out to our team and we will be happy to assist with transaction classification, composite and mixed supply determinations, and GST structuring.

Technical terms explained in simple words

Frequently asked questions

Official sources

• CBIC Tax Information Portal – Section 7, CGST Act, 2017 (Scope of supply)
• CBIC Tax Information Portal – Schedule I, CGST Act, 2017
• CBIC Tax Information Portal – Schedule II, CGST Act, 2017
• CBIC Tax Information Portal – Schedule III, CGST Act, 2017
• GST Portal

Related reading

• GST on Waste and Scrap (2026): 2% TDS and Reverse Charge for Plastic, Tyre, E-waste and Used Cooking Oil
• GST on Services (2026) Part 2: Toll TOT Model, Reseller ITC, R&D Certificate, Coffee Curing and Seed Storage
• e-Invoicing for Reverse Charge Self-Invoices: RCMDOM and RCMIMP Explained (2026)

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Composite Supply, Mixed Supply, Schedule I, Schedule II, Schedule III, Scope of Supply, Section 7 CGST Act

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