Non-GST Supplies
Schedule III of the Central Goods and Services Tax (CGST) Act explicitly lists the activities and transactions that are under GST in India. This list represents transactions that are treated as neither a supply of goods nor a supply of services, effectively placing them completely outside the scope of GST (often called "Non-GST supplies" or the "Negative List").
1. Services by an Employee to an Employer
• Scope: Services provided by an employee to their employer in the course of or in relation to their employment.
• Key Nuance: This covers regular salary, wages, and employment benefits. However, if an employee provides independent services to the employer outside the employment contract (e.g., renting a personal property to the company), it will be treated as a supply.
2. Services by Courts or Tribunals
• Scope: Services provided by any court or Tribunal established under any law for the time being in force.
• Key Nuance: This includes the Supreme Court, High Courts, District Courts, and consumer tribunals. The fees paid for justice delivery are exempt from GST.
3. Constitutional and Public Statutory Functions
This category covers three distinct groups of public officials:
• MPs and MLAs: Functions performed by Members of Parliament, Members of State Legislatures, Members of Panchayats, Municipalities, and other local authorities.
• Constitutional Posts: Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity (e.g., the President of India, Prime Minister, CAG, Election Commissioners).
• Government Bodies: Duties performed by any person as a chairperson or a member or a director in a body established by the Central Government or a State Government or local authority (and who is not deemed as an employee before the commencement of this clause).
4. Funeral and Mortuary Services
• Scope: Services of funeral, burial, crematorium, or mortuary.
• Inclusions: This exclusion also specifically extends to the transportation of the deceased.
5. Sale of Land and Sale of Building (Subject to Conditions)
• Sale of Land: Completely outside the scope of GST.
• Sale of Building: Not considered a supply only if the entire consideration is received after the issuance of a completion certificate (where required by a competent authority) or after its first occupation, whichever is earlier.
• Exception: If any part of the payment/advance is received before the completion certificate is issued, it is treated as a "Construction Service" and is subject to GST.
6. Actionable Claims (Excluding Specified Actionable Claims)
• Scope: Actionable claims are generally not treated as a supply of goods or services.
• Critical Exceptions: Following amendments to tighten tax laws on gaming, specified actionable claims are taxable supplies. These taxable exceptions include:
o Betting
o Gambling
o Lottery
o Casinos
o Horse racing
o Online money gaming
7. High Seas Sales
• Scope: Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.
• Example: An Indian merchant buys goods from Germany and sells them directly to a buyer in Sri Lanka without the goods ever touching an Indian port.
8. Merchant Trading Transactions (MTT) & Bonded Warehouse Sales
• Supply of Warehoused Goods: Supply of warehoused goods to any person before clearance for home consumption. (GST/Customs Duty is levied only when the final buyer clears them from the warehouse).
• High Seas Sale (Title Transfer): Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
Summary Table: Quick Reference
Activity / Transaction GST Status Key Condition / Exception
Salary / Employee Services Non-Supply Must be in the course of employment.
Court / Tribunal Services Non-Supply Covers judicial statutory bodies.
MP / MLA / Constitutional Duties Non-Supply Covers official public capacities.
Funeral & Cremation Non-Supply Includes dead body transportation.
Sale of Land Non-Supply Always outside GST.
Sale of Completed Building Non-Supply No advance taken before completion certificate.
Lottery, Gambling, Online Gaming Taxable Supply Specifically excluded from Schedule III protection.
High Seas Sales Non-Supply Goods do not enter Indian customs territory.
In India, Non-GST supplies refer to goods and services that completely fall outside the legal purview of the Goods and Services Tax (GST) Act. As of September 2026, this short, fixed list includes alcoholic liquor for human consumption (excluded via Article 366(12A) of the Constitution) and five petroleum products (petroleum crude, high-speed diesel, motor spirit/petrol, natural gas, and aviation turbine fuel) which remain deferred from GST under Section 9(2).
With the maturation of automated tax enforcement and the implementation of stricter compliance mandates in 2026, handling these specific transactions presents critical technical and financial challenges. Below are the key issues and corresponding solutions for dealing with non-GST supplies in India.
Key Issues and Practical Solutions
Issue 1: Blocked Input Tax Credit (ITC) and Mismatched Reversals
• The Problem: Because non-GST items are structurally outside the GST net, no Input Tax Credit (ITC) can be claimed on any inputs or services used to facilitate these supplies. Businesses that deal in both taxable and non-GST items (e.g., a multi-cuisine restaurant serving food and alcohol, or a logistics firm selling fuel along with transport services) regularly make errors by failing to mathematically isolate common expenses like rent, security, and utility bills.
• Solution: Businesses must meticulously apply Rules 42 and 43 of the CGST Rules to proportionately calculate and reverse common ITC.
o Action Plan: Deploy automated ERP or accounting software that segregates common input tax and automatically generates the monthly proportionate reversal amount, preventing severe departmental notices or automated system interest demands.
Issue 2: Conflating Non-GST, Exempt, and Nil-Rated Categories
• The Problem: Many businesses mistakenly group non-GST supplies into the "Exempt" or "Nil-rated" buckets. While all three categories share the trait of zero outward GST liability, they are legally distinct and belong to entirely separate tables within official returns. Misclassification skews aggregate turnover reporting, which flags AI-driven automated scrutiny errors on the GST portal.
• Solution: Train accounting teams on clear statutory boundaries:
o Non-GST: Outside the law (e.g., Petrol, Alcohol).
o Exempt/Nil-Rated: Inside the law but waived at 0% via official tariff notifications (e.g., fresh milk, unbranded grains).
o Action Plan: Enforce strict ledger configuration within the accounting chart of accounts so that transactions flow accurately to their specific designated columns.
Issue 3: Inaccurate Return Disclosures & Aggregate Turnover Mismatches
• The Problem: Even though no GST is collected on non-GST sales, the government requires the transaction value on record. Failing to properly report these figures throws off the "Aggregate Turnover" calculation, which dictates mandatory e-invoicing thresholds and registration requirements.
• Solution: Ensure exact reporting across returns:
o Report non-GST outward supplies distinctly in Table 3.1(e) of GSTR-3B.
o Declare matching corresponding data under the specific Nil/Exempt/Non-GST table of GSTR-1.
o Regularly run a pre-filing reconciliation check to confirm your portal turnover directly squares with your financial profit and loss (P&L) statements.
Issue 4: Document Invoicing Compliance Errors
• The Problem: Issuing a standard "Tax Invoice" for a Non-GST supply is a significant compliance breach because no GST tax rate or amount can legally be shown.
• Solution: When dealing strictly in non-GST items (or alongside exempt items), businesses must issue a Bill of Supply instead of a traditional Tax Invoice. If a transaction involves both taxable food and non-GST liquor, separate the lines cleanly or issue a split bill to show State VAT/Excise separately from the 5%/18% GST lines.
Quick Reference Comparison
Attribute Non-GST Supplies Exempt / Nil-Rated Supplies Zero-Rated (Exports/SEZ)
Applicable Tax State VAT / Excise Duty 0% GST (No tax charged) 0% GST
ITC Eligibility No (Fully Blocked) No (Must be Reversed) Yes (Fully Eligible for Refunds)
Document Type Bill of Supply / Retail Invoice Bill of Supply Tax Invoice (under bond/LUT)
Examples Petrol, Diesel, Alcoholic Liquor Fresh Milk, Curd, Grains, Healthcare Goods/Services exported outside India
