The Goods and Services Tax (GST) regime in India brought with it a unified framework for taxing the supply of goods and services. However, there is often confusion among businesses and professionals about what exactly qualifies as a “supply” under GST. Not every activity or transaction attracts GST. The law clearly defines certain activities that are outside the scope of taxation. These are listed in Schedule III of the Central Goods and Services Tax Act, 2017 (CGST Act), read with Section 7(2). Understanding what is not a supply under GST is important for all kinds of firms—not just chartered accountants—because it helps avoid mistakes in tax compliance and ensures better decision-making.

In simple terms, Schedule III contains a list of transactions that are treated as neither a supply of goods nor a supply of services. These exclusions cover a variety of situations—from services provided by employees to their employers, to certain kinds of property sales and internal arrangements between insurers and reinsurers. Recognizing these categories is crucial for accurate GST treatment. In this blog, we will break down each type of excluded activity and examine key legal cases that have helped interpret these rules. We will also provide practical tips that firms should keep in mind to stay compliant with the law.

Activities Excluded under Schedule III

Services by an Employee to Employer

Any salary, wages, allowances, bonuses, or other benefits that an employee receives from their employer while performing their job are not covered under GST. This is because such payments are part of a well-established employer-employee relationship, which is governed by labour laws, not tax laws. GST does not interfere with this relationship, and therefore no GST is charged on salaries or perquisites like housing, medical allowances, or travel reimbursements provided to employees during their course of employment. However, it’s important to note that services provided by consultants or freelancers (who are not on payroll) do not fall under this exemption and are usually taxable.

Services by Courts and Tribunals

Judicial bodies, including District Courts, High Courts, and the Supreme Court, do not fall under the GST regime when they perform their legal functions. The same applies to specialized tribunals such as the National Company Law Tribunal (NCLT) or the Income Tax Appellate Tribunal (ITAT). The core idea here is that these bodies are performing sovereign functions—resolving disputes, delivering justice, and enforcing the law—which are public services and not commercial activities. Therefore, any service they render as part of their judicial or quasi-judicial duties is completely outside the scope of GST.

Functions of Elected Representatives and Constitutional Office‑Bearers

This category includes individuals who are either elected or appointed to key public roles under the Constitution. For example:

  • Elected Members like MPs, MLAs, Panchayat members, and municipal councilors.

  • Constitutional Post Holders such as the President, Vice-President, Governors, and Comptroller and Auditor General (CAG).

  • Non-employee Roles in Government Bodies such as chairpersons, directors, or members of statutory commissions and boards (e.g., Election Commission, Pollution Control Boards), provided they are not treated as employees.

All of these individuals perform public functions, not commercial ones, and often hold office by virtue of the Constitution or law. Hence, any honorarium, allowances, or perks received in such capacity are not subject to GST.

Funeral, Burial, Crematorium, and Mortuary Services

Services connected with the last rites of individuals—such as funeral arrangements, cremation, burial, and mortuary services—are excluded from GST. This exemption extends to activities like the transportation of the deceased, the use of crematorium facilities, or services by funeral agencies. The idea is to respect the emotional and social significance of these activities and to ensure they are accessible and dignified, without being burdened by indirect taxes. These are humanitarian services, not commercial transactions, and GST law consciously exempts them from tax obligations.

Sale of Land and Completed Buildings

The sale of land is completely outside the purview of GST. Since land is neither a good nor a service, it does not attract any GST liability. This is a clear and deliberate exclusion, keeping in mind the nature of real estate transactions.

When it comes to sale of completed buildings or flats, GST does not apply if the sale happens after the issuance of a completion certificate by the competent authority or after the building has been occupied. This falls under para 5(b) of Schedule II. The rationale is simple: once the construction is completed and possession is handed over, it’s considered an immovable property transaction, much like selling a ready home, which isn’t taxed under GST. However, GST is applicable if the buyer books the flat while it is under construction, as it is then treated as a supply of construction service.

Actionable Claims (Excluding Specific Gaming Activities)

Actionable claims are claims that a person can enforce through legal action, such as recovering unpaid debts, insurance payouts, or dividend entitlements. These claims are not considered goods or services and thus are generally excluded from GST.

However, there is a key exception. Actionable claims related to betting, gambling, casinos, horse racing, lotteries, and online money gaming are taxable under GST. These activities are seen as high-risk and high-revenue sectors, and the government has chosen to tax them to ensure regulatory control and prevent misuse. So while your company can assign or recover normal commercial claims without GST concerns, any involvement in the gaming industry must comply strictly with GST rules.

Inter‑Non‑Taxable Territory Supplies

This category addresses a unique situation in international trade. If goods are supplied from one non-taxable territory (say, Dubai) to another non-taxable territory (say, Singapore) without ever entering Indian borders, such transactions are not subject to GST in India. The logic here is to prevent double taxation or unnecessary compliance for goods that have no connection with the Indian customs territory. This is especially important for Indian companies engaged in global trading or acting as intermediaries in international logistics.

Warehoused Goods Before Clearance for Home Consumption

Two specific scenarios are exempt under this category:

  1. Supply of warehoused goods (imported into India but not yet cleared by customs) to another person before home consumption—that is, before they are released into the Indian market. These transactions are outside GST to avoid taxing the same goods twice (once at customs and once under GST).

  2. Transfers of goods still in transit, where the consignee transfers ownership by endorsing the documents of title (like a bill of lading) before the goods reach India. Even though the ownership changes, GST doesn’t apply until the goods are actually cleared for home use in India.

These rules are particularly relevant for import-export firms and large traders using bonded warehouses.

Co‑Insurance and Reinsurance Arrangements

In co-insurance, multiple insurers jointly provide insurance to a client, with one insurer acting as the lead. When the lead insurer receives the entire premium and distributes a share to the co-insurer, this apportionment is not treated as a separate supply, provided the lead insurer has already discharged full GST liability on the total premium.

Similarly, in reinsurance—where an insurer transfers part of the risk to another insurer (called the reinsurer)—any commission or premium adjustments between the two are not independently taxable, as long as the reinsurer pays GST on the full reinsurance premium, including commissions.

These provisions avoid unnecessary tax layering and ensure clarity in complex insurance structures. They are essential for firms operating in insurance, reinsurance, or large infrastructure projects with multi-insurer coverage.

Judicial Pronouncements

While the CGST Act and Schedule III provide the legislative framework for what is excluded from the definition of “supply,” the real-world application often leads to confusion. Businesses frequently grapple with questions like: Is this building sale taxable? Is transferring a claim to another party a supply? Is a service by an arbitrator taxable?

This is where judicial interpretations come into play. Courts and tribunals, over the years, have stepped in to interpret the law, especially when ambiguities arise. By analyzing the legislative intent, the commercial nature of the transaction, and the actual execution, courts have helped shape a more practical understanding of exclusions under GST.

The following landmark rulings not only illuminate key principles but also provide guiding precedents for firms, tax consultants, and GST officers dealing with grey areas in implementation:

1. CIT v. Mailhem Builders (SC)

The Supreme Court ruled that the sale of land does not amount to supply of goods or services. Although this was decided during the VAT era (pre-GST), the same logic has seamlessly carried over to GST. The court emphasized that land, being immovable and not “manufactured,” doesn’t fall into either category of goods or services. This remains one of the foundational rulings supporting Schedule III exclusions.

2. Mahindra & Mahindra Ltd. v. ACIT  (Bom HC)

In this Bombay High Court decision, the court drew a sharp line between transfer of under-construction property (which may attract tax) and transfer of title in completed flats, which is essentially a transfer of immovable property and not a taxable supply. This case is vital in understanding when GST applies to real estate deals—only during construction, not after possession and completion certificate.

3. ACIT v. Indian Chamber of Commerce (Cal HC)

The Calcutta High Court clarified that judicial and quasi-judicial bodies, including courts and tribunals, perform sovereign functions and are therefore outside the GST net. Their services—be it adjudication, rulings, or hearings—do not generate any commercial value and thus cannot be taxed. This ruling upholds the principle that justice is a public service, not a marketable one.

4. M/s. United India Insurance Co. Ltd. v. Union of India (Mad HC)

This case from the Madras High Court tackled the concept of co-insurance, where multiple insurers cover a single risk. The court held that the distribution of premium among co-insurers is not a taxable service as long as the lead insurer pays full tax on the entire premium amount. This ruling continues to guide GST treatment of insurance pooling arrangements, ensuring there’s no double taxation within the sector.

5. Commissioner of Central Excise v. Essar Oil Ltd. (SC)

In this Supreme Court case, the court dealt with the issue of title transfer through documents while goods are still in transit. It held that such transfers do not qualify as a separate supply of service, strengthening the GST exemption on warehoused goods or goods sold through document endorsement before customs clearance. This has significant implications for logistics, traders, and import-export houses.

6. Bank of Maharashtra v. Union of India (Tri.–Mumbai)

The GST Appellate Tribunal reiterated that actionable claims such as unsecured debts, dividends, and insurance claims are not taxable under GST, reaffirming Schedule III exclusions. However, the tribunal also noted that actionable claims associated with gaming, lottery, betting, or horse racing remain taxable, aligning with legislative intent to regulate and tax gambling-related revenues.

7. Prestige Estates Projects Ltd. v. State of Kerala (SC)

In this ruling, the Supreme Court evaluated land transfers in long-term leasehold agreements, helping distinguish pure land transactions (exempt) from those with embedded service components (taxable). This case is particularly helpful in understanding how certain lease or development rights may still fall within GST, especially in urban real estate deals or infrastructure projects.

These judgments collectively provide much-needed clarity and precedence for interpreting GST exclusions, especially when dealing with complex or layered transactions. Professionals should refer to these cases not just as historical reference points, but as practical tools to structure transactions and avoid litigation.

Key Considerations For Businesses

Understanding what is not considered a supply under GST is just as important as knowing what is. Many businesses—especially in areas like HR, real estate, insurance, or logistics—routinely engage in activities covered under Schedule III. Yet, confusion often arises: Should I charge GST on a lease transfer? Do I include employee salaries in my GST calculations? Is co-insurance apportionment taxable?

These may seem like technical questions, but incorrect treatment can lead to penalties, input tax credit reversals, or audit flags. Whether you’re a manufacturing company, tech startup, legal consultancy, or insurance firm, having a grip on these exclusions can save time, money, and litigation.

Here are key takeaways and compliance strategies every business should keep in mind:

Activity-to-Exclusion Mapping

Start by creating a transaction map that matches your business activities with the entries in Schedule III. This helps avoid misclassifying a non-taxable transaction as a taxable one (or vice versa). For example, salary payments should clearly fall under employee services—not professional services.

Maintain Clear Documentation

Every exclusion needs to be backed by robust documentation. Businesses should safely keep:

  • Employee appointment letters and payroll records (for employee services)

  • Sale deeds and occupancy/completion certificates (for land/building exclusions)

  • Judicial correspondence or court fee receipts (for court-related matters)

  • Insurance contracts and co-insurance agreements (for apportionment exclusions)

Well-maintained records are your first defense in case of a GST audit.

Accurate GST Returns

Even if a transaction is non-taxable, it still affects your return. Ensure such transactions are:

  • Correctly reported under exempt, nil-rated, or non-GST outward supplies

  • Not used as a basis to claim input tax credit (ITC), unless lawfully allowed Automated accounting software often misses this nuance—manual review is critical.

Quarterly Legal & Policy Reviews

GST rules evolve quickly through notifications, circulars, and case laws. Businesses should:

  • Conduct quarterly compliance checks

  • Review any new Supreme Court/High Court decisions impacting exclusions

  • Adjust internal SOPs (standard operating procedures) and ERP systems accordingly

Training Regarding What Is Not A Supply Under GST

Whether you’re an internal finance team or a consulting firm, it helps to:

  • Conduct periodic training sessions on Schedule III exclusions

  • Prepare brief guides or FAQs for non-finance departments (HR, Legal, Sales)

  • Educate external clients about GST treatment of real estate, employee perks, and foreign-to-foreign supplies to avoid billing errors or disputes

While GST law is often associated with what is taxed, understanding what is not considered a “supply” is equally crucial. Schedule III of the CGST Act offers businesses much-needed clarity by listing out transactions that fall outside the GST net. However, the practical application of these exclusions requires thoughtful interpretation, proper documentation, and continuous vigilance. With judicial precedents providing deeper insights and policy updates shaping compliance, businesses across sectors—not just tax professionals—must treat these exclusions as a core part of their GST strategy. Getting this right not only ensures peace of mind during audits but also reflects sound financial governance.