GST applies only where there is a taxable supply under the GST law.
Schedule III specifically identifies transactions that are treated as neither supply of goods nor supply of services.
Services provided by an employee to an employer in the course of employment are generally outside GST.
Sale of land is outside GST.
Sale of a completed building after completion certificate/first occupation is outside GST, subject to the statutory provisions.
Sale of developed land does not automatically become taxable merely because development work has been carried out.
Separate development services may, however, attract GST.
High-seas sale and specified FTWZ/warehoused-goods transactions are covered by Schedule III provisions.
Specific provisions now deal with co-insurance premium apportionment and reinsurance commission.
Partner remuneration should be examined based on the partnership relationship and the applicable GST provisions.
Certain constitutional/local authority functions are outside the scope of supply.
Mere inter-State movement of vehicles, vessels, aircraft, rigs, tools or cranes does not automatically amount to supply.
Repair and maintenance services relating to such goods can nevertheless be taxable.
Schedule III transactions should not be mechanically treated as “exempt supplies.”
The impact on ITC reversal under Section 17(3), Rule 42 and Rule 43 should be separately examined wherever applicable.
Introduction
Under the Goods and Services Tax (GST) law, the levy of GST is fundamentally based on the existence of a “supply” of goods or services. However, not every transaction involving consideration, movement of goods, or provision of an activity is treated as a supply.
Schedule III to the CGST Act, 2017 specifically identifies certain activities or transactions which are treated as neither a supply of goods nor a supply of services. Consequently, GST is not leviable on such activities, subject to the specific provisions and exceptions applicable to them.
This article explains the important transactions covered under Schedule III, including significant clarifications and developments introduced through the Finance Acts and CBIC clarifications.
1. Services by Employee to Employer
Services provided by an employee to the employer in the course of or in relation to employment are not treated as a supply under Schedule III.
Example
If an employee receives:
Salary.
Bonus.
Allowances.
Reimbursement of official expenses.
Other employment-related benefits.
such amounts are generally not consideration for a taxable supply by the employee to the employer.
Important distinction: Contract of Service vs Contract for Service
The distinction between an employee-employer relationship and an independent professional relationship is important.
Employer generally controls what and how work is performed
Service provider generally exercises professional independence
GST
Generally outside GST
May be taxable, subject to applicable provisions
Example
Employee working under employment contract
Lawyer, consultant, independent professional
Therefore, merely describing a person as an “employee” in an agreement is not sufficient. The substance of the relationship must be examined.
Gifts and employee benefits
A genuine gift is generally voluntary and without consideration. However, employer-provided benefits need to be examined carefully under the GST provisions, particularly where they are connected with employment.
The treatment of gifts to employees and input tax credit should therefore be examined separately based on the nature and value of the benefit.
2. Services by Courts and Tribunals
Services provided by any Court or Tribunal established under any law for the time being in force are covered under Schedule III.
For this purpose, the term “Court” includes:
District Court.
High Court.
Supreme Court.
Thus, activities performed by a Court in its judicial capacity are not treated as a supply of goods or services.
Court Receiver
The position of a Court Receiver requires careful examination. Where the Court Receiver merely performs functions pursuant to the orders of the Court, the activity may fall within Schedule III.
However, where the Court Receiver independently undertakes business or commercial activities, the GST implications may be different.
3. Functions Performed by Constitutional and Local Authorities
Schedule III also covers specified functions performed by:
Members of Parliament.
Members of State Legislatures.
Members of Panchayats.
Members of Municipalities.
Members of other local authorities.
Persons holding posts in pursuance of the provisions of the Constitution.
These activities are not treated as a supply of goods or services where they fall within the specified scope of Schedule III.
4. Sale of Land and Sale of Completed Building
One of the most important exclusions under Schedule III relates to immovable property.
Sale of land
The sale of land is neither a supply of goods nor a supply of services.
Sale of completed building
Sale of a building is outside GST where the transaction falls within Paragraph 5(b) of Schedule II, i.e. sale of a building after:
completion certificate has been issued; or
first occupation, whichever is earlier.
Therefore:
Sale of completed building after completion certificate/first occupation is outside GST.
However, the sale/construction of a building before completion certificate or first occupation, subject to the statutory conditions, can constitute a taxable supply.
Important comparison
Transaction
GST treatment
Sale of land
Neither goods nor services
Sale of completed building after completion certificate/first occupation
Outside GST
Sale/construction of building before completion certificate/first occupation
Generally taxable, subject to applicable provisions
Construction service provided separately
Taxable subject to applicable rate
5. Sale of Developed Land
An important practical question is whether development activities such as:
Levelling.
Internal roads.
Drainage.
Water lines.
Electricity infrastructure.
Other development work.
convert the transaction into a taxable supply of services.
CBIC has clarified that sale of developed land continues to be treated as sale of land, provided the development activities are merely incidental to the sale of land.
Thus, merely developing land does not automatically make the sale of land taxable under GST.
Example
A developer purchases land and develops it by:
levelling the plots;
constructing internal roads;
laying drainage lines; and
providing basic infrastructure required for approval/NOC.
If the principal transaction is the sale of land, the sale can continue to fall within Schedule III.
However, if a separate development service is supplied for consideration, GST may apply to that development service.
6. Sale of Land and Proportionate Reversal of ITC
Although the sale of land is outside GST, it can have an impact on input tax credit reversal.
For the purpose of Section 17(3) of the CGST Act, the value of certain supplies covered under Schedule III may be considered while determining the value of exempt supplies, subject to the specific statutory provisions.
The value of land and building for this purpose is generally determined with reference to the value adopted for stamp duty purposes, as prescribed under the relevant rules.
Therefore, a business engaged in both taxable activities and transactions covered by Schedule III should carefully evaluate the Rule 42/43 ITC reversal implications.
7. Supply of Goods on High Seas and Supply from FTWZ
Certain transactions involving goods before their clearance into the Domestic Tariff Area are also covered under Schedule III.
High-seas sale
A sale of imported goods on a high-seas sale basis, before the goods are cleared for home consumption, is covered by Schedule III.
Therefore, such transaction is not treated as a supply of goods or services under GST.
Supply from FTWZ
Supply of goods from a Free Trade Warehousing Zone (FTWZ) to buyers in India, before the goods are cleared for home consumption, is also covered by the relevant Schedule III provisions.
However, the customs and IGST implications at the time of import/clearance should be separately examined.
8. Important Change Relating to High-Seas Sale and FTWZ
The Finance Act, 2025 introduced retrospective clarifications relating to certain provisions of Schedule III.
The provisions relating to high-seas sales and transactions involving warehoused goods/FTWZ have to be read along with the relevant amendments and explanations inserted retrospectively.
The objective is to clarify the treatment of such transactions from the relevant effective date and remove ambiguity concerning their GST treatment.
Therefore, taxpayers dealing in:
High-seas sales.
Warehoused goods.
FTWZ transactions.
SEZ-related transactions.
should review the amendments and their historical GST treatment before determining liability or claiming any refund.
9. Co-insurance Premium and Reinsurance Commission
Insurance transactions can involve multiple parties, such as:
Lead insurer.
Co-insurer.
Reinsurer.
Schedule III provisions introduced specific treatment for certain transactions relating to:
Co-insurance
The apportionment of co-insurance premium by the lead insurer to the co-insurer is covered by the relevant Schedule III provisions.
Reinsurance
Similarly, reinsurance commission deducted from the reinsurance premium is subject to specific treatment under Schedule III.
These provisions were inserted through the Finance (No. 2) Act, 2024 with effect from 1 November 2024.
Further, the historical treatment for the period 1 July 2017 to 31 October 2024 was regularised through the relevant CBIC clarification.
Practical implication
Insurance companies should maintain proper documentation relating to:
Original premium.
Co-insurance arrangement.
Lead insurer's share.
Co-insurer's share.
Reinsurance premium.
Reinsurance commission.
This is particularly important while reviewing historical GST exposure.
10. Salary/Remuneration to Partners
Remuneration, salary, bonus or commission paid to a partner by a partnership firm has historically been an important GST issue.
A partner is not an employee of the partnership firm in the conventional employer-employee sense merely because the partnership deed provides for remuneration.
The treatment has to be understood in the context of the partnership relationship and Schedule III.
GST position
Remuneration received by a partner from the partnership firm in the capacity of partner is generally treated as outside the scope of GST, subject to the nature of the payment and applicable law.
The key point is that the payment should arise from the partner's relationship with the firm, rather than from an independent employer-employee relationship.
Practical example
Suppose:
A & B are partners in AB & Co. The partnership deed provides ₹1,00,000 per month as remuneration to A.
The payment should be examined as partner remuneration under the partnership arrangement, rather than automatically treating A as an employee providing taxable services to the firm.
Important caution
The agreement, actual relationship, nature of payment and applicable GST provisions should be examined before taking a position, particularly where a partner has entered into separate arrangements with the firm.
11. Functions Under Article 243G of the Constitution
Activities or transactions undertaken by the:
Central Government.
State Government.
Local Authority.
in which they are engaged as public authorities, relating to functions entrusted to a Panchayat under Article 243G of the Constitution, are covered under the relevant Schedule III provisions.
Such activities are therefore treated as neither supply of goods nor supply of services, subject to the specific statutory conditions.
12. Inter-State Movement of Means of Conveyance
Inter-State movement of certain means of conveyance is not treated as a supply merely because the conveyance moves from one State to another.
This includes movement of:
Trains.
Buses.
Trucks.
Tankers.
Trailers.
Vessels.
Containers.
Aircraft.
where the movement is for purposes such as carrying goods/passengers or repairs and maintenance.
Example
A truck owned by a company is sent from Rajasthan to Maharashtra for repair.
The mere inter-State movement of the truck for repair does not constitute a supply of the truck itself.
However, the repair/maintenance service supplied by the repairer will be subject to GST as applicable.
Important exception
If the vehicle itself is transported to another State for sale, the GST provisions relating to supply can apply because the movement is connected with a further supply of the vehicle.
13. Inter-State Movement of Rigs, Tools, Spares and Cranes
Inter-State movement of:
Rigs.
Tools.
Spares.
Cranes.
Other goods on wheels.
for purposes such as deployment or use, without constituting a supply, is also covered by the relevant clarification.
Therefore, mere movement of such goods between States does not automatically create a GST liability.
However:
Repair or maintenance services provided in respect of such equipment are taxable according to the applicable GST provisions.
14. Transfer of Title in Goods Located Outside India
It is important not to assume that every transaction involving goods located outside India is outside GST.
A transfer of title in goods can constitute a supply even where the goods themselves do not physically enter India, depending upon the applicable provisions.
For example:
A foreign supplier transfers title in moulds to an Indian entity, and the Indian entity subsequently transfers title to an Indian buyer, while the moulds remain outside India.
The transfer of title for consideration in the course or furtherance of business can constitute a supply of goods, even though the goods have not physically entered India.
Therefore, location of goods outside India alone does not automatically mean that GST is not applicable.
Conclusion
Schedule III plays an important role in determining the taxable event under GST. It prevents GST from being imposed on transactions which, by their very nature, are not intended to constitute a supply of goods or services.
However, the distinction between a Schedule III transaction, exempt supply and taxable supply is critical. Transactions involving land development, real estate, employee benefits, partner remuneration, insurance, high-seas sales and inter-State movement of assets require careful examination of the exact facts and the applicable statutory provisions.
Taxpayers should therefore analyse the substance of the transaction, contractual arrangements, consideration, movement/title of goods and the relevant Schedule III provisions before determining GSTliability.
Disclaimer: This article is for general educational and informational purposes only and should not be considered a substitute for professional advice. GST treatment may vary depending on the specific facts, agreements, applicable notifications, circulars and amendments in force at the relevant time.
By CA Deepak Kumar Chopra · Chartered Accountant· Published 9 August 2026· Updated 15 August 2026· 10 min read