## Consideration under GST

Consideration is the price paid for a supply — but with several nuances unique to GST.

### Definition – Section 2(31)

'Consideration' in relation to supply of goods/services includes:

(a) Any payment made or to be made, whether in money or otherwise, by the recipient OR by any other person, but NOT including any subsidy given by Central or State Government.

(b) The monetary value of any act or forbearance, whether or not voluntary, by the recipient or by any other person — but excluding subsidies by Central/State Government.

> Provided that a deposit, whether refundable or not, shall NOT be considered as payment for supply UNLESS the supplier applies such deposit as consideration.

### Key Features

1. Form: Money OR non-money (barter, exchange in kind).

2. Payer: Recipient OR any third party — payment by a third party is still consideration.

3. Direction: Must be for the supply (nexus / quid pro quo).

4. Subsidy exclusion: Subsidy from Central/State Government is NOT consideration — but subsidy from any other person (private body, foreign agency) IS consideration.

### Illustrative Table

Scenario	Consideration?
Buyer pays seller in cash	✅ Yes
A third person pays on behalf of buyer	✅ Yes
Buyer gives barter goods in return	✅ Yes (non-money)
Central/State Govt gives subsidy to seller	❌ No
Foreign trust gives subsidy to seller	✅ Yes
Buyer gives a refundable security deposit	❌ No (unless applied as consideration)
Buyer gives advance for future supply	✅ Yes (treated as advance, GST may apply at receipt for services)

### Special Issues

#### (i) Deposit as Consideration

A deposit is NOT consideration unless and until the supplier applies it towards the supply.
Refundable security deposit → not consideration (mere holding of money).
Forfeited deposit (because customer didn't take delivery) → may become consideration for 'tolerating an act' service.

#### (ii) Donations to Charitable Organisations

A donation is NOT consideration if ALL three conditions are satisfied:

1. Gift or donation made to a charitable organisation.

2. Payment has the character of gift or donation (voluntary, no expectation of return).

3. Purpose is philanthropic, not advertisement (no commercial gain to donor).

If donor receives advertisement benefit in return → consideration → supply of services.

#### (iii) Art-work Sent to Galleries for Exhibition

Stage	Treatment
Artwork displayed (not sold)	No buyer, no consideration → No supply at exhibition stage
Artwork sold to an interested visitor	Consideration arises → Supply at that moment

Clarified by CBIC circular — exhibition itself is not a supply; sale is.

#### (iv) Schedule I – Supply Without Consideration

Specified transactions are deemed supply even without consideration (e.g. permanent transfer of business assets where ITC was availed; supply between related persons; principal-agent supplies; import of services from related person). Covered separately.

Worked example

### Example 1

Example – Third Party Consideration

Mr. Ram purchases goods worth ₹1,00,000 from Mr. Shyam. Payment is:

(a) Made by Ram himself → Consideration.

(b) Made by Mr. Jay on behalf of Ram (e.g. as a gift) → Consideration (payer's identity doesn't matter).

(d) Made by a foreign charity → Consideration (only Central/State Govt subsidy is excluded).

### Example 2

Example – Donation with Branding

Mr. Naveen donates ceiling fans to a school run by a charitable trust. The school inscribes on each fan:

(a) 'Donated by Mr. Naveen' → No mention of business → philanthropic → Not a supply (no consideration).

(b) 'Donated by Naveen & Associates, CA Firm' → Advertisement benefit to donor's firm → Supply of advertisement service by the school to the firm; donation is the consideration.

### Example 3

Example – Security Deposit

Mr. A leases a shop to Mr. B for ₹50,000 per month and takes a refundable security deposit of ₹5,00,000.

Monthly rent = consideration → GST applies on ₹50,000 each month.
Security deposit = NOT consideration (refundable, not applied to rent).
If at lease end, Mr. A forfeits ₹50,000 from the deposit for damages, that becomes consideration for 'tolerating loss' — taxable.

⚠️ Common exam mistakes

Including Central/State Government subsidy in consideration — it is specifically excluded.
Treating ALL deposits as consideration — refundable deposits are not until applied.
Ignoring third-party payments — they qualify as consideration.
Assuming all donations to charity are non-consideration — if there is quid pro quo (advertisement, naming rights), it becomes consideration.
Forgetting that even non-monetary consideration (barter, in-kind) qualifies — valuation rules of Section 15 then apply.

Bare-Act text Section 2(31) · CGST Act, 2017 · click to expand

Section 2(31) CGST Act: 'Consideration' in relation to the supply of goods or services or both includes — (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government. Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.

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Consideration – Meaning and Special Issues

Worked example

⚠️ Common exam mistakes