# Consideration under GST [Section 2(31)]

## Statutory Definition

Consideration in relation to supply INCLUDES:

### Limb (a) — Payment

Any payment made or to be made, whether in money or otherwise:

in respect of, in response to, OR for inducement of supply
by the recipient OR any other person
BUT EXCLUDES subsidy given by CG or SG

### Limb (b) — Monetary Value of Act or Forbearance

The monetary value of any act or forbearance:

in respect of, in response to, OR for inducement of supply
by the recipient or any other person
BUT EXCLUDES subsidy given by CG or SG

## Special Rule for Deposits

A deposit for supply is NOT treated as payment UNLESS the supplier applies it as consideration for that supply.

> Example: A refundable security deposit is NOT consideration until forfeited and applied against the supply.

## Key Features

Aspect	Position
Can be in money?	Yes
Can be in kind (act/forbearance)?	Yes — at monetary value
Can come from third party (non-recipient)?	YES
Subsidy from CG/SG	EXCLUDED
Subsidy from non-government entity	INCLUDED
Deposit	NOT consideration until applied

## Three Scenarios from Circulars

### Scenario 1: Donations to Charitable Institutions

[Circular No. 116/35/2019 GST dated 11.10.2019]

Donations are 'payment' only if there is quid pro quo
Mere acknowledgement (donor's name on plaque) ≠ consideration
No obligation on recipient to do anything for the donor
Result: NO consideration → NOT supply → NO GST

Examples:

Bhushan donates a blackboard; institution acknowledges with goodwill message → NOT supply
Durga Devi donates to temple; temple builds room with plaque in her memory → NOT supply

### Scenario 2: Artworks Sent to Galleries for Exhibition

[Circular No. 22/22/2017 GST dated 21.12.2017]

Artist sends artwork to gallery for exhibition
NO consideration flows from gallery to artist at this stage
NOT supply at dispatch
GST applies only when a buyer purchases the artwork

### Scenario 3: No Claim Bonus (NCB) in Insurance

[Circular No. 186/18/2022 GST dated 27.12.2022]

NCB is industry practice; reduced premium for no-claim periods
Insured has NO contractual obligation to avoid filing claims
NCB is NOT consideration for any supply
NO supply of service by insured to insurer in lieu of NCB
NO GST on NCB

## Memorising Anchor

Quid pro quo test — Ask: 'Did the recipient promise to do, refrain from doing, or pay something in exchange for the supply?'

Worked example

### Example 1

Example 1 – Third-party consideration: Mr. X buys a phone for his daughter; payment of ₹30,000 made by his father.

Consideration can flow from 'any other person'
Conclusion: Valid consideration; IS a supply

### Example 2

Example 2 – Government subsidy: Solar panel manufacturer sells panels worth ₹1,00,000 to a farmer. CG provides direct subsidy of ₹40,000 to the manufacturer.

CG subsidy EXCLUDED from consideration
Consideration = ₹60,000 only
If subsidy were from a private NGO, full ₹1,00,000 would be consideration

### Example 3

Example 3 – Deposit converted to consideration: A caterer collects ₹10,000 refundable security deposit. Customer fails to return utensils; caterer forfeits the deposit.

Initially: deposit NOT consideration
On forfeiture: becomes consideration
GST applies at time of application

### Example 4

Example 4 – Quid pro quo failure: Mr. Y donates ₹5 lakh to an old age home; trust runs a small notice thanking him.

No business promotion or obligation
No consideration → NOT supply → NO GST

⚠️ Common exam mistakes

Forgetting that consideration can be NON-MONETARY (an act or forbearance valued in money)
Treating government subsidies as part of consideration — they are specifically EXCLUDED
Treating ALL deposits as consideration — only deposits APPLIED by the supplier qualify
Assuming acknowledgment of a donor automatically converts the donation into consideration — apply the quid pro quo test
Treating NCB on insurance premium as consideration for a service by the insured

Bare-Act text Section 2(31) read with Circulars 22/22/2017, 116/35/2019, 186/18/2022 · CGST Act, 2017 · click to expand

Section 2(31): '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, 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, 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 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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