GST Section 23: Persons Not Liable for Registration, Exemptions & Exceptions

Summary: Section 23 of the CGST Act, 2017 deals with persons not liable for GST registration and operates alongside the general registration requirement under Section 22 and compulsory registration provisions under Section 24. The provision covers persons engaged exclusively in supplies that are not liable to tax or are wholly exempt, and agriculturists to the extent of supply of produce out of cultivation of land, while Section 23(2) empowers the Government to grant specified registration exemptions through notifications. The retrospective amendment made through the Finance Act, 2023 is significant in understanding the relationship between Section 23 and Sections 22 and 24. Registration liability therefore cannot be determined merely by turnover: taxpayers must examine the nature of supplies, the entire business activity, compulsory-registration provisions and applicable notifications. Important notification-based relief covers specified reverse-charge supplies, inter-State services, handicraft supplies and certain suppliers operating through e-commerce platforms, while subsequent amendments, such as the exclusion of specified metal-scrap suppliers from Notification No. 5/2017, demonstrate the need to check the law applicable for the relevant period. Section 23 is therefore better understood as defining the statutory boundary between persons required to enter the GST registration framework and those specifically excluded or exempted from it.

Persons Not Liable for GST Registration: Understanding Section 23 and Its Practical Boundaries

Introduction

GST registration is generally considered as an easy exercise of threshold. A business monitors its turnover and compares it with the prescribed limit, and determines if it needs to be registered. Such a course would be convenient, but would not reflect the entirety of the Central Goods and Services Tax Act, 2017 (“CGST Act”).

The general liability, compulsory registration and specific exclusions form the basis of the registration provisions. Section 22 is about the general duty to register, section 23 lists those who are not required to register and section 24 lists certain categories where registration may be compulsory even if the threshold set in section 22 is not reached.

The challenge in practice is at the intersection of these provisions.

The business may only contain supplies which are not taxable or wholly exempt from tax despite the fact that the individual has a long turnover and not registered. The agriculturist may also be outside registration as specifically recognised by Section 23. Meanwhile, a relatively small turnover business might be required to be registered given the nature of the activity. The position can then be changed by a notification made under Section 23(2).

This is not just a list of people who “do not require GST registration” as it would seem. It is more commonly known as a boundary provision. It is not just a question of who is within Section 23, but how much does the exclusion go, and when does another provision of the GST law come into play?

This article focuses on that boundary, specifically in the context of Sections 22, 23 and 24, the retrospective amendment to Section 23, notification based exemptions and some of the practical scenarios that persist and continue to cause confusion for taxpayers.

1. The Registration Framework: Three Provisions, Not One

Understanding Section 23 is a prerequisite for understanding Sections 22, 23 and 24.

The general rule is set out in Section 22. In general terms a supplier who makes taxable supplies is required to register when the threshold for the aggregate turnover is crossed, provided the conditions and exceptions as provided in the Act and notifications are satisfied.

Section 24 is different. It defines certain classes of people who must be registered, even if the limit in Section 22 is not met, as modified and exempted under the GST law. Section 23 then sets out those who are not required to be registered and the power for the Government to exempt those who fall into specified categories.

2. What Section 23 Actually Excludes

There are two main categories in Section 23(1):

Person Who Is Only Supplying Non-Taxable or Fully Exempt Supplies

Section 23(1)(a) pertains to a person who supplies exclusively goods or services or both, not liable to tax or wholly exempt from tax under CGST Act or the Integrated Goods and Services Tax Act, 2017.

The inclusion of the word “exclusively” is important. The provision does not provide a blanket exemption for all those who may make some exempt supplies. The statutory test relates to the nature of the person’s business.

For instance, if a person is only engaged in business with goods that are completely exempt from the GST rate, they may be covered under Section 23(1)(a). The high value of such supplies does not make the person a registered taxpayer.

The position becomes different when the person starts making taxable supplies on which tax is payable by him. This is why the registration analysis should be revisited whenever the nature of a business change.

Agriculturists

Section 23(1) (b) deals with an agriculturist and excludes the person to the extent of supply of produce out of cultivation of land. The provision thus has a specific statutory scope. It does not mean that any person who is an agriculturist is exempted from any registration simply because he is an agriculturist.

When a farmer grows wheat and disposes of the wheat grown, Section 23(1)(b) will immediately be applicable. Simply extending the agricultural exclusion to an independent business activity of a farmer, who begins buying and selling consumer electronics, does not suffice. The two activities have to be examined separately.

3. The importance of “Exclusively”

More attention should be paid to the word exclusively.

Suppose A owns a small business to sell only exempt goods. His business continues to be in the language of Section 23(1) (a). Suppose, now, that A has a second product that he is able to sell in his business for which he has to pay a tax.

It would be almost irresponsible to state that A’s income remains exempt if 95% of his sales were from exempt goods. “Predominantly exempt” is not mentioned in section 23(1)(a). It is based on an exclusive test.

This has a significant practical implication. It is important for a taxpayer not to evaluate registration based on the level of turnover that is taxable. It’s possible that a relatively small taxable activity can necessitate the reassessment of the registration position.

This is especially true of small businesses that slowly expand their product line. A business model can start in Section 23 and then continue into Section 25 without the taxpayer perceiving the change in model.

4. “Not Liable to Tax” and “Exempt” are not synonymous.

In Section 23(1) (a), there are two different descriptions – supplies that are not liable to tax and supplies that are wholly exempt from tax. It shouldn’t be taken lightly.

One supply can fit outside the scope of the levy, a different supply can be subject to the levy in principle but specifically be exempted in an exemption notification. Both categories are relevant for the purpose of registration if Section 23(1)(a) is complied with.

The difference is still significant if it’s a consideration in analysing the transaction in the background. A taxpayer should consider the consequences for registration only after determining what are the reasons for the supply not being included in the tax burden.

The same is the reason why the message ‘my goods are exempt, so I don’t need registration’ should not be regarded as a complete legal analysis. The exemption needs to be recognized and its scope and nature analysed.

5. The 2023 Amendment: A Small Change with a Significant Consequence

The most significant analytical change in Section 23 of the Act is the change made in the Finance Act 2023 that took effect from 1 July 2017 and which is now retrospective. There was some difficulty prior to the amendment about how Section 23 related to Section 24.

There was compulsory registration in Section 24. Section 23 however, recognized those persons who were not liable to be registered and allowed that Government to give such exemptions as it was pleased to do, by notification.

The Law Committee of the GST Council in particular reflected on the possibility of circumvention of exemption granted under Section 23 by making it compulsory to register under Section 24.

The initial amendment proposal was a wider one. However, during the course of the legislation, queries were raised about whether it would impact on persons liable for tax under the reverse charge. The final approach was more focused and narrowed down.

The focus was on the notification-making provision (23(2)) instead of an overriding code for the exclusions in Section 23(1).

It’s a legal difference. It does not mean that if there is an overriding clause in Section 23(2), it will automatically be argued that everyone covered by Section 23(1) is immune from all the compulsory-registration provisions of Section 24.Rather, the tax-payer needs to pinpoint the particular provision of the statute and, if applicable, the notification under section 23(2).

That is one place where a bare reading of the text without taking into account the legislative history can result in an incomplete conclusion.

6. Section 23(2): When Notifications Matter

Under Section 23(2), Government has given the power to exempt categories of persons from registration on the recommendations of the GST Council, with conditions and restrictions as mentioned in the notification.

This provision is of particular significance as the exemption can be relied upon in spite of the provisions of Section 22(1) and Section 24. The result is real-world.

In case a taxpayer comes under any category specifically exempted under a valid notification issued under Section 23(2) of the Act, the same must be implemented as per the terms of the notification. However, the second is also integral,

What’s important is the circumstances of the notification. An exemption notification is not only a general authorization to be not registered. The recipient of the tax must meet the requirements of the tax. This is where a proper GST advice differs from a simple GST explanation on Section 23.

7. The boundary—Important example of Reverse Charge.

One of the first and most important is Notification No. 5/2017-Central Tax.

It allows persons who are making taxable supplies and the whole tax liability is on the recipient under reverse charge as per Section 9(3) of the Act. This puts a new spin on registration.

The supplier might be actually making a supply which is taxable, but the tax liability falls on the recipient under the statutory provisions. As a consequence, the Government has decided to lift the requirement for registration of the specified category under Section 23(2). But the exemption should not be called “unlimited.

One of the important subsequent developments is in the field of metal scrap. The amendment to Notification No. 5/2017, published on 10 October 2017, in Notification No. 24/2024-Central Tax, effective from 10 October 2024, further amended the Notification and specifically denied the exemption from registration to those involved in the supply of metal scrap, which are covered under Chapter 72 to 81 of the First Schedule to the Customs Tariff Act, 1975.

This is a fine example of why a taxpayer cannot take on the word of the original notification of 2017.The law was altered.

If a person is advising a metal-scrap supplier to register for the metal-scrap program with the basis of only the metal-scrap product Notification No. 5/2017, then they are taking an outdated approach. Registration exemptions are not just exemptions for metal scrap; they must be reviewed per the amendments, not simply as written.

8. Inter-State Supplies: Section 24 is not the end of the analysis

Persons making inter-State taxable supplies are included in the list of persons ordinarily needed to be registered in section 24. This looks like it would give a pretty clear answer – yes, the inter-State supplier has to register, regardless of whether there is turnover.

Again, Section 23(2) provides for exceptions specific to it.

For instance, under Notification No. 10/2017-Integrated Tax taxable services provided by specified persons to other persons by way of inter-State supply of taxable services up to the specified limit are exempted under the aforesaid Notification, subject to the terms provided therein. Likewise, certain exemptions have been made with regard to handicraft and handmade items.

The key is not to learn off by heart all the exemptions as a list. It is important to be aware of the statutory process: Section 23(2) is a notified exemption from the compulsory-registration category provided in Section 24. The latter approach is a better interpretation of the relationship between the provisions.

9. E-Commerce: Compulsory Registration to Conditional Relief

E-commerce is one of the most apparent examples of the changing dynamics of rules for registering for GST.

The original definition in Section 24 included what it called “specified suppliers” who were “electronic commerce operators”. Later the Government made exceptions for some suppliers under Section 23(2).

With regards to services provided through electronic commerce platforms it was provided that there should be an exemption from compulsory registration for specified suppliers on the prescribed conditions and threshold in Notification No.65/2017-Central Tax. The issues of goods were discussed at a later stage.

Guidance was provided in Notification No.34/2023-Central Tax dated 31 July 2023 that the provision of mandatory registration under Section 24(ix) will not apply to specified persons making supplies to the electronic commerce operator (e-commerce operator) subject to certain conditions.

The amendment to Section 23, which was made in 2023, serves a useful purpose, as can be seen here.

In its own agenda items, the GST Council had explained that the measure was linked with its policy of not mandating compulsory registration for certain small suppliers on the ground of making intra-State supplies through e-commerce operators. The law shifted from a largely prescriptive registration provision to a conditional exemption provision.

10. The E-Commerce Exemption Is Not a General Licence to Remain Unregistered

There is no misunderstanding that there is an exemption for specified ecommerce suppliers. A supplier must meet the requirements stated in the corresponding notification.

The legal analysis could include the following questions:

• Is the supply INSTATE?
• Does the supplier fall below the applicable turnover limit?
• Does the notification apply to the supplier who supplies via an electronic commerce operator?
• Has the supplier been completed with the necessary enrolment?
• Is there any restriction based on the State / Union Territory of origin of the supplies?
• Is the particular category of goods covered?
• Has the notification since been changed?

Hence, the term ‘small seller on Amazon/Flipkart/other platform’ doesn’t constitute a legal classification. The actual conditions of statutory and notification should apply to the specific supplier.

11. Agriculturist: Exclusion, not a General Business Exemption

The status of farmers is a category on its own as the statutory benefit is easy to overestimate.

For the purposes of the GST, the definition of “agriculturist” is provided in Section 2(7). Then, according to section 23(1)(b), the agriculturist is not liable to be registered in respect of produce out of cultivation of land. The expression “to the extent” is important. It connects the exclusion with the produce from cultivation. Suppose a farmer cultivates wheat and sells the wheat crop. The transaction is within the normal meaning of the statutory exclusion. Suppose now that the same person starts to buy wheat from other farmers and to sell it as a different occupation. It is not simply a case of deciding the legal position of the purchased goods by stating:

“The seller is an agriculturist.”

The question now is whether the transaction is a transaction for the use of real property for agricultural purposes, as defined by the statutes. It should not be confused with the identity of the person, or the nature of the particular activity. The distinction is especially significant when incorporated into the agricultural activity, which is joined by trading, processing, storing or other commercial activities.

12. Registration and Taxability Are Two Different Questions

The most frequent misconceived idea about the GST is that “not liable to registration” and “not taxable” are synonymous but they are not.

The focus of section 23 is mainly on registration liability. It is a matter of law whether a supply is taxable, exempt, nil-rated, non-taxable or outside the scope of “supply”.

A registration consequence is determined, for instance, if a person is only involved in supplies that are fully exempt, in accordance with Section 23. That, however, does not mean that the exemption from tax was established by Section 23.

In a similar way, exclusion of the agriculturist from the register does not affect the taxability of all the transactions of the agriculturist. In practice, this distinction is helpful because the tax treatment is not always fully determined before the advice on registration is provided. The sequence should be reversed preferably. It is important to understand the transaction first, then how it is treated for GST, the activities of the supplier, Section 22, Section 24 and finally all provisions of Section 23 and applicable notifications.

13. A Practical Decision Making Approach

The following order is more reliable for a taxpayer or an adviser to follow when it comes to Section 23.

Step 1: Determine the real supply.

Avoid starting with a turnover. Begin with the transaction.

Step 2: Determine its GST character

Is it taxable, exempt or fully exempt, nil-rated or non-taxable (or other)?

Step 3: Review the entire business of the supplier.

This is especially relevant, since Section 23(1)(a) requires the use of the word “exclusively”.

Step 4: Calculate aggregate turnover where relevant

Thresholds can only be considered in the context of the statutory definition of aggregate turnover.

Step 5: Check Section 24

If the person is in a compulsory registration category, then the analysis should be continued.

Step 6: Find a Section 23(2) exemption

If Section 24 seems to mandate registration, ascertain if the Government has made a specific notification regarding exemption from that registration.

Step 7: Read the notification as a whole

Refrain from stopping at the end of the first paragraph. Look for the conditions, restrictions, amendments and effective date.

Step 8: Review the law that is in effect on the date at issue.

This is especially relevant in GST where notifications and amendments can affect the position of registration.

This approach is more reliable than just basing it on the taxpayer’s turnover being less than ₹20 lakh or less than ₹40 lakh.

14. Practical Examples

Example 1 — entirely exempt business

A trader is obliged to sell only those items that are completely exempted from GST.

Under Section 23(1) (a) it does not matter whether the business is above or below the turnover limits if it is only within that category.

Example 2 — Exempt business adds taxable goods

Later the trader starts trading a taxable product.

The previous conclusion cannot be automatically followed. The “exclusive” requirement needs to be reviewed and the overall registration requirements reanalysed.

Example 3 — Agriculturist sells his own products

A person who grows food and sells it for a profit to others.

The following is Section 23(1) (b) as it applies to that supply.

Example 4 – Agriculturist begins a new enterprise

The farmer also starts selling the consumer goods that he buys.The farmer also starts the selling of consumer goods purchased by him.

The trading activity has to be examined independently. The agricultural status does not exempt the separated business from registration.

Example 5 — Small inter-State service supplier

For a service provider, inter-State taxable supplies but not in the ordinary threshold.

Section 24 is to be taken into consideration before any particular exemption under Section 23(2) such as notification regarding the specified inter-State services.

A small ecommerce business.

Example 6 — Small ecommerce business.

A small retailer provides products via an e-commerce provider.

It’s not enough to just look at turnover to get the answer. It is advisable to take Notification No. 34/2023-Central Tax and its condition into consideration.

Example 7 — Metal-scrap supplier

A person makes supplies of metal scrap only and pays tax on the supplies under reverse charge as per Chapters 72 to 81.

The person will not be able to use Notification No. 5/2017 as it had been superseded by Notification No. 24/2024 dated 10 October 2024 which specifically excluded such suppliers from the exemption.

This is likely one of the most obvious practical demonstrations of the dangers of a shortcut: RCM supply = no registration.

15. Where Taxpayers Commonly Go Wrong

Mistake 1: Replacing the threshold with the entirety of the rule.

GST registration is not based on the turnover.

Mistake 2: Treating mostly exempt supplies as exclusively exempt

“Mostly exempt” is not the same as “exclusively exempt”.

Mistake 3: Treating agriculturist status as a blanket exemption

The supply of produce from the cultivation of land is associated with Section 23(1)(b).

Mistake 4: Reading Section 24 without Section 23(2)

Specific notification-based exemption may be granted for a compulsory-registration provision.

Mistake 5: Reading Section 23(2) without the notification

The exemption is until notification and depends upon the conditions of the exemption.

Mistake 6: depends on the original notification.

GST notification amended. This may not be the actual text of the law.

The Metal Scrap amendment to Notification No. 5/2017 is a typical example.

Mistake 7: Confusing registration with taxability

The registration exemption doesn’t automatically provide a response to whether the supply is taxable.

16. A More Important Question: When Does the Exclusion Stop?

The best way to comprehend Section 23 is to ask where the boundary is.

The boundary is closely related to the exclusive aspect of this business in the case of Section 23(1) (a).

In subsection 23(1) (b) the boundary is linked with produce out of cultivation of land.

For section 23(2) the boundary is determined pursuant to the notification and its conditions and restrictions.

Where Section 24 applies, the taxpayer will need to have a view on whether there is a specific exemption in Section 23(2) which overrules that compulsory-registration requirement.

This provides Section 23 with a framework that is not always provided when a list of exempt persons is given.

The actual legal issue is the question of scope.

17. Critical Perspective

The feature of Indian GST law as visible in the development of Section 23 is interesting.

The original registration system had a certain level of rule-based logic, with a general threshold in Section 22 and specific thresholds for compulsory categories in Section 24. The more the GST regime evolved, however, there were some business models that needed a more flexible approach.

Small artisans, inter-State services and small suppliers via e-commerce are examples.

Over time, the Government has increasingly used the power conferred on it by Section 23(2) of the Acts to grant specific exemptions to address practical issues that arose as they occurred rather than rewriting the registration structure every time.

This affords some flexibility but also poses a compliance issue.Now the taxpayer has to read the Act along with the notifications and subsequent amendments.

In a real-life sense, this can be a simple statute on the face of it, but it can be difficult to apply.

It’s not always a fault of the statutory design. Specific exemptions may represent a cost-effective solution to avoid unnecessary compliance costs to small taxpayers. However, they also render the current-law verification more relevant.

The 2023 amendment is just one example. As per the minutes of the GST Council, the amendment was actually triggered by an interaction between compulsory registration under Section 24 and the proposed relaxation for certain e-commerce suppliers. The Council also thought about the ripple effects of extending the overriding effect of Section 23 and ended up tinkering with the section.

That legislative history is significant because it shows that one has to read the words of section 23 with a more nuanced understanding than is afforded by merely reading what words it contains now.

Conclusion

The provisions of CGST Act Section 23 are usually referred to as the provisions relating to “persons not liable for registration”. This is correct, but not the whole story. Its real meaning is in identifying the scope of the general registration rule and the compulsory registration and specific exemptions established by law.

Section 23(1)(a) safeguards those providing a supply which is not subject to tax or is entirely exempt from tax. Particular attention is drawn to the provision in section 23(1)(b) which is specific to agriculturists and restricts the exclusion to the supply of produce out of cultivation of land. Section 23(2) is, however, a different provision by which the Government can provide for specified and conditional exemptions by making notifications.

It is noteworthy that the 2023 amendment put into place a clarification on the relationship between Section 23(2) and Sections 22 and 24. It didn’t just make the compulsory registration override just a thing of the past in Section 23. However, the power to notify under Section 23(2) had a more pervading effect. The issuance of notifications regarding reverse charge, inter-State services and e-commerce further illustrates the same.

The bottom line to taxpayers is clear:

Don’t register for GST on grounds of turnover only.

The correct analysis involves considering: nature of the supply; all of the business activity; Sections 22 and 24; the exclusions in Section 23(1); and any notification in Section 23(2).

More importantly, it is important to always register based on the law of the period concerned. The addition of an exception on metal scrap in Notification No. 5/2017 is suggestive that exceptions from 2017 do not necessarily carry over in the same form in 2021.Section 23 is therefore not just an exemption list, but a statutory exclusion edge between those who are obliged to be within the GST registration framework and those who are deliberately excluded from it by the legislation.

References

• Central Goods and Services Tax Act, 2017, particularly Sections 2(6), 2(7), 22, 23 and 24.
• Integrated Goods and Services Tax Act, 2017, particularly provisions relating to inter-State taxable supplies.
• Finance Act, 2023, amendment to Section 23 of the CGST Act.
• Notification No. 5/2017-Central Tax, dated 19 June 2017 — exemption for specified persons exclusively making supplies on which the entire tax is payable by the recipient under reverse charge.
• Notification No. 10/2017-Integrated Tax, dated 13 October 2017 — specified exemption concerning inter-State supplies of taxable services.
• Notification No. 65/2017-Central Tax, dated 15 November 2017 — exemption concerning specified suppliers of services through electronic commerce platforms.
• Notification No. 3/2018-Integrated Tax, dated 22 October 2018 — specified exemption concerning inter-State supplies of notified handicraft/handmade goods.
• Notification No. 34/2023-Central Tax, dated 31 July 2023 — waiver of mandatory registration under Section 24(ix) for specified persons supplying goods through electronic commerce operators, subject to conditions.
• Notification No. 24/2024-Central Tax, dated 9 October 2024 — amendment excluding specified metal-scrap suppliers from the exemption under Notification No. 5/2017.
• GST Council, Detailed Agenda Note, 49th GST Council Meeting — legislative background to the amendment of Section 23.
• CBIC, GST FAQs and official GST materials concerning registration and electronic commerce.
• Relevant judicial decisions and official GST materials concerning registration liability.