Section 23 of the Central Goods and Services Tax Act, 2017 deals with persons who are not liable to obtain GST registration. While Section 22 generally determines when a person becomes liable for registration based on turnover and Section 24 covers certain cases of compulsory registration, Section 23 provides specific exclusions from registration.
The basic purpose of Section 23 is to ensure that persons whose activities fall completely outside the taxable GST framework, as well as agriculturists supplying produce from cultivation of land, are not required to obtain GST registration merely because they carry on an economic activity.
Under Section 23(1), two important categories of persons are specifically covered:
- Persons exclusively supplying goods or services that are not liable to tax or are wholly exempt from tax.
- Agriculturists, to the extent of supply of produce arising from cultivation of land.
Section 23(2) also gives the Government the power to notify additional categories of persons who may be exempted from obtaining GST registration.
Understanding this section is important for businesses, small suppliers, farmers, professionals and other persons who are trying to determine whether GST registration is actually required.
What is Section 23 of the CGST Act?
Section 23 is titled “Persons not liable for registration.”
The section states that the following persons shall not be liable to registration:
- A person exclusively engaged in supplying goods or services or both that are not liable to tax or are wholly exempt from tax under the CGST Act or the IGST Act.
- An agriculturist, to the extent of supply of produce out of cultivation of land.
The provision also authorises the Government, on the recommendations of the GST Council, to notify additional categories of persons who may be exempted from obtaining registration.
Therefore, Section 23 is not simply another turnover exemption. It is based mainly on the nature of supplies or activity carried out by the person.
Text and Structure of Section 23
Section 23 can broadly be understood through two sub-sections.
Section 23(1)
Section 23(1) identifies persons who are not liable for GST registration.
It covers:
- Persons exclusively making non-taxable or wholly exempt supplies.
- Agriculturists, to the extent of agricultural produce supplied from cultivation of land.
Section 23(2)
Section 23(2) provides that the Government may, on the recommendations of the GST Council, specify by notification additional categories of persons who may be exempted from obtaining registration.
This means that the statutory list in Section 23(1) is not necessarily the only basis on which a person may receive a registration exemption. The Government can issue notifications for specified categories in accordance with the Act.
Section 23(1)(a) – Persons Exclusively Supplying Non-Taxable or Wholly Exempt Supplies
The first major category under Section 23 is a person who is exclusively engaged in supplying goods or services or both that are not liable to tax or are wholly exempt from tax under the CGST Act or the IGST Act.
The word “exclusively” is particularly important.
A person can rely on this provision only when the business is exclusively dealing with supplies covered by the provision. If the person also makes taxable supplies, the position has to be examined under the other registration provisions of the CGST Act.
For example, suppose a business sells only goods that are wholly exempt from GST. Even if the business has a substantial turnover, Section 23(1)(a) can keep that person outside the registration requirement because the nature of the supplies is exempt.
CBIC’s FAQ material also explains that a person dealing with 100% exempt supplies is not liable to registration irrespective of turnover.
Example of an Exclusively Exempt Supplier
Suppose a trader deals exclusively in goods that are wholly exempt from GST.
His annual turnover is:
₹30 lakh
The turnover by itself does not automatically make him liable for registration under Section 22 because Section 23 specifically covers persons exclusively supplying wholly exempt or non-taxable goods or services.
Therefore, the nature of the supplies is important, not merely the amount of turnover.
CBIC has specifically given the example of a person dealing only in exempted goods and clarified that such a person is not liable to registration irrespective of turnover.
What Does “Not Liable to Tax” Mean?
Section 23 uses two different concepts:
- Supplies that are not liable to tax
- Supplies that are wholly exempt from tax
These expressions should not automatically be treated as identical.
CBIC’s FAQ explains that “not liable to tax” refers to supplies on which tax is not leviable under the CGST, SGST or IGST framework, with reference to the relevant statutory definition.
A person determining registration liability should therefore identify the GST treatment of each supply rather than simply assuming that a particular product or service is exempt.
Exempt Supply and Non-Taxable Supply
GST law contains specific definitions for concepts such as exempt supply and non-taxable supply.
A business may therefore need to examine the applicable GST rate notifications, exemption notifications and the relevant provisions of the CGST and IGST Acts before concluding that all of its supplies fall under Section 23(1)(a).
The important point is that the person must be exclusively engaged in supplies that qualify under Section 23(1)(a).
What Happens if a Business Makes Both Exempt and Taxable Supplies?
This is an important distinction.
Suppose a business sells:
- Product A – wholly exempt from GST
- Product B – taxable under GST
Even if most of its sales consist of Product A, it cannot simply claim that it is exclusively engaged in exempt supplies.
The presence of a taxable supply means the person must examine registration liability under the applicable provisions, including Section 22 and, where relevant, Section 24.
Therefore, the word “exclusively” in Section 23(1)(a) should not be ignored.
Section 23(1)(b) – Agriculturists
The second category specifically covered by Section 23 is an agriculturist.
Section 23(1)(b) provides that an agriculturist is not liable to registration to the extent of supply of produce out of cultivation of land.
This provision recognises the special position of agriculturists supplying agricultural produce from their own cultivation.
The exemption from registration is linked to the supply of produce arising from cultivation of land. It should not be understood as a blanket exemption from registration for every business activity undertaken by a person who happens to be an agriculturist.
Who is an Agriculturist Under GST?
The CGST Act defines an agriculturist as an individual or a Hindu Undivided Family undertaking cultivation of land:
- By own labour,
- By the labour of family, or
- By servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of a family member.
Therefore, the legal definition is relevant when determining whether a person qualifies for the specific protection under Section 23(1)(b).
Agricultural Produce Supplied by an Agriculturist
An agriculturist supplying produce from cultivation of land does not become liable for GST registration merely because the value of such agricultural produce crosses a particular turnover level.
The specific exclusion under Section 23(1)(b) applies to the extent of supply of produce arising from cultivation of land.
CBIC has also issued clarification concerning agricultural produce such as dried pepper and raisins, stating that an agriculturist supplying such produce, in the circumstances covered by the clarification, is not liable to registration under Section 23(1)(b).
Example of Section 23(1)(b)
Suppose a farmer cultivates wheat on his agricultural land and sells the wheat produced from that cultivation.
The farmer’s agricultural produce may have a significant value during the year.
The farmer does not become liable to GST registration merely because the value of agricultural produce supplied from cultivation exceeds the normal registration threshold. Section 23(1)(b) specifically covers an agriculturist to the extent of supply of produce out of cultivation of land.
However, if the same person separately carries on another taxable business, that separate activity needs to be examined independently under the GST registration provisions.
Section 23 Does Not Mean Every Farmer is Automatically Outside GST Registration
This distinction is important.
Section 23 protects an agriculturist to the extent of supply of produce out of cultivation of land.
It does not mean that every activity carried out by a farmer is automatically covered.
For example, if an agriculturist also operates a separate taxable trading or service business, the registration position for that activity has to be considered under the applicable GST provisions.
The exact facts and nature of the additional activity matter.
Section 23 and Section 22 – Key Difference
Sections 22 and 23 deal with registration from different perspectives.
Section 22
Section 22 generally deals with persons who become liable for registration when the applicable conditions and turnover thresholds are met.
Section 23
Section 23 identifies persons who are not liable for registration because they fall within specified categories, such as exclusive suppliers of non-taxable or wholly exempt supplies and agriculturists to the specified extent.
Therefore, a person should not determine GST registration merely by looking at turnover.
The nature of supplies and the specific statutory exclusions must also be examined.
Section 23 and Section 24 – Why the Distinction Matters
Section 24 contains categories of persons subject to compulsory registration in specified circumstances, notwithstanding Section 22(1). The section covers several categories of persons and therefore must be read alongside the other registration provisions.
Section 23, on the other hand, specifically states who is not liable for registration.
This is why GST registration analysis should normally consider the provisions together rather than reading Section 22 in isolation.
A person should examine:
- Whether the person is making taxable supplies.
- Whether the person falls under Section 23.
- Whether the person falls within a compulsory registration category.
- Whether any applicable notification changes the registration position.
- Whether the person has undertaken activities in more than one State or Union territory.
Government’s Power Under Section 23(2)
Section 23(2) gives the Government an additional power.
It provides that the Government may, on the recommendations of the GST Council, notify categories of persons who may be exempted from obtaining registration.
This allows registration exemptions to be provided to specified categories through notifications instead of requiring every exemption to be individually incorporated into the primary legislation.
Therefore, when determining registration liability, businesses should not rely solely on the text of Section 23(1). Relevant Government notifications and amendments should also be checked.
Does Turnover Matter Under Section 23?
Turnover can be very important under Section 22, but Section 23 works differently for the categories specifically covered by it.
For example, CBIC has clarified that a person dealing exclusively in exempted goods is not liable to registration irrespective of turnover.
This means that a business cannot determine its registration requirement simply by saying:
“My turnover is below the threshold, so I do not need registration.”
Likewise, it should not automatically say:
“My turnover is above the threshold, so I must register.”
The nature of supplies and the relevant registration provisions have to be considered together.
What if a Person Voluntarily Takes GST Registration?
A person who is not otherwise liable to registration can voluntarily obtain registration under Section 25(3).
Once a person obtains voluntary registration, the provisions applicable to a registered person apply to that person. CBIC’s FAQ also confirms that a person voluntarily registering below the threshold is treated as a normal taxable person for supplies made after registration.
Therefore, Section 23 does not prevent a person from choosing to register voluntarily where the law permits such registration.
Voluntary registration can have practical consequences, including compliance obligations and the treatment of taxable supplies after registration.
Section 23 and GST Registration for Businesses Supplying Only Exempt Goods
Consider a business selling only wholly exempt goods.
Suppose its turnover is:
₹50 lakh
If all of its outward supplies genuinely qualify as wholly exempt supplies and it is exclusively engaged in those supplies, Section 23(1)(a) can apply.
The business should, however, maintain appropriate records demonstrating the nature of its supplies and the applicable exemption.
The business should also review whether it has undertaken any other taxable activity that could change the registration position.
Section 23 and Businesses Supplying Non-Taxable Goods or Services
Section 23(1)(a) also covers persons exclusively supplying goods or services that are not liable to tax.
This is different from merely having some exempt supplies.
The requirement is that the person be exclusively engaged in supplies falling within the specified category.
Consequently, businesses should classify their supplies carefully before claiming that they are outside GST registration.
Important Compliance Point: Registration and Taxability Are Different Questions
A common mistake is to treat GST registration and GST taxability as exactly the same issue.
They are related but distinct.
A person may have no registration liability because of Section 23, while another person may be required to register even with a relatively low turnover because a compulsory registration provision applies.
Similarly, a person may voluntarily register even though Section 23 would otherwise keep the person outside mandatory registration.
Therefore, GST compliance should involve two separate questions:
First: Is the supply taxable, exempt or non-taxable?
Second: Does the person have a legal obligation to obtain registration?
Section 23 primarily addresses the second question for the categories specified in the provision.
Practical Examples of Section 23
Example 1 – Exclusively Exempt Goods
A trader sells only goods that are wholly exempt from GST.
Even if the trader’s turnover becomes substantial, Section 23(1)(a) may apply because the trader is exclusively engaged in wholly exempt supplies.
Example 2 – Exempt and Taxable Goods
A trader sells some wholly exempt goods but also sells taxable goods.
The trader cannot claim Section 23(1)(a) merely because the majority of sales are exempt. The word “exclusively” is important, and the registration position must be examined under the applicable provisions.
Example 3 – Farmer Selling Own Produce
A farmer cultivates agricultural land and sells produce obtained from that cultivation.
The farmer is covered by Section 23(1)(b) to the extent of supply of produce out of cultivation of land.
Example 4 – Farmer With a Separate Taxable Business
A farmer sells produce from his cultivation and also operates a separate taxable service business.
The agricultural produce activity may fall within Section 23(1)(b), but the separate taxable business must be examined independently for registration liability.
Example 5 – Voluntary Registration
A person is not required to register because the person’s activities fall under Section 23 but voluntarily applies for registration.
After registration, the person is treated as a registered person and the applicable GST provisions apply.
Documents and Records to Maintain
Although Section 23 itself does not prescribe a separate list of documents that every exempt supplier must maintain, businesses should maintain adequate records to establish the nature of their activities.
Depending on the business, useful records may include:
- Purchase and sales records
- Invoices or bills of supply, where applicable
- Details of goods or services supplied
- Documents supporting the GST classification
- Relevant exemption notifications
- Agricultural land and cultivation records, where relevant
- Records showing that supplies are exclusively exempt or non-taxable
- Records relating to any other business activity
Proper documentation becomes particularly important when a business claims that registration is not required because all of its supplies fall under Section 23.
Section 23 and Agricultural Produce – Important Point
The protection given to an agriculturist is connected with produce out of cultivation of land.
Therefore, the fact that a person is associated with agriculture does not automatically place every transaction carried out by that person outside the registration provisions.
For example, the supply of produce from one’s own cultivation and a separate commercial activity should not automatically be treated as the same thing.
The actual nature of the transaction and the person’s activities should be examined.
Common Mistakes Under Section 23
Mistake 1 – Looking Only at Turnover
Registration cannot always be decided simply by looking at turnover.
Section 23 specifically creates registration exclusions for certain persons irrespective of the normal turnover-based approach.
Mistake 2 – Ignoring the Word “Exclusively”
A person having both taxable and exempt supplies cannot automatically claim the exclusion available to a person exclusively engaged in exempt or non-taxable supplies.
Mistake 3 – Treating Every Farmer as Automatically Exempt
The agriculturist provision is specifically linked to supply of produce out of cultivation of land.
Mistake 4 – Ignoring Other Registration Provisions
Section 23 should be read with the wider GST registration framework, including Sections 22, 24 and 25, as well as relevant notifications.
Mistake 5 – Assuming Voluntary Registration Has No Consequences
Once a person voluntarily registers, the person becomes subject to the provisions applicable to registered persons.
Section 23 vs Section 22
| Basis | Section 22 | Section 23 |
|---|---|---|
| Main purpose | Determines persons liable for registration based primarily on turnover and other conditions | Specifies persons not liable for registration |
| Main focus | Registration liability | Registration exclusion |
| Turnover | Important | May not be decisive for specified Section 23 categories |
| Exempt-only business | Not the primary provision | Specifically covered |
| Agriculturist | Not the specific exemption provision | Specifically covered to the specified extent |
| Voluntary registration | Permitted under Section 25 | A person covered by Section 23 may voluntarily register where permitted |
Section 23 – Key Takeaways
The most important points of Section 23 can be summarised as follows:
- Section 23 deals with persons who are not liable for GST registration.
- A person exclusively supplying non-taxable or wholly exempt goods or services is covered by Section 23(1)(a).
- An agriculturist is not liable to registration to the extent of supply of produce out of cultivation of land.
- The word “exclusively” is important for suppliers claiming the benefit of Section 23(1)(a).
- A person carrying out another taxable business activity should separately examine the registration requirement for that activity.
- Section 23(2) allows the Government to notify additional categories of persons who may be exempted from registration.
- CBIC has clarified that a person dealing entirely in exempt supplies is not liable for registration merely because turnover exceeds the normal threshold.
- Voluntary registration is possible under Section 25, and once registered, the applicable provisions for registered persons apply.
- GST registration should be determined by considering the nature of supplies, Section 23, Section 22, Section 24 and relevant notifications together.
Conclusion
Section 23 of the CGST Act, 2017 provides an important exemption from the GST registration requirement for specified categories of persons. The two principal categories are persons who are exclusively engaged in supplying goods or services that are not liable to tax or are wholly exempt, and agriculturists to the extent of supply of produce obtained from cultivation of land.
The provision is particularly important because registration liability cannot always be determined simply by comparing turnover with the normal threshold. The nature of supplies and specific statutory exclusions can change the registration position.
At the same time, businesses should pay close attention to the word “exclusively”, the exact nature of their supplies and any separate taxable activities. Relevant notifications and the other registration provisions should also be checked before concluding that GST registration is not required.
Section 23 should therefore be read as an important part of the broader GST registration framework rather than as a standalone turnover exemption. The official CGST Act and CBIC guidance provide the primary basis for determining whether a person falls within these registration exclusions.
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