Entries 3 and 3A: Pure Services and the 25% Rule

Entries 3 and 3A explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

These two entries carry more government contracting than every other exemption combined — and they were narrowed sharply on 1 January 2022. A great many arrangements built before that date no longer work.

Entry 3 exempts pure services — excluding works contract service and other composite supplies involving goods — provided to the Central Government, State Government, Union territory or local authority by way of any activity in relation to a function entrusted to a Panchayat under article 243G or a Municipality under article 243W. Entry 3A, inserted by Notification No. 2/2018-CT(R) dated 25.01.2018, extends the same to a composite supply of goods and services in which goods are not more than 25% of the value. Exemption for supplies to a Governmental Authority or Government Entity under both entries was withdrawn by Notification No. 16/2021-CT(R) dated 18.11.2021, w.e.f. 01.01.2022.

The four conditions

One — the supply must be a pure service (entry 3). "Only supplies which are pure services viz., which do not have any element of supply of goods whether as pure supply of goods or as works contract are covered here."

The Handbook's examples: "Supply of manpower for cleanliness of roads, public places, architect services, consulting engineer services, advisory services, and like services provided by business entities not involving any supply of goods would be treated as supply of pure services."

Two — or a low-goods composite supply (entry 3A). The supply must be a composite supply of goods and services — which, per Schedule II, arises in two categories: works contract as defined in section 2(119), and the supply of food or drink as part of a service. And goods must not constitute more than 25% of the value.

Three — the recipient must be Government or a local authority. "Supplies should be provided to Central Government, State Government, Union territory or local authority."

And the consequence the Handbook states twice: "Thus, sub-contractors when providing the same services to the contractors of Government shall not enjoy this exemption."

Four — the activity must relate to a 243G or 243W function. "The term 'in relation to' enlarges the coverage of the exemption as any supply which is not 'of' but 'related to' such function."

The withdrawal of 1 January 2022

The Handbook records it plainly:

"Earlier the exemption was also available when services were provided to Governmental authority or a Government Entity. However, this exemption on services provided to Governmental authority or a Government Entity has been withdrawn vide Notification No. 16/2021-Central Tax (Rate), dated 18-Nov-2021, w.e.f. 1-Jan-2022."

The recipient column now reads only: Central Government, State Government, Union territory, or local authority.

This is the single most consequential change in the area. Contracts with municipal corporations and State departments still work. Contracts with development authorities, statutory boards, State missions, corporations and government companies — which are Governmental Authorities or Government Entities, not Government — lost the exemption on 1 January 2022.

And the DDA point compounds it. A body assumed to be a local authority may in fact be neither Government nor a local authority — as Circular No. 245/02/2025-GST held of the Delhi Development Authority. Local authority under section 2(69) →

The sub-contractor problem

Neither entry reaches a sub-contractor, because the recipient must be Government or a local authority — and a sub-contractor's recipient is the main contractor.

The commercial effect is a broken chain. The main contractor's supply to the municipality is exempt, so it takes no output tax and cannot use credit; the sub-contractor charges GST on its supply to the main contractor; and that tax, being attributable to an exempt outward supply, is not creditable. It becomes cost embedded in the contract price.

Two structuring responses follow, and both are ordinary rather than clever: price the sub-contract knowing the tax sticks, or contract so that the sub-contractor supplies the government body directly under a separate award.

Ambulance services: the entry-3 and entry-3A pair

Circular No. 51/25/2018-GST dated 31.07.2018 deals with ambulance services provided by private service providers under the National Health Mission on behalf of State Governments, against a fee or other consideration charged from the State Government.

These are exempt, being "an activity in relation to 'health and sanitation' and 'public health' functions entrusted to Panchayats and Municipalities under Article 243G and 243W" — Eleventh Schedule entry 23 and Twelfth Schedule entry 6.

And the circular allocates them between the two entries: exempt under entry 3 if a pure service and not a composite supply involving goods, and under entry 3A if a composite supply in which goods are not more than 25%.

That is the model for every borderline claim. Identify the function, then decide which entry the supply's composition puts it in.

Three more clarifications, and what they teach

MCD's headquarters upkeep — not exempt. Circular No. 245/02/2025-GST dated 28.01.2025 held that housekeeping, civil maintenance, furniture maintenance and horticulture supplied to the Municipal Corporation of Delhi "for the upkeep of their office" are "not supplied in relation to performing any functions entrusted to a Municipality under Article 243W", and are therefore outside entry 3A. GST applies at the applicable rates.

PDS milling — exempt within the 25% limit. Circular No. 153/09/2021-GST dated 17.06.2021: milling of wheat into flour with fortification, or paddy into rice, for a State Government's PDS is within entry 3A because public distribution is entry 28 of the Eleventh Schedule — "provided that value of goods supplied in such composite supply (goods used for fortification, packing material etc) does not exceed 25% of the value of composite supply."

And if it exceeds 25%, the rate is 5% as job work under entry 26 of Notification No. 11/2017-CT(R), where supplied to a registered person — including a person registered only to deduct tax under section 51.

CPWD horticulture — exempt. Circular No. 206/18/2023-GST dated 31.10.2023: pure services and low-goods composite supplies by way of horticulture works to the Central Public Works Department are exempt under entries 3 and 3A, since maintenance of community assets (Eleventh Schedule entry 29) and urban forestry and protection of the environment (Twelfth Schedule entry 8) are Schedule functions.

Army sanitation — not exempt. Circular No. 177/08/2022-GST dated 03.08.2022: entries 3 and 3A were given for supplies procured by Government or local authorities "for performing functions listed in the 11th and 12th schedule". Where such services are procured by the Indian Army or any other Ministry or Department which does not perform any such functions in the manner a local authority does for the general public, they are not eligible.

The TDS consequence

The Handbook closes the point that practitioners most often miss:

"section 51 requires Government departments, agencies, local authorities and other notified deductors… to deduct tax at the rate of one per cent from the payment made or credited to the supplier of TAXABLE goods or services or both… Thereby, we can conclude in the above situations that, NO TDS needs to be deducted by respective recipient of supply (notified deductor) as the supply is not taxable."

So an entry 3 or 3A exemption removes both the tax and the deduction. A government body deducting TDS on an exempt pure-service contract is deducting on a supply that carries no tax at all. When no deduction is required →

Key takeaways

• Entry 3 — pure services; entry 3A — composite supplies with goods not more than 25%, inserted 25.01.2018.
• Both require an activity "in relation to" a 243G or 243W function — a phrase that widens the exemption.
• The recipient must be Government or a local authority — the Governmental Authority and Government Entity limb was withdrawn w.e.f. 01.01.2022 by Notification No. 16/2021-CT(R).
• Sub-contractors are outside both entries, and their tax sticks as cost.
• Ambulance services fall in entry 3 or 3A depending on composition — Circular No. 51/25/2018.
• PDS milling is within entry 3A inside the 25% limit; beyond it, 5% job work — Circular No. 153/09/2021.
• CPWD horticulture is exempt; MCD's own office upkeep is not; Army sanitation is not.
• Where the supply is exempt, no TDS arises under section 51.

Read next

• The Eleventh and Twelfth Schedule Functions, and How GST Uses Them
• Exemptions on Supplies Made to Government, Entry by Entry
• The TDS Proviso: When No Deduction Is Required

Disclaimer: Positions stated as on 5 September 2026, based on entries 3, 3A and 3B of Notification No. 12/2017-Central Tax (Rate) as amended by Notification Nos. 2/2018 and 16/2021-Central Tax (Rate), entry 26 of Notification No. 11/2017-Central Tax (Rate), section 51 of the CGST Act, 2017, and Circulars No. 51/25/2018-GST, 153/09/2021-GST, 177/08/2022-GST, 206/18/2023-GST and 245/02/2025-GST, as reproduced in the ICAI Handbook on Government Supplies under GST (Including TDS Provisions), updated to 15 April 2026.