GST Exclusion 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.
A tax collected from a customer and remitted to the government passes through the entity's bank account without ever becoming its income.
The rule
Under the GST regime, the collection of GST by an entity would not be an inflow on the entity's own account but it shall be made on behalf of the government authorities. Accordingly, the revenue from operations should be presented net of GST.
The principle behind it
As per Ind AS 115, revenue includes only the gross increase in economic benefits occurring to the entity on its own account. Amounts collected, in capacity of an agent, on behalf of third parties such as sales taxes, goods and service taxes and value added taxes are not economic benefits which flow to the entity and do not result in increases in equity. Therefore, they are excluded from revenue.
The test runs through the definition of income itself — increases in economic benefits during the accounting period in the form of income or enhancements of assets or decreases of liabilities that result in an increase in equity. GST collected increases cash and increases a liability to the government by the same amount. Equity does not move, so no income arises.
The Schedule III revenue head reads "Sale of products (including Excise duty)". The parenthesis is deliberate, and the contrast with GST is instructive.
GST is a tax on supply, collected from the customer and payable to the government. The entity is a conduit — it never has a claim on the amount, and the customer, not the entity, bears the tax.
Excise duty arises on manufacture, and it is the manufacturer's own liability from that moment, whether or not the goods are ever sold and whether or not any amount is recovered from a customer. When the goods are sold, the price charged recovers a cost the entity had already incurred on its own account.
So excise duty is part of the consideration the entity earns, and GST is not. The same reasoning underlies the agency principle throughout Ind AS 115: what matters is not whose money passes through the account, but on whose account the obligation arose.
The same test applied to agency
Similarly, in an agency relationship, the gross increase in economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue.
| Amount collected | In revenue? | Why |
|---|---|---|
| GST charged to the customer | No | Collected on behalf of the government; no increase in equity |
| Insurance premium collected as distributor | No | Collected on behalf of the principal insurer |
| Commission on that distribution | Yes | Earned on the entity's own account |
| Excise duty recovered in the sale price | Yes | The duty was the entity's own liability, arising on manufacture |
Why this matters for an NBFC
Much of an NBFC's fee income arises from activities where money moves through the entity in large amounts — remittances and transfers, collections on behalf of others, distribution of third party products, permitted agency business. Presenting those flows as revenue would inflate the top line by multiples without adding a rupee to equity.
The GST exclusion and the agency principle together confine revenue from operations to what the entity actually earned.
Common mistakes
- Presenting revenue from operations gross of GST.
- Excluding excise duty from sale of products.
- Reporting collections made on behalf of a principal as revenue.
- Netting off the entity's own costs to arrive at a "net" revenue figure.