Section 2 of CGST Act Explained: Key GST Definitions You Must Know

Section 2 of the CGST Act, 2017, serves as the definitional cornerstone of India’s Goods and Services Tax (GST) framework, offering over 120 precise definitions that are essential for interpreting, applying, and complying with GST laws. From terms like “supply,” “aggregate turnover,” and “input tax credit” to “reverse charge” and “works contract,” these definitions affect everything from registration thresholds to tax liability and dispute resolution.

As explained by AUBSP, understanding this section is crucial for businesses, tax professionals, and regulators alike to ensure accurate compliance and avoid costly legal pitfalls in the evolving GST landscape.

Understanding the Cornerstone of Indian GST: Section 2 of the CGST Act, 2017

The implementation of the Goods and Services Tax (GST) marked a transformative phase in India’s indirect taxation system. Central to this regime is Section 2 of the CGST Act, 2017—the definitive section that lays down the groundwork for interpreting and applying GST provisions uniformly.

AUBSP is here to decode this crucial section, helping you navigate the complexities of GST with clarity and confidence.

Why is Section 2 So Important?

1. Legal Foundation

Section 2 provides a standardized vocabulary for the GST law. It ensures that all stakeholders—taxpayers, officers, and legal experts—are on the same page regarding the scope and meaning of various terms.

2. Determines Tax Applicability

Whether a supply is taxable or exempt often hinges on how it’s defined. Terms like “goods,” “services,” and “business” have specific interpretations under Section 2.

3. Ensures Compliance

Accurate definitions help businesses register under the correct category, apply proper tax rates, issue valid invoices, and claim rightful input tax credits (ITC).

4. Supports Legal Clarity

When disputes arise, the judiciary looks at Section 2 definitions to resolve ambiguities and interpret intent.

5. Prevents Tax Cascading

Clear definitions enable proper credit flow and avoid double taxation, a key objective of GST.

As AUBSP reiterates, understanding these definitions is not a formality—it’s a necessity for efficient GST compliance.

Key Dates Table

Highlights from Section 2 of the CGST Act

Section 2 comprises a vast lexicon of over 120 definitions. Here’s a curated look at some of the most influential ones:

Actionable Claim (Section 2(1))

Derived from the Transfer of Property Act, 1882, it covers unsecured debts and beneficial interests in movable property. Notably, lottery, betting, and gambling are actionable claims considered as “goods” under GST.

Aggregate Turnover (Section 2(6))

Vital for determining GST registration thresholds. It includes taxable supplies, exempt supplies, exports, and inter-State supplies but excludes taxes and cess.

Business (Section 2(17))

A widely inclusive term encompassing trades, professions, and even government activities done in a commercial context. Almost every economic activity is captured here.

Capital Goods (Section 2(19))

Goods used in business whose cost is capitalized in the books of accounts. Input tax credit on these is available subject to conditions.

Casual Taxable Person (Section 2(20))

Someone who occasionally undertakes taxable supplies in a state where they don’t have a fixed place of business. Requires special registration.

Composite Supply (Section 2(30))

A naturally bundled supply with a principal item—e.g., transport of goods with insurance. Tax rate of the principal supply applies.

Consideration (Section 2(31))

Includes any payment in money or kind for a supply but excludes government subsidies.

Exempt Supply (Section 2(47))

Covers nil-rated and wholly exempted supplies, as well as non-taxable supplies.

Goods (Section 2(52))

Every kind of movable property excluding money and securities but includes actionable claims, crops, and things severable from land.

Input Tax Credit (Section 2(63))

Allows credit of input taxes paid on purchases used in business operations—central to GST’s design.

Non-Taxable Supply (Section 2(78))

Supplies completely outside GST purview (e.g., alcohol for human consumption).

Output Tax (Section 2(82))

Tax payable by a registered person on their taxable supplies, excluding reverse charge tax.

Person (Section 2(84))

Includes individuals, companies, LLPs, HUFs, AOPs, governments, and artificial persons.

Place of Business (Section 2(85))

Where business is ordinarily conducted or goods/services are stored, billed, or managed.

Principal Supply (Section 2(90))

The dominant component in a composite supply—determines applicable tax rate.

Recipient (Section 2(93))

The one liable to pay for a supply. Important in determining reverse charge liability.

Reverse Charge (Section 2(98))

Shifts tax liability to the recipient. Common for services from unregistered persons or certain notified supplies.

Services (Section 2(102))

Covers everything other than goods, money, and securities, including currency exchange activities.

Supply (Section 2(108))

The taxable event under GST, covering sales, transfers, leases, imports, etc.

Taxable Person (Section 2(107))

Someone registered or liable to be registered under Sections 22 or 24 of the CGST Act.

Works Contract (Section 2(119))

Specific to immovable properties—considered a “supply of service” for tax treatment.

FAQs on Section 2 of the CGST Act, 2017

What is Section 2 of the CGST Act, 2017?
Section 2 of the CGST Act contains definitions of key terms used throughout the GST legislation, forming the foundation for interpretation and application of the law.

Why is Section 2 important in GST compliance?
It provides legal clarity on terms like supply, goods, services, and taxable person, which are critical for correct registration, tax calculation, and return filing.

How many definitions are included in Section 2 of the CGST Act?
Section 2 includes over 120 definitions, covering a wide range of terms essential for GST operations.

Does Section 2 define ‘Supply’?
Yes, “Supply” is defined in Section 2(108) and further elaborated in Section 7, forming the basis of what is taxable under GST.

What is meant by ‘Aggregate Turnover’ under Section 2?
It includes all taxable, exempt, export, and inter-State supplies of persons having the same PAN, calculated on an all-India basis.

Who is a ‘Taxable Person’ as per Section 2?
A taxable person is someone who is registered or required to be registered under Section 22 or Section 24 of the CGST Act.

What is the significance of ‘Goods’ under GST law?
“Goods” are defined as every kind of movable property except money and securities, and include actionable claims, crops, and grass.

What are ‘Capital Goods’ as defined in Section 2?
Capital goods are those whose value is capitalized in the books and used in the course of business, allowing input tax credit claims.

Who is considered a ‘Casual Taxable Person’?
It refers to a person who occasionally undertakes supply transactions in a State where they have no fixed place of business.

What does ‘Composite Supply’ mean?
A naturally bundled combination of supplies made together, where one is a principal supply and others are ancillary.

What is ‘Consideration’ under Section 2?
It includes any payment in money or otherwise made for a supply, excluding government subsidies.

What is an ‘Exempt Supply’?
It refers to any supply that is not taxed either due to nil rate, exemption notification, or being non-taxable under GST law.

How is ‘Place of Business’ defined?
It includes any location from where business is conducted, including warehouses, offices, or agent-operated premises.

What is the difference between ‘Taxable Supply’ and ‘Non-Taxable Supply’?
Taxable supplies attract GST, while non-taxable supplies are outside the GST framework and not liable to tax.

How does GST define ‘Services’?
Services mean anything other than goods, money, and securities but includes currency exchange or related activities.

What is the ‘Principal Supply’ in a transaction?
It is the main element of a composite supply, which determines the applicable GST rate for the entire supply.

Who qualifies as a ‘Recipient’ under GST?
A recipient is the person liable to pay for a supply, whether they directly receive the goods/services or not.

What is meant by ‘Reverse Charge’?
It is a mechanism where the recipient, not the supplier, is liable to pay GST on certain notified supplies.

Is ‘Input Tax Credit’ defined under Section 2?
Yes, it refers to the credit of tax paid on inputs, which can be used to reduce the output tax liability.

What are ‘Works Contracts’ under GST?
These are contracts related to immovable property that involve both goods and services and are treated as a supply of service.

Are government activities included under ‘Business’?
Yes, certain activities by government or local authorities are included under the broad definition of business.

Does Section 2 include the definition of a ‘Person’?
Yes, it includes individuals, companies, HUFs, LLPs, AOPs, local authorities, and any artificial juridical person.

How often is Section 2 updated or amended?
Amendments are made through GST Council recommendations, CBIC notifications, and legislative changes to reflect evolving needs.

Can misinterpreting a definition lead to penalties?
Yes, incorrect understanding or application of definitions can result in wrong tax filings, penalties, and even litigation.

How can businesses stay updated on Section 2 changes?
By regularly checking updates from the CBIC, notifications, GST Council meeting outcomes, and referring to trusted sources like AUBSP.

Where can I find the full text of Section 2 of the CGST Act?
You can access the complete section on the official CBIC website or consult platforms like AUBSP that offer simplified guides.

At AUBSP, we believe that Section 2 of the CGST Act is not just the opening chapter but the legal backbone of the entire GST law. Whether you’re a taxpayer, a business consultant, or a government officer, these definitions shape every GST-related decision you make—from billing to return filing, and from tax planning to litigation.

Misinterpreting a single definition can lead to wrong tax payments, penalties, or litigation. Therefore, staying updated with evolving amendments, circulars, and judicial rulings around these definitions is critical.

Trust AUBSP to bring you simplified, accurate, and updated insights on everything GST. Bookmark this guide for your go-to reference!