What is GST Exemptions?
GST exemptions are specific goods or services that are exempt from the application of GST. In other words, there are certain goods and services that are not covered under the ambit of GST Act. These exemptions change from time to time and vary from country to country. The government can grant exemptions for various reasons like alleviating the tax burden on essential goods and services or supporting specific sectors.
Types of GST Exemptions
There are three types of GST exemptions available in India.
- Absolute: Absolute exemptions are those exemptions that are provided on the full amount and do not come with any conditions or restrictions, whatsoever. A good example is the exemption on the services of RBI.
- Conditional: Conditional exemptions are those exemptions that have a certain limit, condition, or restriction on the nature and extent of the exemption. For example, hotel services are exempt up to a certain extent and not exempt fully.
- Partial: Unregistered people who supply goods within the state to a registered person are exempt from GST under reverse charge only if the aggregate value of supply is not more than Rs.5000 per day.
List of GST Exemptions
List of GST Exemption on Goods
Here is a list of some of the most common goods which are GST exempt –
|Types of goods
||Asses, cows, sheep, goats, poultry, etc.
||Fresh and frozen meat of sheep, cows, goats, pigs, horses, etc.
||Fresh or frozen fish
||Honey, fresh and pasteurized milk, cheese, eggs, etc.
|Live trees and plants
||Bulbs, roots, flowers, foliage, etc.
||Tomatoes, potatoes, onions, etc.
||Bananas, grapes, apples, etc.
||Cashew nuts, walnuts, etc.
|Tea, coffee and spices
||Coffee beans, tea leaves, turmeric, ginger, etc.
||Wheat, rice, oats, barley, etc.
|Products of the milling industry
||Flours of different types
||Flower seeds, oil seeds, cereal husks, etc.
||Sugar, jaggery, etc.
||Mineral water, tender coconut water, etc.
||Bread, pizza base, puffed rice, etc.
|Drugs and pharmaceuticals
||Human blood, contraceptives, etc.
||Goods and organic manure
||Bindi, kajal, kumkum, etc.
||Sewage sludge, municipal waste, etc.
||Plastic and glass bangles, etc.
||Judicial stamp paper, envelopes, rupee notes, etc.
||Printed books, newspapers, maps, etc.
||Raw silk, silkworm cocoon, khadi, etc.
||Spade, hammer, etc.
||Earthen pots, clay lamps, etc.
List of GST Exemption on Services
Here is a list of some of the services which enjoy GST exemption –
|Types of services
||Cultivation, supplying farm labor, harvesting, warehouse-related activities, renting or lending agricultural machinery, services provided by a commission agent or the Agricultural Produce Marketing Committee or Board for buying or selling agriculture produce, etc.
||Postal service, transportation of people or goods, services by a foreign diplomat in India, services offered by the Reserve Bank of India, services offered to diplomats, etc.
||Transportation of goods by road, rail, water, etc., payment of toll, transportation of passengers by air, transportation of goods where the cost of transport is less than INR 1500, etc.
||Services offered by the arbitral tribunal, partnership firm of advocates, senior advocates to an individual or business entity whose aggregate turnover is up to INR 40 lakhs
||Transportation of faculty or students, mid-day meal scheme, examination services, services offered by IIMs, etc.
||Services offered by ambulances, charities, veterinary doctors, medical professionals, etc. does not include hair transplant or cosmetic or plastic surgery.
||Services offered by exhibition organizers for international business exhibitions, tour operators for foreign tourists, etc.
||Services offered by GSTN to the Central or State Government or Union Territories, admission fee payable to theaters, circuses, sports events, etc. which charge a fee up to INR 500
Though GST is applicable for all businesses and on the supply of goods and services, the above-mentioned exemptions are available. These exemptions reduce the GST burden and help in the socio-economic development of the country.
Exempt supply under GST
Exempt supply under GST means supplies that do not attract goods and service tax. In these supplies, no GST is charged. Input tax credits paid on these supplies cannot be used. These are the following three types of supply that are considered exempt supply:-
- supplies which are chargeable to nil rate tax.
- supplies that are partially and wholly exempt from the charge of GST by the notifications which amended section 11 of CGST and section 6 of IGST.
- supplies which comes under the sec 2(78) of the Act. which covers the supplies which are not taxable under the Act like alcoholic liquor for human consumption.
GST exemption from registration
- Person who fall in the threshold exemption limit of turnover for the supply of goods INR 40 lakhs and for supply of services INR 20 lakhs and for specified category INR 20 lakh and INR 10 lakh.(in special category states)
- A person who is making NIL Rated and exempt supply of goods and services such as fresh milk, honey, cheese, agriculture services, etc.
- The person indulged in activities that are not covered under the supply of goods and services such as funeral services, petroleum products, etc.
- A person making supplies of those goods that are covered under reverse charge such as tobacco leaves, cashew nuts (not shelled and peeled ), etc.
GST exemption for businesses
Small and medium-scale businesses can enjoy GST exemptions if their aggregate turnover is up to a specified limit. These limits are as follows –
- Businesses and individuals who are supplying goods can claim GST exemption if their aggregate turnover is less than INR 40 lakhs in a financial year.and also not fall in the category of compulsory registration.
- For the hilly and north-eastern States of India, the limit has been revised to INR 20 lakhs.
- For businesses and individuals involved in the supply of services, the limit for claiming GST exemption is INR 20 lakhs
- In the case of hilly and north-eastern States, if the aggregate turnover is up to INR 10 lakhs, businesses and individuals supplying services can claim GST exemptions.
Hilly and north-eastern States would include Arunachal Pradesh, Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Tripura, Nagaland, Sikkim, Meghalaya, Mizoram, Assam, and Manipur.
Aggregate turnover, as per the GST Act, would include the aggregate value of all types of taxable supplies, inter-state supplies, exempt supplies, and the goods and services which have been exported. The following, would, however, be deducted from the value of aggregate turnover –
- CGST, SGST, or IGST already paid by the investor
- Taxes which are payable on the basis of reverse charge mechanism
- Value of the inward supply of goods and services
- Value of non-taxable goods and services#
GST exemptions for goods
There is a list of goods which do not attract GST as recommended by the GST Council. The reasons for granting exemption on goods might include any of the following –
- In the interest of the public
- The exemption is as per the GST Council’s recommendation
- The exemption is granted by the Government through a special order
- The exemption is allowed on specific goods through an official notification
Moreover, there are two types of GST exemptions on goods. These are as follows –
- Absolute exemption - under this type of exemption, the supply of specific types of goods would be exempted from GST without considering the details of the supplier or receiver and whether the good is supplied within or outside the State.
- Conditional exemption – under this type of exemption, the supply of specific types of goods would be GST exempt subject to certain terms and conditions which have been specified under the GST Act or any amendment or notification.
GST Exemption on services
Just like specific goods, specific services are also GST exempt. There are three types of supply of services that qualify for GST exemption. These include the following –
- Supplies that have a 0% tax rate
- Supplies which do not attract CGST or IGST due to the provisions stated in a notification that amends either Section 11 of CGST Act or Section 6 of IGST Act
- Supplies which are defined under Section 2(78) of the GST Act which are not taxable.
Since these types of supplies are GST exempt, any Input Tax Credit which is applicable to these supplies would not be available to utilize or set off the GST liability.
Moreover, even under the supply of services, there can be two types of GST exemptions which are as follows –
- Absolute exemption wherein the service would be exempted from GST without any conditions
- Conditional exemption or partial exemption wherein exemption is granted based on a condition. This condition states that if the service is supplied intra-State or if the service is supplied by a registered person to an unregistered one, GST would be exempted if the total value of such supplies received by a registered person is not more than INR 5000/day.
Reasons for exemption under GST
Under the Goods and Services Tax (GST) system in India, certain goods, services, and transactions are exempt from GST, which means they are not subject to GST taxation. There are various reasons for granting exemptions under GST, and these reasons are based on policy objectives, socio-economic considerations, and administrative simplicity. Here are some of the common reasons for granting exemptions under GST:
- Social Welfare and Public Interest: Certain essential goods and services that are considered essential for the welfare of society may be exempted from GST. This includes items like basic food items (e.g., rice, wheat, milk), healthcare services, and education services.
- Small Businesses: To reduce the compliance burden on small businesses and promote ease of doing business, there may be exemptions or concessional rates for businesses with lower turnover. The Composition Scheme, for example, provides for lower GST rates for small businesses with turnover limits.
- Export of Goods and Services: Exports are typically zero-rated under GST, which means that while they are subject to GST, the tax rate is set at zero percent. This ensures that exports remain competitive in international markets and do not suffer from the burden of GST.
- Interstate Supplies: Supplies between states (interstate supplies) of certain specified goods and services may be exempt or taxed at a concessional rate to promote the free movement of goods and services across state borders.
- Agriculture: Many agricultural products and related services are exempt from GST. This is done to support the agriculture sector, which is a significant contributor to India's economy.
- Government Services: Certain services provided by the government or local authorities may be exempt from GST to avoid double taxation and simplify accounting.
- Financial Services: Some financial services like banking, interest on loans, and insurance services may be exempt or have special provisions to determine GST liability.
- Cultural and Religious Significance: Goods and services used for cultural, religious, or charitable purposes may be exempt to respect the cultural and social values of the society.
- Administrative Simplicity: Exempting certain goods or services may be done to simplify the tax system, reduce compliance costs, and make it easier for businesses and taxpayers to understand and comply with GST rules.
- Transitional Provisions: During the transition to GST, certain exemptions or concessional rates may be provided to facilitate the migration of businesses and ease the impact of the new tax regime.
Difference between Exempt, Nil Rated, Zero Rated and Non-GST supplies
In the context of the Goods and Services Tax (GST) system in India, there are several categories that describe different tax treatments for supplies (goods and services). These categories include "Exempt," "Nil Rated," "Zero Rated," and "Non-GST Supplies." Each category has distinct implications for the applicability of GST. Here's a breakdown of the differences between these categories:
- GST Applicability: Exempt supplies are not subject to GST. This means that no GST is charged on the value of the supply, and the supplier cannot claim input tax credit (ITC) for the GST paid on inputs and services used to provide the exempt supply.
- Examples: Certain essential goods and services, such as fresh fruits, vegetables, milk, and healthcare services provided by a clinical establishment, are typically exempt from GST.
Nil Rated Supplies:
- GST Applicability: Nil rated supplies are also not subject to GST, but they differ from exempt supplies in that they are specifically taxed at a GST rate of 0%. Nil-rated supplies do not attract any GST liability on the part of the supplier, but the supplier can claim input tax credit on GST paid for inputs and services.
- Examples: Exports of goods and services, such as pharmaceuticals and certain agricultural products, are often classified as nil-rated supplies.
Zero Rated Supplies:
- GST Applicability: Zero-rated supplies are similar to nil-rated supplies in that they are taxed at a GST rate of 0%. However, zero-rated supplies specifically refer to exports of goods and services. Suppliers of zero-rated supplies can claim input tax credit on GST paid for inputs and services.
- Examples: Exports of goods and services to foreign countries are considered zero-rated supplies under GST.
- GST Applicability: Non-GST supplies are not subject to GST because they fall outside the scope of GST altogether. These supplies do not involve the levy or collection of GST, and no input tax credit is available.
- Examples: Items or transactions that are not covered by GST, such as petroleum products (which are subject to separate state taxes), alcohol for human consumption, and some specified goods like stamps and currency, are considered non-GST supplies.
In summary, the key distinctions between these categories lie in the tax rate and the ability to claim input tax credit:
- Exempt supplies are not subject to GST, and ITC cannot be claimed.
- Nil rated supplies are taxed at a GST rate of 0%, and ITC can be claimed.
- Zero-rated supplies refer specifically to exports and are taxed at a GST rate of 0%, with ITC claimable.
- Non-GST supplies are entirely outside the scope of GST, and no GST is levied or collected, nor can ITC be claimed.