GST Exemption: Goods and Services Exempt from GST

What is GST Exemptions?

Since July 1, 2017, the Government of India introduced specific criteria that businesses and individuals need to adhere to under GST registration regulations. However, there are certain goods and services that are not subject to the Goods and Services Tax (GST). These goods and services are listed under GST exemptions. This means that the seller of these goods or services does not collect GST from the buyer and, accordingly, does not have to remit any tax to the government for those sales.

These exemptions change from time to time and vary from country to country. Both the Central and State Governments are empowered to grant GST exemptions.The government can grant exemptions for various reasons like alleviating the tax burden on essential goods and services or supporting specific sectors.

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Types of GST Exemptions

GST exemptions are categorized based on who is exempt and the nature of the exemption. Here are the types of GST exemptions -

Supplier-Based Exemption

This exemption is granted to specific suppliers, regardless of the nature of their goods or services. It typically applies to entities engaged in public welfare or nonprofit activities.

Example: Services offered by charitable organizations are exempt from GST, irrespective of the type of service they provide.

Supply-Based Exemption

Certain goods and services are exempt from GST due to their essential nature. This type of exemption is based solely on the nature of the supply, without regard to the supplier.

Example: Healthcare, educational services, and public utility services such as water supply are exempt from GST.

Absolute Exemption

This is an unconditional exemption where the supply is fully exempt from GST without any conditions or restrictions.

Example: The transmission or distribution of electricity by utility companies is fully exempt from GST.

Conditional or Partial Exemption

These exemptions are granted with specific conditions or limitations. They may apply fully or partially depending on the fulfillment of certain criteria, such as threshold limits or specific usage.

Example: Hospital room charges are exempt from GST if they do not exceed ₹5,000 per day (excluding ICUs). Similarly, intra-state supplies from unregistered persons are exempt under reverse charge if the total value does not exceed ₹5,000 per day.

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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 –

List of GST Exemption on Services

Here is a list of some of the services which enjoy GST exemption –

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.

Given below are the recently added exemptions to this list -

• Services provided by the GST Network to Governments and Union Territories.
• Exemptions for the back-office sector.
• Services related to residential property rentals and room rentals under INR 1000 per day are exempt.
• IGST exemption is granted on imports under lease agreements for goods transferred to a new lessee in India.
• The export of goods via air or sea is exempt until September 30, 2022.
• Admission to entertainment events, museums, parks, and wildlife sanctuaries with charges under INR 250 per person is exempt.

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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.

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GST exemption from registration

• Under GST, certain individuals and entities are exempt from registering themselves under GST on the basis of their turnover and nature of activities.
• Individuals whose annual turnover is less than Rs.40 lakhs for goods, Rs.20 lakhs for services, an Rs.10 lakhs for specific categories in special category states.
• Certain individuals and entities, such as agriculturists, are exempt from GST registration.
• 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.

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GST exemption for businesses

Small and medium-sized businesses play a vital role in the economy, and the GST framework offers specific exemptions to simplify their compliance. These exemptions depend on the business's annual aggregate turnover, as detailed below:

• Exemptions for Goods
  Businesses dealing in goods are exempt from GST if their annual aggregate turnover is below INR 40 lakhs. For businesses in hilly and northeastern states, this threshold is reduced to INR 20 lakhs to address regional challenges.
• Exemptions for Services
  Service providers are exempt from GST if their turnover is under INR 20 lakhs annually. In hilly and northeastern states, the limit is further reduced to INR 10 lakhs to support local service providers.
• Understanding Aggregate Turnover
  "Aggregate turnover" includes the total value of:
  • Taxable supplies
  • Inter-state supplies
  • Exempt supplies
  • Exported goods and services
  Certain deductions apply, such as:
  • GST (CGST, SGST, or IGST) already paid
  • Taxes payable under the reverse charge mechanism
  • The value of inward supplies and non-taxable goods and services

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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.

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How are GST Exemptions Granted?

Exemptions to be given are decided by the Central or the State Government.

Exemptions are decided by the Central or State Governments to serve the public interest.

Typically announced via official notifications, based on GST Council recommendations.

Exemptions can be absolute or conditional -

• Absolute: Apply fully, without any conditions.
• Conditional: Apply only when specific conditions are met.

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Negative list under GST

The negative list under GST includes items and services not subject to GST, as specified in Schedule III of the CGST Act. These exemptions ensure clarity about what falls outside the GST framework. Below is a list of items and services on the negative list:

• Services by employees to their employer in the course of or in relation to employment.
• Funeral, burial, crematorium, or mortuary services and related activities.
• Sale of land and completed buildings.
• Actionable claims, excluding those related to lottery, betting, or gambling.
• Services by any court or tribunal.
• Functions performed by Members of Parliament (MPs), Members of Legislative Assemblies (MLAs), and other public representatives.
• Duties performed by individuals holding constitutional posts in their official capacity.

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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:

Exempt Supplies:

• 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.

Non-GST Supplies:

• 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.

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Recent Updates on GST Exemption Regulations

54th GST Council Meeting (September 2024)

Amendments in GSTR-1 Filing

Taxpayers can now make changes to GSTR-1 within the same tax period using a new form, GSTR-1A. This will allow updates or additions to GSTR-1 for the current tax period or IFF for the 1st and 2nd months of the quarter before filing GSTR-3B.

B2C Supply Reporting

The threshold for reporting interstate B2C supplies in GSTR-1 (Table 5) has been lowered from ₹2.5 lakh to ₹1 lakh.

Revised GSTR-4 Due Date

Composition taxpayers can now file GSTR-4 by 30th June instead of 30th April, starting FY 2024-25.

Reduction in TCS Rate

The Tax Collected at Source (TCS) rate for Electronic Commerce Operators (ECOs) has been reduced to 0.5% (0.25% CGST + 0.25% SGST/UTGST or 0.5% IGST) from 1%.

Mandatory GSTR-7 Filing

Filing GSTR-7 is now compulsory, even if no TDS is deducted. A nil return must be filed, and no late fees will apply for such filings.

Annual Return Exemption for Small Taxpayers

Taxpayers with an annual turnover of up to ₹2 crore are exempt from filing GSTR-9/9A for FY 2023-24.

Updates to ITC Provisions (Section 16)

The deadline to avail Input Tax Credit (ITC) for past fiscal years has been standardized to 30th November 2021, effective retrospectively from 1st July 2017.

ITC will also be allowed for returns filed within 30 days of the revocation of canceled registrations.

Interest Waiver on Cash Ledger Balance (Rule 88B)

No interest will be charged on amounts available in the electronic cash ledger by the due date, even if GSTR-3B is filed late.

Section 128A – Waiver of Interest and Penalties

No interest or penalties for demand notices issued under Section 73 for FY 2017-20 if full payment is made by 31st March 2025.

Time Limits for Demand Notices (Sections 73 & 74)

A unified time limit will be applied for issuing demand notices and orders under these sections. The period for reduced penalties has been extended from 30 to 60 days.

Monetary Limits for GST Appeals

Limits for departmental appeals have been revised: ₹20 lakh for the GST Appellate Tribunal, ₹1 crore for High Courts, and ₹2 crore for the Supreme Court.

Changes in Pre-Deposit Amounts for Appeals

The pre-deposit cap for filing appeals has been lowered to ₹20 crore (from ₹25 crore) under CGST/SGST. For GSTAT appeals, the rate has been reduced from 20% to 10% with a maximum cap of ₹20 crore under CGST/SGST.

Sunset Clause for Anti-Profiteering Cases

New applications related to anti-profiteering will be accepted only until 1st April 2025. Pending cases will transition to the GSTAT principal bench.

Appeal Filing Deadline for GSTAT

Taxpayers will have three months to file appeals before the GSTAT once the Government notifies the effective date.

New Section 11A

Regularization of GST non-levy or short-levy due to trade practices will now be allowed.

Refunds for IGST on Revised Export Prices

Taxpayers can claim IGST refunds on upward price revisions after exports, subject to a new mechanism.

No IGST Refund on Export Duty

IGST refunds will not be granted for exports or supplies to SEZ units where export duty is applicable.

Biometric-Based Aadhaar Authentication

GST registration using biometric-based Aadhaar authentication will be implemented across India in phases.

DRC-03 Adjustments for GST Appeals

A circular will outline how payments made via DRC-03 can be adjusted against pre-deposit amounts for GST appeals.

Clarification on E-Commerce Operator Penalties (Section 122)

Retrospective from 1st October 2023, penalties under this section will apply only to e-commerce operators required to collect TCS under Section 52.

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