Exempted Goods under GST: Know the Essentials
Determining the item's GST exemption status is also necessary to comprehend the taxability of the item. Owing to the expansion of the scope of taxable supplies under the GST, the GST has well-defined exemptions. Understanding the implications of an item's exemption—which carries with it specific criteria like reversing the ITC—is just as crucial as being aware of the exemption list. Furthermore, future tax rates may be applied to items that are currently eligible for zero-rated status. Therefore, it's critical to define the numerous words under GST, such as Nil Rated, Exempt, Zero-rated, and Non-GST Supplies. This article explains the concept of GST exempted goods in detail.
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What is Non-Taxable Supply Exempt, Nil-Rated, Zero-Rated & Non-GST Supplies: Understanding the Difference
What is Exempt Supply under GST?
The following three categories of materials are included in exempt supplies:
Goods subject to a 'NIL' rate of taxation (0% tax)
Goods that are completely or partially exempt from CGST or IGST through the issuance of a notification that modifies Section 11 of the CGST Act or Section 6 of the IGST Act
Supplies that are not taxed under the Act are referred to as non-taxable supplies under Section 2(78) of the Act (for example, alcoholic spirits intended for human consumption)
There is no tax due on these supplies. The input tax credit that is related to exempt supplies will not be allowed to be used or offset.
Criteria for GST Exemption
The Central Government and State Governments have the authority to offer GST exemptions. To be eligible for an exemption, the following conditions should apply:
The public interest should be served by the exemption
Exemption requires publishing a notice
The GST Council's recommendation is required
Either a conditional or absolute exemption may apply to any kind of products or services that meet certain requirements
Under extraordinary circumstances, an exception may be granted through a special order rather than notification.
In cases when the supply is completely exempt from tax, the registered person providing the goods and/or services is not allowed to collect tax at a rate greater than the effective rate.
Types of GST Exemption
GST exemptions can also be divided into groups according to the existence of any conditions:
Absolute Exemptions: Absolute exemptions mean that certain items or services are completely exempt from GST, no restrictions or conditions are applied. Examples are an energy utility's distribution or transfer of power and the Reserve Bank of India (RBI) is exempt from paying taxes on certain services.
Conditional Exemptions: For conditional exemptions, there are specific constraints, limitations, or conditions defining the parameters of the exemption. For instance, hotel services might only be exempt in part and not completely, depending on certain conditions. A clinical facility that charges more than Rs. 5000 per day for rooms (apart from intensive care units) provides healthcare services.
Partial Exemptions: Under some circumstances, this exception is applicable to particular situations. For instance, if a registered person receives intrastate supplies from an unregistered party for less than Rs. 5000 in a single day from all of the suppliers combined, no GST under reverse charge is necessary.
There is also another way to classify GST exemptions. These include:
Supplier-Based Exemptions: Irrespective of the type of outward supply, the supplier may be exempt—that is, the person providing the supplies. Eg. charitable entities providing services.
Supply-Based Exemptions: Some supplies are exempt from GST because of their nature and type. Notification of the exception would apply to all supplies. In this case, the exemption is permitted regardless of the supplier's identity.
List of GST Exempted Goods in India
Food: Cereals, edible roots and tubers, edible fruits and vegetables (not frozen or processed), fish and meat (not packaged or processed), tea leaves (not processed), coffee beans (not roasted), tender coconut, jaggery, seeds, betel leaves, ginger, turmeric, papad, flour, milk, curd, lassi, buttermilk, and aquatic feeds, and supplements.
Raw materials: Wool (not processed), raw silk, silk waste, cotton used for khadi yarn, khadi fabric, raw jute fiber, handloom fabrics, firewood, and charcoal.
Tools/Instruments: Tools used for agricultural purposes, hand tools (such as spades and shovels), handmade musical instruments, hearing aids, and aids used by physically challenged people.
Miscellaneous: Newspapers, books, maps, journals, postal items, non-judicial stamps, live animals (except horses), beehives, bangles, chalk sticks, human blood, semen, contraceptives, props used in pooja, earthen pots, kites, organic manure, and vaccines.
GST Exemption on Services
Governmental and diplomatic services provided abroad
Farm labour supply
Services rendered by the Central & State Governments, RBI, NPS, IRDAI, and others
Services such as retail packaging, waxing, and pre-conditioning
Auto rickshaws, subway, metered taxis, public transportation, etc.
Goods transported for less than Rs. 1500 in fees
Export of goods and agricultural products
Financial services, including Basic Saving Bank Deposit (BSBD) accounts, are operational under the Pradhan Mantri Jan-Dhan Yojana (PMJDY)
Services with charitable, ambulance, and healthcare and educational purposes (such as midday meal catering, VET clinics, and paramedics) are not subject to GST
Services related to storage, farming, harvesting, packaging, supply, leasing equipment, raising horses, and other related activities are exempt from GST
The GST does not apply to libraries, tour guides, sports organisations, or religious ceremonies
GST Exemption for Registration
Agriculturalists whose annual sales must exceed INR 40 lakhs for goods, INR 20 lakhs for services, and INR 20 lakh and INR 10 lakh for specific categories. (In states that fall under a particular category)
An individual who offers NIL-rated and exempt products and services, like fresh milk, cheese, honey, and agricultural services, among others.
An individual who performs services or purchases petroleum products—activities that are not covered by the delivery of goods and services.
An individual who provides goods that are vulnerable to reverse charge, including tobacco leaves, unshelled and unpeeled cashew nuts, and so forth.
GST Exemption for Businesses
Small and medium-sized businesses are eligible for GST exemptions if their total revenue is less than a specific threshold. The following limitations apply:
If a business or individual's total revenue for a fiscal year is less than INR 40 lakhs, they may be eligible for GST exemption.
The upper limit has been increased to INR 20 lakhs for the hilly and northeastern regions of India.
The maximum amount that businesses and individuals engaged in the provision of services can receive in GST exemption is INR 20 lakh.
Businesses and people providing services in hilly and northeastern states may apply for GST exemptions if their combined annual income does not exceed INR 10 lakhs.
What is Non-Taxable Supply
A provision of goods or services, or both, that is exempt from taxation under the CGST Act or the IGST Act is referred to as a "non-taxable supply." For a transaction to be considered a non-taxable supply under the GST, it must be a "supply" as that term is defined in the GST statute. This definition only applies to supplies that are not subject to GST, such as alcoholic spirits intended for human consumption and items included in Schedule III or Section 9(2). It should be mentioned that the following things are still covered by GST. However, they haven't yet received an announcement or notification regarding the GST rate.
Crude petroleum
High-speed diesel
Motor spirit (petrol)
Aviation turbine fuel
Natural gas
Exempt, Nil-Rated, Zero-Rated & Non-GST Supplies: Understanding the Difference
Different tax regimes for supply are described by several categories under the Indian Goods and Services Tax (GST) system. Included in these classifications are "Exempt," "Nil Rated," "Zero Rated," and "Non-GST Supplies." The applicability of GST varies depending on the category. The distinctions between these categories are broken down as follows:
Exempt Supplies: GST is not applied to exempt supplies. Consequently, no GST is applied to the value of the supply. At the same time, the provider cannot claim input tax credit (ITC) for any GST paid on the goods and services that went into making the exempt supply. A few basic products and services, such as milk, fresh produce, fresh fruits, and medical care from a clinical facility, are included in this category.
Nil-Rated Supplies: Although nil-rated supplies are specifically taxed at a rate of 0%, they differ from exempt supplies in that they are likewise not subject to GST. The supplier is not liable for any GST on nil-rated supplies; nevertheless, the supplier may be eligible for input tax credit on GST paid on inputs and services. Medications and some agricultural products are examples of commodities and services that are frequently categorised as nil-rated suppliers.
Zero-Rated Supplies: Since zero-rated supplies are subject to a 0% GST rate of taxation, they are comparable to nil-rated supplies. But exports of goods and services are particularly mentioned when discussing zero-rated suppliers. Input tax credits are available to suppliers of zero-rated supply for GST paid on inputs and services. Under the GST, exports of goods and services to outside nations are regarded as zero-rated supply.
Non-GST Supplies: Since non-GST supplies are not covered by GST, they are not subject to GST at all. There is no GST to be levied or collected on these supplies, and there is no input tax credit available. Non-GST supplies are commodities and transactions that are not covered by the commodities and Services Tax (GST), such as petroleum products (which are subject to additional state taxes), alcohol intended for human use, and certain designated goods like cash and stamps.
Negative List under GST
Items on a negative list are those that are not subject to GST. Moreover, Schedule III of the CGST Act notifies of these commodities. Under GST, the following products are on the negative list:
Employee services supplied to the employer in the course of or in connection with employment
Funeral, burial, cremation, or mortuary services
Land sale
Sale of finished structures
Actionable claims (not related to gambling, betting, or lotteries)
Services rendered by any tribunal or court
Duties carried out by MLAs, MPs, etc.
Obligations carried out in that capacity by any individual holding a position under the terms of the Constitution.
Conclusion
Certain goods and services are exempt from GST, and they are known as GST exemptions. To put it another way, some goods and services are exempt from the GST Act. These exemptions vary by country and are subject to change at times. The government may grant exemptions for a number of purposes, such as supporting certain industries or reducing the tax burden on essential goods and services. Businesses must comprehend GST exemptions to maintain compliance and minimise their tax obligations.
FAQ
Q1. Who can grant exemption from payment of taxes?
The exception can only be granted by the government. Through a notification, the Government may offer a tax exemption based on the recommendations made by the GST Council.
Q2. From which date does the exemption apply?
Notifications of exemptions will take effect on the date indicated in the notification.
Q3. Does a trader dealing only exempt supplies need to register under GST, if their turnover exceeds Rs.20 lakh?
If a person deals with 100% exempt supplies, they are not required to register under GST.
Q4. Is the supply of exempt goods considered taxable or non-taxable supply?
Exempt goods are thought to be supplied in a non-taxable manner. Therefore, registration, an input tax credit claim, and other pertinent rules are not triggered by such supplies.
Q5. Should I issue a tax invoice if I sell only exempted goods to a single customer?
When a registered dealer offers exempt goods or services, a bill of supply ought to be issued. For instance, a registered taxpayer is required to provide a Bill of Supply rather than a tax invoice when they supply handloom.
Q6. Is an e-way bill required for the movement of exempt supplies?
Rule 138 (14) of the CGST Rules states that, except for de-oiled cake, no e-way bill needs to be created while transporting any of the items listed in Notification No. 2/2017-Central Tax (Rate) dated June 28, 2017. Additionally, products included in Central Tax Notification No. 2/2017 are essentially exempt products.
Q7. Can a taxpayer claim input tax credit for capital goods used both taxable and exempt supply?
No, a taxpayer is not permitted to deduct the tax they paid on capital items that were utilised for both exempt and chargeable supplies.
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