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GST Exemption: What Business Owners Should Know

GST Exemption: What Business Owners Should Know

The Indian government implemented new requirements on July 1, 2017, which mandate that people and businesses follow the guidelines for GST registration. Nonetheless, there are specific types of goods and services that qualify for GST exemption. Within the GST structure, certain goods and services are also subject to the zero tax rate, which is referred to as an exempt supply. To have a thorough grasp of GST exemptions, it is important to consult the GST exemption list. This comprehensive guide clarifies the definition of what is excluded from GST and what goods and services do not need to be registered with the government.

 

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What is the GST Exemption?

Goods and services that are not subject to the application of Goods and Services Tax (GST) are exempt from GST. Put more simply, some products and services are not included by the tax framework established under the GST Act. These exclusions are subject to change over time and may differ between nations. Governments impose exemptions, such as reducing tax obligations on necessities and providing subsidies to particular sectors and companies.


Reasons for GST Exemption

The government decides which situations qualify for exclusions from GST registration. The GST Council is a key player in the process of recommending exemptions from GST registration. It is made up of representatives from both the federal and state governments. Their suggestions are taken into consideration while making decisions.

  • Public Benefit: The government has the authority to determine which exemptions are best for the broader public. The purpose of these exemptions is to reduce the tax burden on necessities, hence increasing their affordability and accessibility.

  • Extraordinary Circumstances: The government may issue special orders to provide exemptions under extraordinary or unanticipated circumstances. Usually, these exemptions are designed to deal with particular, pressing problems. 

  • Official Notifications: By releasing official notifications, the government may proclaim complete exclusions for particular commodities. The legal definition of what is excluded from GST is made clear by these notifications.

For taxpayers hoping to easily register under GST, a full comprehension of these requirements is necessary.


Types of GST Exemptions

In the Indian Goods and Services Tax system, there are three different types of exemptions: 

  • Absolute Exemptions: Absolute exemptions mean that certain items or services are completely exempt from GST, and no restrictions or conditions are applied. The exception given to specific services provided by the Reserve Bank of India (RBI) serves as an example of this category. 

  • Conditional Exemptions: Specific constraints, limitations, or conditions that specify the parameters of the exemption apply to conditional exemptions. For example, hotel services might only be exempt in part and not completely, depending on certain conditions. 

  • Partial Exemptions: Under the reverse charge method, unregistered providers who provide goods to a registered firm inside a state may be eligible for a GST exemption. This exemption, however, is only available if the daily total value of the supply does not surpass Rs. 5000.


Applicability of GST Exemption

Companies that generate less than Rs. 40 lakhs in revenue annually are not required to register for GST. A maximum of Rs. 20 lakhs is granted to Meghalaya, Sikkim, Mizoram, Arunachal Pradesh, Nagaland, Himachal Pradesh, Manipur, Assam, Tripura, Uttarakhand, and Jammu & Kashmir. Furthermore, a large number of supplies of goods and services are not required to register for GST. To gain a better understanding of this, let's examine the following part. Three categories of supplies are free from the goods and services tax. These are:

  • Supplies liable to a zero percent tax rate ('NIL' rate) 

  • Supplies exempted from CGST or IGST in whole or in part due to a notification amending Section 6 of the IGST Act or Section 11 of the CGST Act

  • Supplies that are not taxed under the Act are known as non-taxable supplies, as stated in Section 2(78) (for example, alcoholic spirits for human consumption) 


GST Exemption for Goods

Many commodities are exempt from GST, and the list of items that qualify for this exemption is subject to change regularly. However, depending on whether a good is zero-rated, GST exempt, nil-rated, or regarded as a non-GST supply, there may be different justifications for an exemption under the GST regulations. Most of the time, raw silk and other unprocessed items are free from GST; but, once processed, goods like ready-made silk clothing become taxable. Even if the government announces an exemption from GST, it normally follows the GST Council's recommendations. A good's supply may not be subject to GST in the following circumstances: 

  • The GST regulations do not apply to the product. This pertains to products for human consumption like petrol and alcohol, which are exempt from taxation under the GST Act. Later on, this might not be the case.

  • Because the good is on the zero-rated list, its tax rate is set at zero percent. Fresh veggies, fresh milk, etc. are a few examples. 

  • The government has declared the good's supply to be GST exempt through a notification. For example, exports and the provision of commodities to a developer of a Special Economic Zone (SEZ).


GST Exemption List for Goods

  • Meat: Fresh and frozen meat of goats, pigs, sheep, cows, horses, etc.

  • Live Animals: Cows, asses, cows, sheep, goats, poultry, etc.

  • Fish: Fresh or frozen fish

  • Live Trees and Plants: Flowers. bulbs, roots, foliage, etc.

  • Natural Products: Honey, cheese, eggs, fresh and pasteurized milk, etc.

  • Fruits: Bananas, grapes, apples, etc.

  • Dry fruits: Cashew nuts, walnuts, etc.

  • Vegetables: Tomatoes, potatoes, onions, etc.

  • Grains: Wheat, rice, oats, barley, etc.

  • Coffee, Tea, and Spices: Coffee beans, tea leaves, turmeric, ginger, etc

  • Sugar: Sugar, jaggery, etc.

  • Seeds: Flower and oil seeds, cereal husks, etc.

  • Water: Tender coconut water, mineral water, etc.

  • Baked products: Bread, pizza base, puffed rice, etc.

  • Products of the milling industry (flour)

  • Drugs and Pharmaceuticals: Human blood, contraceptives, etc

  • Beauty products: Bindi, kajal, kumkum, etc.

  • Ornaments: Plastic and glass bangles, etc.

  • Fertilizers: Goods and organic manure

  • Fossil fuels: Electrical energy

  • Waste: Sewage sludge, municipal waste, etc.

  • Printed items: Printed books, newspapers, maps, etc.

  • Newsprint: Judicial stamp paper, rupee notes, envelopes, etc.

  • Fabrics: Raw silk, khadi, etc.

  • Pottery: Earthen pots, clay lamps, etc.

  • Hand tools: Spade, hammer, etc.


GST Exemption for Services

There are also other services that are GST-exempt. It is noteworthy that firms providing services are excluded from paying GST in states with hill and northeastern regions up to Rs. 10 lakh in annual revenue, and in other states up to Rs. 20 lakh. Under the category of "support services to agriculture, forestry, fishing, and animal husbandry," the following is a brief list of services that fall under the GST Act's exemption provisions:

  • Agricultural services: Farm labour supply, harvesting, activities relating to warehouses, leasing or operating agricultural equipment, commission agency services, purchasing or selling agricultural products through the Agricultural Produce Marketing Committee or Board, etc.

  • Transportation services: Goods transportation by air, train, road, water, etc.; toll-paying passengers; and goods transportation if the cost of transportation is less than INR 1500, etc.

  • Medical services: Cosmetic or plastic surgery, or hair transplants, are not services provided by ambulances, charities, veterinarians, or other medical professionals.

  • Educational services: Faculty and student transportation, the midday meal programme, test services, IIM services, etc.

  • Government services: Postal service, people- or goods-transportation, services provided to diplomats by the Reserve Bank of India, services rendered by a foreign diplomat in India, etc.

  • Judicial services: Services provided to an individual or corporate entity with a total turnover of up to INR 40 lakhs by the arbitral tribunal, senior advocates, and partnership firm of advocates. 

  • Organisational services: Services provided by foreign tourist travel operators, international business exhibition organisers, etc.

  • Other services: Services provided by GSTN to the Union Territories, States, or Federal Government; admission fees to sporting events, theatres, and circuses, etc. that charge a fee of up to INR 250


GST Exemption from Registration

Certain people and companies are not required to register for GST, including: 

  • Agriculturalists (Farmers Exempt from GST)

  • Individuals and companies with yearly sales of less than INR 20 lakhs for services and INR 40 lakhs for items (INR 20 lakhs and INR 10 lakhs for specific categories) 

  • Those that supply NIL-rated or completely exempt goods and services

  • People who do tasks that go outside the purview of providing products and services

  • People who supply commodities are protected by the reverse charge mechanism


GST Exemption for Small Businesses and Startups

The updated GST laws have significant advantages for anybody wishing to launch a business. Here are some things to consider regarding new business GST exemptions. 

  • A business with less than Rs. 40 lakhs in revenue is considered GST-exempt.

  • Companies that generate less than Rs. 1.5 crore in total revenue annually is qualified for the GST composition plan. Under the scheme, individuals might pay taxes at a predetermined rate determined by their turnover amount. The possible range of the rate is 1% to 6%. 

  • Under GST, small businesses are also excused from e-invoicing. On the other hand, companies having a revenue exceeding Rs. 50 crores must apply for e-invoicing. 

  • For small businesses, a quarterly filing process makes sense. Small businesses with less than Rs. 5 crore in annual revenue should use the quarterly filing procedure.


Exempt, Non-GST, Nil-Rated, and Zero-Rated Supplies: Understanding the Differences

Different tax regimes for supply (goods and services) are described by a number of categories under the Goods and Services Tax (GST) system in India. Included in these classifications are "Exempt," "Nil Rated," "Zero Rated," and "Non-GST Supplies." The applicability of GST varies depending on the category. Below is an explanation of how these categories differ from one another.

  • Exempt Supplies: GST is not applied to exempt supplies. As a result, no GST is applied to the supply's value, and the provider is not eligible to claim input tax credit (ITC) for any GST paid on the goods and services that went into making the exempt supply. 

Examples: Most vital products and services are exempt from GST, including milk, fresh produce, fresh fruits, and medical treatments delivered by a clinical facility.

  • Non-GST Supplies: Non-GST supplies are exempt from GST since they do not fall under the purview of the law. There is no GST to be levied or collected on these supplies, and there is no input tax credit available. 

Examples: 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.

  • Nil-Rated:  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 the input tax credit on GST paid for inputs and services. 

Examples: Medications and some agricultural products are examples of goods and services whose exports are frequently categorised as nil-rated supplies.

  • Zero-Rated: 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 deemed as zero-rated supplies under GST.


Conclusion 

Certain goods and services are not included in GST applications due to NGST exemptions. Certain goods and services are not covered by the GST Act. It's crucial to keep in mind that these exemptions can vary from nation to nation and could alter in the future. Governments offer GST exemptions for a variety of reasons. They might lessen the tax burden on necessities for citizens, such as products and services. Additionally, exclusions can be used by authorities to promote specific industries or sectors. Understanding these exemptions is critical for business owners as it enables them to claim the valid ones.



Frequently Asked Questions

Q1. Who can offer GST exemptions?

The government may give GST exemptions. Using the GST Council's recommendations, the Government issues a notification announcing the exemption.



Q2.  Is a tax invoice required when supplying GST-exempt goods?

When a business provides goods and services that are exempt from GST, it is necessary to provide a bill of supply instead of a tax invoice.



Q3. Are exempted supplies recorded separately in the GSTR-1 return?

Yes, a combined detail of GST-exempt, non-GST, and nil rates should be reported separately when filing a GSTR-1 return.



Q4. What is the GST exemption limit? 

If a company's yearly revenue surpasses Rs. 40 lakhs for goods and Rs. 20 lakhs for services, they are required to register for GST and pay taxes on their taxable goods and services.



Q5. From which date does the exemption apply? 

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.



Q6. Does CGST exemption automatically apply as an SGST exemption?

Yes, notice given under CGST Act sections 11(1) and 11(2) shall be construed as having been given under SGST Act/UTGST Act.



Q7. Does IGST exemption automatically apply as a CGST exemption?

The two Acts do not have any such connected portions. As a result, a CGST exemption does not equate to an IGST exemption.



Q8. Is having a GST number mandatory for supplying exempted goods? 

Individuals who are only involved in exempt supplies of goods or services, or both, are exempt from having to register for GST under clause (a) of Section 23(1) of the CGST Act,2017, even if their total turnover exceeds the threshold set forth in Section 22(1). 



Q9. What is tax treatment when a supply becomes exempt when earlier was taxable?

Taxpayers ought to submit reports of A sum equivalent to the credit of tax paid on stock retained (inputs, semi-finished goods, or finished goods) and capital goods (reduced by percentage points) on the day before the date of effecting exempt supplies will need to be paid  taxable to exempt transactions change. Stated differently, there are no restrictions on the input tax credit. The taxpayer may choose to use available credit to make the same payment, though.





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