Understanding GST Exemptions
The introduction of the goods and services tax (GST) has simplified the indirect taxation system in India by unifying multiple taxes into a single tax structure. While most goods and services fall under the purview of GST, there are quite a few that are exempted.
One of the primary reasons behind certain products and services being placed on the GST exemption list is to protect the interests of both the concerned industries and the public. By eliminating GST from certain products and services, the government of India hopes to keep them affordable to consumers.
In this article, we are going to explore the concept of exemptions under GST in detail and delve into the various goods and services that have been kept outside the purview of this indirect taxation system.
What is a GST Exemption?
A GST exemption essentially means that certain goods or services are not subject to goods and services tax. Depending on the type and nature of goods or services, the exemption can either be full or partial.
In addition to being unable to levy goods and services tax on products and services in the GST exemption list, the supplier also cannot claim any input tax credit (ITC) on the inputs used for exempted goods and services.
Types of GST Exemptions
Exemptions under GST can be broadly classified into four major types. Let us explore each of these types in detail.
- Supplier-Based Exemption
In this type, GST tax exemption is provided to certain suppliers irrespective of the goods and services they sell.
Small businesses with turnovers within the GST registration threshold are granted exemption even if they supply goods and services within the ambit of GST. The GST registration limit for individuals and business entities is ₹40 lakh for goods and ₹20 lakh for services.
Similarly, charitable organisations are exempt from GST even if they provide services that are taxable under the indirect taxation system.
The primary objective of supplier-based exemptions is to avoid overburdening micro and small businesses with the need to register for GST and comply with its various rules and regulations.
- Supply-Based Exemption
In this type, certain goods and services are considered GST-exempt regardless of the supplier. Essential goods and services like unprocessed agricultural food, healthcare services, educational services and public transportation services are some of the GST-exempted goods and services.
The primary objective of supply-based exemptions is to keep the cost of essential goods and services affordable and within the reach of the common man.
- Absolute Exemption
In this type, certain goods and services are entirely exempt from goods and services tax, meaning that GST is not levied at any stage. Electricity transmission and distribution, unprocessed agricultural products and healthcare services are some GST services and goods that enjoy absolute exemption.
- Conditional or Partial Exemption
In this type, exemption under GST is provided to certain goods and services partially or fully with conditions attached. For example, services provided by educational institutions are exempt, but only if they relate to curriculum-based education.
Similarly, hospital room charges (except ICU) are exempt if they are within ₹5,000 per day. The intrastate supply of goods and services not exceeding a value of ₹5,000 per day by unregistered persons and business entities is also exempt from the GST reverse charge mechanism.
List of Goods Exempted from GST
Certain goods enjoy complete exemptions under GST. This is done to keep inflation in check and to ensure that necessities remain affordable. Let us explore some of the key categories of GST-exempted good
Agricultural and Natural Products
Goods that are derived from agricultural or natural means are completely exempt from GST. These include:
- Fresh fruits and vegetables
- Food grains like rice, wheat and pulses
- Unprocessed tea leaves, coffee beans and jaggery
- Raw cotton and silk
- Saplings and seeds used for sowing
Dairy Products
India is one of the largest consumers of dairy in the world. Therefore, milk and milk-based products like cheese, butter, curd, buttermilk, lassi and paneer, among others, are fully exempted under GST.
Food Items
An extensive range of widely used food items in India are also on the GST exemption list. The list includes the following:
- Flour
- Salt and sugar
- Fresh and frozen meat and fish
- Eggs
- Honey
- Beverages like tea and coffee
- Spices like turmeric, ginger and black pepper
Educational and Printed Materials
Educational materials used by institutions and printed materials like books, newspapers and periodicals also come under GST-exempted goods.
Healthcare Products
Since healthcare is one of the essential categories, products related to this segment are exempted under GST. Some of the healthcare products that are outside the purview of the taxation system are as follows:
- Drugs and pharmaceuticals
- Human blood and its derivatives
- Contraceptives
- Vaccines
Miscellaneous Items
Certain generic products that cannot be classified into any segment are also exempted under GST. Some examples include the following:
- Clay idols
- Handlooms
- Kumkum, bindi, sindoor and bangles
- Postal items like postcards and inland letters
- Hand tools like spade and hammer
Note: This list of GST-exempted goods is only illustrative and not exhaustive. For the complete list of exemptions under GST, it is advisable to visit the official goods and services tax portal.
List of Services Exempted from GST
Several key services, primarily those that serve public welfare or are government-supported, are exempt from GST. Here is a brief overview of some of the services that are outside the purview of this indirect taxation system.
Agricultural Services
India is one of the largest agri-economies in the world. Therefore, to support farmers and ensure food security, the government has exempted several agricultural and related services. The list includes the following:
- Renting or leasing land and agricultural machinery
- Irrigation
- Farm labour
- Cultivation and harvesting of crops
Educational Services
Essential educational services enjoy tax exemption to promote literacy and to make education and learning accessible for all. Some of the educational services that are exempt from GST include the following:
- School education
- Recognised degree programs
- Services offered by recognised educational institutions
- Transportation services for faculty and students
- Mid-day meal schemes
- Examination services
Healthcare Services
As you have already seen, healthcare is an essential sector. To ensure affordable healthcare access for all citizens of India, the following list of services are considered exemptions under GST.
- Ambulance services
- Medical treatments (except hair transplants, cosmetic surgeries and plastic surgeries)
- Diagnostic services
- Services provided by veterinary doctors and medical professionals
Transportation Services
To make mobility and essential goods distribution easier and more affordable, certain transportation-related services have also been exempted from GST. Some of these services include the following:
- Public transportation
- Goods transportation via air, rail and water
- Tolls
Government and Diplomatic Services
Diplomatic services provided by consulates and embassies and services provided by the union and state governments are also excluded from the levy of GST.
Miscellaneous Services
Performing arts and charitable, religious and cultural services are exempt from GST to support social and cultural welfare.
Note: This list of GST-exempted services is only illustrative and not exhaustive. For the complete list of exemptions under GST, it is advisable to visit the official goods and services tax portal.
Difference Between Exempt, Nil Rated, Zero Rated and Non-GST Supplies
Understanding the distinctions among exempt, nil-rated, zero-rated, and non-GST supplies is crucial for businesses to comply with the various GST obligations efficiently. Let us briefly look at what each of the three supplies means.
- Exempt Supplies
Exempt supplies include goods and services that do not attract any GST. Individuals and business entities providing them cannot charge GST to their customers. As a result, they also cannot claim an input tax credit on the purchases or inputs related to the exempted supplies.
- Nil-Rated Supplies
Nil-rated supplies are taxed at 0% GST. However, unlike exempt supplies, individuals and business entities can claim ITC on the purchases or inputs related to nil-rated supplies.
- Zero-Rated Supplies
Zero-rated supplies include services and goods that are exported or supplied to Special Economic Zones (SEZs). These supplies are also taxed at 0% GST, which means that individuals and business entities can still claim an input tax credit on purchases or inputs used for these supplies.
- Non-GST Supplies
Non-GST supplies are completely outside the scope of GST. These supplies are taxed under other indirect tax laws, such as excise duty or VAT. As a result, these supplies have different rates depending on the states in which they are sold. Some examples include crude oil, petroleum products and alcoholic beverages.
How are GST Exemptions Granted?
GST exemptions are granted based on various factors, including economic policies, industry demands and public welfare considerations. The process involves multiple authorities, especially the GST Council, which recommends the exemptions. Once the GST council decides to grant an exemption to a particular product or service, an official notification is issued.
Latest Updates in GST Exemption Policies
From the time of its introduction, the goods and services tax framework in India has undergone several significant changes. These changes have been made to ensure that the indirect taxation system adapts to evolving economic conditions and industry requirements. Some of the notable changes in GST exemption policies include the following:
- Introduction of New Exemptions
In the 53rd GST Council meeting, certain services provided by Indian Railways were added to the exemptions under GST. The primary objective of this move was to lower costs for consumers. Similarly, accommodation services for working professionals and students were also exempted.
- Withdrawal of GST Exemptions
In the 47th GST Council meeting, several goods and services that enjoyed complete and partial exemptions were removed. As of July 18, 2022, the following list of goods and services shall be taxed at various GST rates.
- Maps
- Cheques
- Passenger transportation by air to and from the northeastern states and Bagdogra
- Biomedical waste treatment
- Hotel room rental up to ₹1,000 per day
- E-waste
- Methane from petroleum or coal beds
Note: This list of withdrawn GST exemptions is only illustrative and not exhaustive. For the complete list of withdrawn exemptions under GST, it is advisable to visit the official goods and services tax portal.
Conclusion
With this, you must now be aware of the various exemptions under GST. Now, it is important to remember that these exemptions play a vital role in making essential goods and services affordable while simultaneously supporting key industries like agriculture, healthcare and education.
Goods and services tax is an evolving landscape, with changes being made regularly by the GST Council. Individuals and businesses must stay informed of these updates to remain compliant and benefit from the exemptions
