Quick Read
- Businesses should check whether an exemption is subject to specific conditions before applying it to a supply.
- GST exemptions may affect the availability of Input Tax Credit for purchases related to exempt supplies.
- Any business engaged in supplying goods and services that are exempt from tax cannot claim ITC on purchases meant for such supplies.
- Exempt, nil-rated, and zero-rated supplies have different implications under the GST regime.
GST consolidates various indirect taxes, but not all goods and services are liable to GST. Some supplies of goods and services are exempt from GST on specific grounds and because of the nature and importance of a supply or by virtue of specific provisions in GST law. Understanding and appreciating the implications of exemptions and the reason for them is of great importance to businesses, as they make a considerable impact on prices, input tax credits, and hence, tax planning. The criteria and examples of goods and services exempt from GST are discussed below.
What is GST Exemption?
GST exemption refers to goods and services that are exempt from taxation under the given law or notification, subject to the conditions prescribed in the relevant GST law or notification. Such supplies do not involve GST liability like taxable supplies, which are subject to a tax at a rate prescribed by law.
Unlike exempt supplies, GST exemption does not eliminate an entire industry or sector. For instance, Notification No. 12/2017-Central Tax (Rate) specifies that certain services are exempt from central tax under the CGST Act, on the condition that the conditions stated in that notification are met.
Why are Certain Goods and Services Exempt From GST?
Certain goods and services are exempt from GST to reduce the tax burden on certain goods and promote certain social and economic activities. The exemption of goods and services is specified by the applicable GST law and notification.
Key factors include the following:
- Public welfare: Specified healthcare, educational, and essential services may be exempt
- Sector support: Certain agricultural and related activities may be given exemptions
- Social activities: Specified charitable and public welfare services may qualify for benefits
- Specific transactions: Some supplies are exempt based on their nature and prescribed conditions
What is the GST Exemption List?
The goods and services listed in the exemption list of GST are the ones on which tax is not levied as per the notifications. Since the exemption list varies from notification to notification and can be subject to changes, there isn’t a final list that covers all the goods and services that are exempt from taxation.
The main categories are:
- The notification numbered 02/2017: Central Tax (Rate) includes certain goods, such as particular fresh produce, food items, and other products that have been notified.
- The notification numbered 12/2017: Central Tax (Rate) includes some services that are connected with fields such as healthcare, education, agriculture, charitable activities, and government functions.
- Updates: The exemption will be dependent on particular goods or services, relevant entry, and prescribed conditions. Prior to categorising a supply as an exemption, a business must consider the latest notifications concerning GST.
What is the Difference Between Exempt, Nil-Rated, and Zero-Rated Supplies?
Exempt, nil-rated, and zero-rated supplies differ from one another, particularly in terms of Input Tax Credit (ITC). Even though there is no GST charged to the recipient in all three cases, their taxation principles are different.
| Type | GST treatment | ITC treatment |
| Exempt supply | GST is not charged because the supply is specifically exempt | Generally not available for inputs attributable to exempt supplies |
| Nil-rated supply | GST is charged at a 0% rate | Generally not available |
| Zero-rated supply | Applies to exports and supplies to SEZs, subject to applicable conditions | ITC can generally be claimed, subject to GST rules |
What are the Important GST Exemption Notifications?
The GST exemption framework is based on specific government notifications that identify exempt goods and services and the conditions applicable to them. Some key notifications include:
- Notification No. 02/2017: Central Tax (Rate): Covers specified goods that are exempt from central tax
- Notification No. 12/2017: Central Tax (Rate): Covers specified services that are exempt from central tax
- Notification No. 09/2017: Integrated Tax (Rate): Covers specified service exemptions under the IGST framework
Wrapping Up
GST exemption can affect a business’s pricing, costs, and cash flow. Since the rules and conditions may change, checking the latest notification before making a tax decision is important.
At Lendingkart, we provide business loans to eligible MSMEs for needs such as inventory, working capital, and expansion. While a loan has no bearing on GST treatment, it can help manage expenses when there is a gap in the business’s cash flow.
Frequently Asked Questions (FAQs)
1. What is GST exemption?
GST exemption means specified goods or services that are not subject to GST as per the applicable GST notification.
2. What are GST-exempt goods and services?
GST-exempt goods and services include supplies specified in certain exemptions provided under the GST notifications. The treatment of such goods and services depends upon the particular product or service and the applicability criteria of that particular exemption entry.
3. Can I claim ITC on GST-exempt supplies?
Generally, ITC is not available for inputs or input services attributable to exempt supplies. A business making both taxable and exempt supplies must apportion ITC in accordance with the GST rules to which it is subject.
4. What is the difference between exempt and zero-rated supply?
Exempt supplies generally do not allow ITC on related inputs, while zero-rated supplies, viz., exports and specified supplies to SEZs, can generally allow ITC subject to the applicable provisions.
5. Where can I check the latest GST exemption list?
Businesses should refer to the latest CBIC notifications and GST Council rate notifications because exemption entries can be amended over time. The GST Council maintains a current list of Central Tax (Rate) notifications.
