Certain goods and services are considered exempt supply under GST. The government allows such exemptions to promote easy business operations and ensure GST compliance for businesses. This blog elaborates on exempt supplies of goods and services to help you make informed decisions.

What Is the GST Exempt Supply?

Goods and services that do not attract GST are GST-exempt supplies. As a result of the exemption, registered taxpayers cannot claim input tax credits on GST-exempt supplies. 

Bread, fresh milk and fresh fruits are examples of GST-exempt supply, defined under Section 2(47) of the GST Act. However, zero-rated supplies such as exports of goods and services are not considered exempt supplies.

Exempt supplies can be the following:

• Nil-rated supplies or supplies attracting 0% GST
• Supplies exempt from GST under Section 11 of the CGST Act or Section 6 of the IGST Act
• Non-taxable supplies under Section 2(78) of the Act

The Central or State Governments grant exemptions based on the conditions mentioned below:

1. Exemptions in the public interest
2. By way of the issue of notifications
3. GST Council must recommend the exemption
4. Absolute or conditional exemption for specific goods and services
5. Exemptions under special order for exceptional circumstance
6. The registered person or supplier of goods and services should not be entitled to collect tax higher than the effective rate.

Types of GST Exemptions

Here are the types of GST exemptions:

Non-taxable Supply: Goods and services supplied but not chargeable under GST as per Section 7(2)(b) are non-taxable supplies.

Supply Attracting Nil Rate of Tax: Goods and services are taxable at nil rate or 0%.

Exempted Supplies Under Section 11 Excluding IGST and Section 6 of the IGST Act: Specific goods and services exempted under Section 11 and Section 9 of the GST Act.

In addition, exemption from GST can be classified in the following way:

Absolute Exemption

Exempted supplies without any specific condition are absolute exemptions. For instance, the distribution of electricity by an electricity distribution company is an example of absolute exemption.

Conditional Exemption

Supplies subject to certain conditions are termed conditional exemptions. For instance, healthcare services provided by healthcare units such as critical care units, intensive cardiac care units and neonatal intensive care units with room charges above ₹5,000 per day are examples of conditional exemptions.

Partial Exemption

Intra-state supplies or goods and services by an unregistered person to a registered person are partial exemptions under the reverse charge mechanism. However, the aggregate value of supplies should not be more than ₹5,000 per day.

Classification of Exemptions

Here are the classifications of exemptions:

• Supplier May Be Exempt:

Irrespective of the nature of outward supply, the supplier is exempted from GST. For instance, charitable services are exempt from GST.

• Certain Supplies May Be Exempt:

Certain goods and services are exempt from GST based on the nature and type of goods and services. For instance, sponsorship of events, and services for public conveniences are examples of GST-exempt supplies.

List of Goods Exempt

List of goods exempt from GST can be classified in the following ways:

GST Exemption from Registration

Here is the list of GST exemptions from registration:

• A person under exempted turnover limit for supply of goods ₹40 lakhs and supply of services ₹20 lakhs. In addition, specified categories of turnover of ₹20 lakhs and ₹10 lakhs are exempt from GST.
• Suppliers supplying nil-rated or exempt goods and services such as fresh milk, agricultural services and cheese.
• Persons engaged in GST-exempt supply of goods and services such as funeral services and petroleum products.
• Suppliers supplying goods and services under reverse charge mechanisms such as tobacco leaves and peeled cashew nuts.

The following table illustrates the list of common goods that are exempt under GST:

Types of Goods	Examples
Live animals	Cows, sheep, goats, poultry
Meat	Fresh and frozen meat
Fish	Fresh or frozen fish
Natural products	Honey, fresh and pasteurised milk, cheese, eggs
Live trees and plants	Bulbs, roots, flowers, foliage
Vegetables	Tomatoes, potatoes, onions
Fruits	Bananas, apples, grapes
Dry fruits	Walnuts, cashew nuts
Tea, coffee and spices	Coffee beans, turmeric, tea leaves, ginger
Grains	Wheat, oats, rice, barley
Products of the milling industry	Different types of flour
Seeds	Oil seeds, flower seeds, cereal, husks
Sugar	Jaggery, sugar
Water	Tender coconut water, mineral water
Baked goods	Bread, pizza base, puffed rice
Fossil fuels	Electrical energy
Drugs and pharmaceuticals	Contraceptives, human blood
Fertilisers	Goods and organic nature
Beauty products	Kumkum, kajal, bindi
Waste	Sewage sludge, municipal waste
Ornaments	Glass and plastic bangles
newsprint	Rupee notes, judicial stamp paper, envelopes
Printed items	Books, newspapers, maps
Fabrics	Silkworm cocoon, khadi, raw silk
Hand tools	Spade, hammer
Pottery	Clay lamps, earthen pots

The list below highlights the services exempt under GST:

Types of services	Examples
Agricultural services	Cultivation, supplying farm labour, harvesting, warehouse-related activities, renting or leading agricultural machinery, services provided by a commission agent or the Agricultural Produce Marketing Committee or Board for buying or selling agricultural produce, etc.
Government services	Postal service, transportation of people or goods, services by a foreign diplomat in India, services offered by the Reserve Bank of India, services offered to diplomats, etc.
Transportation services	Transportation of goods by road, rail, water, etc., payment of toll, transportation of passengers by air, transportation of goods where the cost of transport is less than ₹1,500, etc.
Judicial services	Services offered by the arbitral tribunal, partnership firm of advocates or senior advocates to an individual or business entity whose aggregate turnover is up to ₹40 lakh
Educational services	Transportation of faculty or students, mid-day meal scheme, examination services, services offered by IIMs, etc.
Medical services	Services offered by ambulances, charities, veterinary doctors, medical professionals, etc. do not include hair transplants or cosmetic or plastic surgery.
Organisational services	Services offered by exhibition organisers for international business exhibitions, tour operators for foreign tourists, etc.
Other services	Services offered by GSTN to the Central or State Government or Union Territories, admission fee payable to theatres, circuses, sports events, etc. which charge a fee up to ₹250

Reasons for Exemption Under GST

Here are the reasons for exemption under GST:

1. Social Welfare and Public Interest

Essential goods and services used for the welfare of society are exempt under GST. For instance, basic food items including rice, wheat, milk, healthcare services and educational services are exempt under GST.

2. Small Businesses

Businesses with lower aggregate annual turnover rates often enjoy exemptions under GST. The government aims to promote ease of business operation and reduce compliance burdens on small businesses by making provisions for exemptions under GST. For instance, small businesses with lower turnover limits under the composition scheme enjoy lower GST rates.

3. Export of Goods and Services

Exports from India are zero-rated supplies under GST. This ensures the GST percentage for these supplies is taxed at 0%, facilitating competitiveness in the international markets. Thus, exporters do not face the burden of GST for their transactions.

4. Interstate Supplies

Supplies of goods and services between certain Indian states are often exempt under GST. Alternatively, these goods and services may be taxed at a concessional rate to facilitate the free movement of goods and services across state borders.

5. Agriculture

The agricultural sector in India is a major contributor to the economy’s growth and Gross Domestic Product (GDP). As a result, the Indian government allows exemptions under GST for certain agricultural products and services.

6. Government Services

To simplify accounting and avoid double taxation or the cascading effect of taxation, the government allows exemptions under GST for certain services by the government and local authorities.

7. Financial Services

Financial services such as banking and interest on loans are exempt under GST. Additionally, insurance services are often subject to special provisions that determine the GST liability.

8. Cultural and Religious Significance

Considering the cultural and social values of society, goods and services supplied for cultural, religious and charitable purposes are often exempt under GST.

9. Administrative Simplicity

To make GST compliance easier for businesses, reduce compliance costs and simplify the tax system, the government exempts certain goods and services under the GST system.

10. Transitional Provisions

The Indian government allows exemption on certain goods and services for businesses migrating to the new tax regime under GST. This helps these businesses comply with the GST rules while paying lower tax rates.

GST Exemption for Businesses

The 32^nd GST Council Meeting revised the limits for GST exemption as follows:

• The aggregate turnover for businesses and individuals supplying goods is ₹40 lakh.
• However, the limit for hilly and northeastern Indian states is ₹20 lakh.
• For individuals and businesses supplying services, the aggregate turnover limit is ₹20 lakh. 

Difference Between Exempt, Nil Rated, Zero Rated and Non-GST Supplies

Here are the different types of supplies based on exemptions:

Exempt Supplies

Exempt supplies of goods and services are those in which no GST is charged. Further, suppliers cannot claim input tax credits for the GST that they pay on inputs and services. Examples of exempt supplies include fresh fruits, vegetables, milk and healthcare services that clinical establishments render.

Nil Rated Supplies

Nil-rated supplies are subject to a 0% GST rate wherein the suppliers do not have GST liability. However, suppliers can claim input tax credit for the GST paid on inputs and services purchased. Examples of nil-rated supplies include the export of goods and services like pharmaceuticals and specific agricultural products.

Zero Rated Supplies

Zero-rated supplies have features similar to nil-rated supplies wherein the rate of GST is 0%. Exports to international regions are examples of zero-rated supplies. Suppliers can claim the input tax credit on these supplies for the GST paid on the purchase of goods and services.

Non-GST Supplies

Non-GST supplies are outside the scope of GST. As a result, they are exempted under the GST rules. As these are exempted from GST, no collection of tax is applicable for these goods and services.

In addition, suppliers cannot claim input tax credits on these goods and services. Examples of non-GST supplies include petroleum products, alcohol for human consumption, stamps and currency.

Conclusion

Exempt supply under GST can be nil-rated, zero-rated or excluded from GST scope. These goods and services do not attract GST for the taxpayers. However, based on the type of goods and services, taxpayers can claim the input tax credit on the GST paid on the purchase of inputs and services. This helps taxpayers reduce their output tax liability on outward supplies.

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