GST Exemption
GST Exemption
Since July 1, 2017, the Government of India introduced specific criteria requiring businesses and individuals to adhere to GST Registration regulations. However, particular categories of goods and services are eligible for GST Exemption. Some goods or services also fall under the nil tax rate, commonly called exempt supply within the GST framework. To understand GST exemptions comprehensively, it is essential to refer to the GST exemption list. Hence, this article simplifies the concept of what falls under the purview of GST exemption and which services or products are not required to be registered under GST.
GST Registration
GST registration is mandatory for businesses and individuals engaged in the economic supply of goods and services, enabling them to collect and remit GST to the government. This legal requirement involves submitting critical business details such as the entity’s name, type of business, and annual turnover. A unique GST identification number (GSTIN) is assigned upon registration, which is crucial for filing GST returns and claiming input tax credits. Non-compliance with GST registration can lead to penalties, making it essential for entities to understand their obligations under GST law.
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GST Exemptions
GST exemption is when certain goods or services are not subject to the Goods and Services Tax (GST). This means that the seller of these goods or services does not collect GST from the buyer and, accordingly, does not have to remit any tax to the government for those sales. GST exemptions often aim to reduce the tax burden on essential goods and services, making them more affordable for consumers.
GST Exempt Supplies
GST-exempt supplies don’t require adding GST (Goods and Services Tax). These supplies are categorized based on their tax implications and eligibility for Input Tax Credit (ITC), which helps in understanding how each is treated:
- Exempt Supply: These taxable supplies do not attract GST, and ITC cannot be claimed. Examples include fresh milk, fruits, curd, and bread.
- Nil-Rated Supply: Supplies that are taxed at a 0% rate. No GST is charged on these, and ITC cannot be claimed. Typical examples are salt, grains, and jaggery.
- Zero-Rated Supply: Unlike nil-rated, these supplies are taxed at 0% but allow the claim of ITC. This category primarily covers exports and supplies to Special Economic Zones (SEZs) or SEZ developers.
- Non-GST Supply: These are supplies that the GST law does not cover, including items like alcohol for human consumption and petrol. These items fall outside the purview of GST, and no GST is collected or claimable on inputs used.
Non-Taxable Supply Under GST
A “non-taxable supply” refers to any supply of goods, services, or both that the GST laws—specifically the CGST Act or the IGST Act—do not levy a tax on. For a transaction to be classified as a non-taxable supply, it must first meet the definition of ‘supply’ as per GST regulations.
Scope of Non-taxable Supply
Non-taxable supplies include those excluded from GST taxation, such as alcoholic beverages for human consumption and items detailed in Section 9(2) or listed in Schedule III of the CGST Act.
Items Not Yet Subject to GST
Certain items fall within the scope of GST but have not had a GST rate assigned yet, including:
- Petroleum crude
- High-speed diesel
- Motor spirit (commonly known as petrol)
- Natural gas
- Aviation turbine fuel
The Negative List Under GST
The negative list encompasses items and services not covered under GST, as specified in Schedule III of the CGST Act. Examples include:
- Services provided by an employee to their employer in the course of employment
- Services related to funeral, burial, crematorium, or mortuary activities
- Sale of land
- Sale of entirely constructed buildings
- Actionable claims, except for lottery, betting, and gambling
- Services provided by any court or tribunal
- Official duties performed by MPs, MLAs, and other individuals in positions established by the Constitution.
Types of GST Exemptions
There are various GST exemptions, which can be classified based on who or what is exempt:
- Supplier-Based Exemption: This exemption applies to the supplier, regardless of what is being supplied. This means that some suppliers, due to their nature or status, do not have to charge GST.
- Example: Services provided by charitable organizations.
- Supply-Based Exemption: This relates to the nature or type of the supply itself. Certain goods or services are exempt from GST, which applies regardless of the supplier.
- Example: Services related to sponsoring sporting events or services provided by public toilets.
Categories of Exemptions
Exemptions can also be categorized based on whether there are any conditions attached:
Absolute Exemptions
Absolute exemptions entail the complete omission of GST on specific goods or services without imposing any conditions or limitations.
Example:
- The transmission or distribution of electricity by an electricity utility.
- The exemption is granted to certain services the Reserve Bank of India (RBI) provides.
Conditional Exemptions
Conditional exemptions come with particular limitations, conditions, or restrictions that define the scope and extent of the exemption.
Example:
- For instance, hotel services may receive a partial exemption, subject to specific terms, and not a comprehensive exemption.
- Healthcare services are provided by a clinical establishment that offers rooms (excluding intensive care units) with charges over Rs. 5000 per day.
Partial Exemptions
This exemption applies to specific scenarios under defined conditions. For example, GST under reverse charge is not required on intra-state supplies received from an unregistered person by a registered person if the total value does not exceed Rs. 5000 in a day from all suppliers combined.
How Are Exemptions Granted?
- Central or State Governments decide on exemptions to serve the public interest.
- Exemptions are typically announced via official notifications and must be recommended by the GST Council.
- They can be absolute (applying fully, no matter the circumstances) or conditional (depending on certain conditions).
- In exceptional cases, exemptions might be granted through a particular order.
Key Point for Sellers: You cannot charge your customers for these items if you provide GST-exempt supplies.
Which goods are exempted from GST?
The GST framework exempts several essential goods to make them more affordable and accessible.
Download List of Exempted Goods Under GST: We have attached a file containing the GST exemption list for your reference.
List of exempted goods under gst pdfRefer to our article “GST Exempted Goods” to learn more about exempted goods under GST.
GST Exemption from Registration
Specific individuals and businesses are exempt from GST registration, including:
- Agriculturists (Also read – GST Exemption for Farmers)
- Individuals and businesses with an annual turnover below INR 40 lakhs for goods and INR 20 lakhs for services (INR 20 lakhs and INR 10 lakhs for specified categories)
- Individuals making supplies of NIL-rated or fully exempt goods and services.
- Individuals engaged in activities not covered under the supply of goods and services.
- Individuals making supplies of goods are covered under the reverse charge mechanism.
GST Exemption for Small and Medium-Scale Businesses
Small and medium-scale businesses can benefit from GST exemptions based on their aggregate turnover:
- If the aggregate turnover of a company or individual supplying goods is less than INR 40 lakhs (INR 20 lakhs in certain hilly and northeastern states), they can claim a GST exemption.
- The exemption limit for businesses or individuals supplying services is INR 20 lakhs (INR 10 lakhs in certain hilly and northeastern states).
- The hilly and northeastern states, as defined, encompass regions such as Arunachal Pradesh, Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Tripura, Nagaland, Sikkim, Meghalaya, Mizoram, Assam, and Manipur.
- As per the GST Act, the aggregate turnover comprises the combined value of all categories of taxable supplies, inter-state supplies, exempt supplies, and exported goods and services.
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Reason for GST Exemptions
The government determines exemptions from GST registration under various circumstances:
- Recommendation by the GST Council: The GST Council, comprised of representatives from the central and state governments, plays a pivotal role in suggesting exemptions from GST registration. Their recommendations carry substantial weight in the decision-making process.
- Public Benefit: The government may identify certain exemptions as advantageous for the general public. These exemptions are designed to alleviate the tax burden on essential goods and services, making them more affordable and accessible.
- Extraordinary Circumstances: In exceptional or unforeseen situations, the government can grant exemptions through special orders. These exemptions are typically enacted to address specific, time-sensitive issues.
- Official Notifications: The government can declare full exemptions for specific goods by issuing official notifications. These notifications provide legal clarity on which items are exempt from GST.
A thorough understanding of these criteria is essential for taxpayers seeking to register under GST seamlessly.
Conclusion
Understanding GST exemptions is crucial for businesses to ensure compliance and optimize their tax liabilities. If you require assistance with GST registration or managing GST exemptions, IndiaFilings offers comprehensive services to help businesses stay compliant and capitalize on their growth potential.
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