Understanding the intricacies of GST exemptions is pivotal for entrepreneurs and business owners in navigating the complex landscape of taxation in India. Knowledge of which goods and services are exempt GST not only aids in compliance with tax laws but also plays a significant role in financial planning and management. Being well informed about GST exemptions can significantly impact the financial health of a business, making it easier to manage cash flows and potentially increase profitability. Here, we delve into the realm of GST exemptions, highlighting the exempt goods and services.
What is the GST exemption?
GST exemption refers to the exclusion of specific goods and services from the scope of the Goods and Services Tax (GST), ensuring that no GST is levied on their supply. This exemption is designed to reduce the financial burden on consumers, particularly for essential commodities and services that are fundamental to daily life. Key sectors benefiting from GST exemption include basic food items, healthcare, and education. By exempting these categories, the government aims to make essential goods and services more accessible and affordable, particularly for lower-income groups. Additionally, GST exemptions help promote social welfare and economic stability by ensuring that necessities remain within reach without additional tax implications.
What is an exempt supply under GST?
An exempt supply under GST encompasses goods and services on which no tax is levied. These include GST exempt services and items that are crucial for daily living and the overall well-being of the society. For businesses, identifying GST exempt services and products they deal in can aid in optimising tax liabilities, a critical consideration when planning for expansions or applying for loans. A GST calculator can also prove helpful while planning the borrowing journey.
Types of GST exemptions
GST exemptions are classified based on the type of exemption and the nature of the supplier. Here are the main categories:
Supplier-based exemption
This exemption applies to specific suppliers, regardless of the goods or services they provide. Typically, it’s granted to organizations engaged in public welfare or nonprofit activities.
Example: Services offered by charitable organizations are exempt from GST, regardless of the service type.
Supply-based exemption
Certain goods and services are exempt from GST due to their essential nature. This exemption applies based on the type of supply, not the supplier.
Example: Healthcare services, educational services, and public utility services (e.g., water supply) are exempt from GST.
Absolute exemption
This exemption is unconditional, meaning the supply is fully exempt from GST without any terms or conditions attached.
Example: The transmission or distribution of electricity by an electricity utility company is completely exempt from GST.
Conditional or partial exemption
These exemptions are subject to specific conditions or limits. They may be fully or partially applicable depending on certain criteria, such as threshold limits or specific use cases.
Example: Hospital room charges are exempt from GST if they do not exceed Rs. 5,000 per day (excluding ICUs). Similarly, intra-state meaning in GST supplies from unregistered persons are exempt under reverse charge if the total value is below Rs. 5,000 per day.
List of GST exemptions
Category |
Product |
Fresh produce |
Vegetables, fruits, and other perishables (not processed) |
Dairy products |
Milk (except flavoured milk), buttermilk, curd, and unbranded natural honey |
Grains and cereals |
Unprocessed cereals and grains, such as wheat, rice, barley |
Educational services |
Schooling fees, college education, and vocational training provided by educational institutions |
Healthcare services |
Services provided by clinical establishments or authorized medical practitioners |
Books and newspapers |
Printed books, newspapers, and journals (excluding those with advertising) |
Handloom and handicraft items |
Handloom products, handmade carpets, and other handicraft goods (subject to conditions) |
Services by charitable organisations |
Services offered by entities registered under Section 12AA of the Income Tax Act for charitable purposes |
Agricultural services |
Services related to cultivation, harvesting, supply of farm labour, leasing agricultural machinery, warehouse services |
Transport services |
Public transport services that are non-air-conditioned and do not involve tourism or charter |
Residential renting |
Renting of residential dwellings for use as a home (excludes commercial or business rentals) |
Personal services |
Salaried employment, funeral, burial, crematorium, and religious services |
Financial services |
Interest on loans, deposits, savings accounts, and insurance policies by RBI or government agencies |
Electricity |
Supply of electricity for domestic and industrial use |
Water supply |
Water supply for domestic use (industrial water supply may attract GST in specific cases) |
Government services |
Services provided by the government or local authorities, excluding specific taxes like advertisements, parking, and tolls |
Educational materials |
Printed materials like maps, charts, and educational aids essential for learning |
Unprocessed food items |
Fish, meat (excluding canned or processed), and eggs |
Live animals |
Live animals (except those bred for food or leather, such as certain breeds of dogs, horses, and ornamental fish) |
Plants and flowers |
Live plants and fresh flowers, supporting the horticulture and floriculture sectors |
Art and antiques |
Original artworks, antiques over 100 years old, and national treasures |
Renting for religious purposes |
Renting of precincts of religious places for public use, supporting spiritual practices |
Indigenous handicraft goods |
Exemption for traditional artisans and various indigenous crafts |
Life-saving services and goods |
Blood and blood derivatives, vaccines, and life-saving drugs |
GST exemption from registration
- A person whose turnover falls below the threshold exemption limit—INR 40 lakhs for goods, INR 20 lakhs for services, and INR 20 lakhs (or INR 10 lakhs in special category states) for specified categories.
- A person making NIL-rated or exempt supplies of goods and services, such as fresh milk, honey, cheese, agricultural services, etc.
- A person engaged in activities that are not considered as supplies of goods and services, such as funeral services, petroleum products, etc.
- A person supplying goods covered under the reverse charge mechanism, such as tobacco leaves, unprocessed cashew nuts (not shelled or peeled), etc.
GST exemption for businesses
Small and medium enterprises (SMEs) play a crucial role in the economy, and the Goods and Services Tax (GST) framework provides specific exemptions to simplify compliance. These exemptions are based on the annual aggregate turnover of a business, as detailed below:
1. GST exemption for businesses supplying goods
- Businesses engaged in the supply of goods are eligible for GST exemption if their aggregate turnover is below INR 40 lakhs in a financial year.
- For businesses operating in hilly and northeastern states, the exemption threshold is INR 20 lakhs to accommodate regional challenges.
2. GST exemption for businesses providing services
- Businesses providing services can avail of GST exemption if their aggregate turnover does not exceed INR 20 lakhs in a financial year.
- In hilly and northeastern states, the exemption threshold is INR 10 lakhs to support local service providers.
3. Definition of aggregate turnover
The term “aggregate turnover” refers to the total value of all transactions, including taxable supplies, inter-state supplies, exempt supplies, exports of goods and services.
Certain deductions are applied when calculating aggregate turnover, such as:
- GST paid under CGST, SGST, or IGST
- Taxes payable under the reverse charge mechanism
- The value of inward supplies of goods and services
- The value of non-taxable goods and services
These exemptions are designed to ease the compliance burden for SMEs, enabling them to focus on business growth while benefiting from tax relief.
Difference between exempt, NIL rated, zero rated, and non-GST supplies
Supplies can be classified into Exempt, Nil Rated, Zero Rated, and Non-GST categories. While these terms may sound similar, they have distinct purposes and characteristics.
Here is a breakdown:
Category |
Description |
Example |
Exempt Supplies |
Supplies on which GST is not charged. No Input Tax Credit (ITC) can be claimed. |
Milk, vegetables, other essentials |
Nil Rated Supplies |
Supplies specifically taxed at 0% GST. No tax is charged, but they are still subject to GST reporting. |
Certain medicinal products, books |
Zero Rated Supplies |
Similar to Nil-rated, but intended for exports or supplies to SEZs or SEZ developers. ITC can be claimed. |
Export of goods, supplies to SEZs |
Non-GST Supplies |
Supplies that fall outside the scope of GST entirely and are not subject to GST. |
Petroleum products |
Navigating GST exemptions for business growth
For entrepreneurs registered under GST, understanding the nuances of GST exemption is not just about compliance; it is about leveraging these exemptions to minimise tax liabilities and enhance the financial standing of the business. Whether the GST exemption applies to goods or to services, each area offers opportunities for tax savings and improved cash flow management. This knowledge is particularly beneficial when applying for business loans, as it presents a clearer picture of the business's financial health to lenders.
Reasons for goods exempted from GST
Under the Goods and Services Tax (GST) system in India, some goods, services, and transactions are exempt from GST, meaning they are not subject to GST taxation. Exemptions are granted for various reasons, reflecting policy goals, socio-economic factors, and administrative convenience. Businesses can gain additional clarity by understanding the GST structure India, which outlines the tax framework and its applicability across different sectors. Here are some common reasons for these exemptions:
- Social welfare and public interest: Essential goods and services vital for societal welfare, such as basic food items (e.g., rice, wheat, milk), healthcare services, and education, may be exempt from GST.
- Small businesses: To ease the compliance burden on smaller enterprises and encourage business growth, exemptions or reduced rates may apply to businesses with lower turnover. The Composition Scheme, for instance, offers lower GST rates for small businesses within certain turnover limits.
- Export of goods and services: Exports are generally zero-rated under GST, meaning they are taxed at a zero percent rate. This helps keep exports competitive internationally and prevents the GST burden from affecting export prices.
- Interstate supplies: Certain interstate supplies of specified goods and services may be exempt or taxed at a reduced rate to facilitate the smooth movement of goods and services across state lines.
- Agriculture: Many agricultural products and services are exempt from GST to support the agriculture sector, which plays a crucial role in India’s economy.
- Government services: Some services provided by the government or local authorities are exempt from GST to avoid double taxation and simplify accounting processes.
- Financial services: Certain financial services, including banking, loan interest, and insurance, may be exempt or subject to special provisions for GST liability.
- Cultural and religious significance: Goods and services used for cultural, religious, or charitable purposes may be exempt to honour cultural and social values.
- Administrative simplicity: Exempting certain goods or services helps simplify the tax system, reducing compliance costs and making it easier for businesses and taxpayers to navigate GST regulations.
- Transitional provisions: During the transition to GST, some exemptions or concessional rates may be applied to ease the shift for businesses and mitigate the impact of the new tax regime.
In conclusion, navigating the complexities of GST exemptions can significantly impact a business's financial planning and tax liabilities. For businesses seeking financial growth or support through loans, a deep understanding of GST exempted items and services is invaluable. It not only aids in ensuring compliance with tax regulations but also enhances financial management, making the business more appealing to lenders and financial institutions.
