Understand GST Exemption
After 1st July 2017, the Government of India set up some criterias upon fulfilling which businesses and individuals have to register under GST norms.
However, certain goods and services can enjoy exemption from GST registration. Furthermore, the supply of some goods or services attracts a nil rate of tax which in short is also known as exempt supply under GST.
To understand the finer details of the GST exemption, it is necessary to follow the GST exemption list.
Therefore, we present this piece to simplify the meaning of what is exempt from GST and which services or products are exempted from registration under GST.
Without much ado, let’s begin!
What is a GST exemption?
Understanding the taxability of goods and services also includes knowing whether a good or service is exempted from GST registration. Upon knowing this, applicants can get clarity on several other factors. Essentially, the GST exemption limit for businesses depends on their annual aggregate turnover.
Previously, businesses with an annual turnover of up to Rs.20 lakhs did not need to register for GST. The amount was Rs.10 lakhs for North-eastern or hilly states like Meghalaya, Sikkim, Mizoram, Arunachal Pradesh, Nagaland, Himachal Pradesh, Manipur, Assam, Tripura, Uttarakhand, and Jammu & Kashmir.
However, as per the GST council meeting on 10th January 2019, the values doubled for Micro, Small, and Medium Enterprises (MSMEs) in both cases.
In addition to this, certain supplies of goods and services fall under the GST registration exemption list. Let’s understand this better by referring to the following section.
What is an exempt supply under GST?
There are three types of supplies that can enjoy exemption under GST. They are as follows:
- Supplies taxable at 0% tax or nil tax rate.
- Whole or partial exemption of supplies under CGST or SGST.
- Supplies under Section 2(78) ( Non taxable supply)
Note: One cannot utilise the input tax credit applicable to these supplies.
In addition to this, one must follow the list mentioned below to understand the differences between nil-rated, zero-rated, exempt and non-GST supplies.
| Supplies | Meaning |
|---|---|
| Nil-rated | Supplies that have 0% tax rate. Example: Salt. |
| Non-GST | Ones that do not come under the purview of GST law include alcohol for human consumption. |
| Zero-rated | Export supplies to SEZ (Special Economic Zone) developers. |
| Exempt | Taxable supplies that do not attract GST. Curd, fruits are among some of the supplies. |
Furthermore, there are different types of GST exemptions one needs to know about.
Types of exemption in GST
Given below are the three types of exemptions in GST:
- Absolute: Exemptions without any conditions are an absolute exemption. For example, services by the RBI.
- Conditional: Certain conditions are applicable to some exemptions. Services by hotels, clubs, etc., with a statement of accommodation unit less than Rs.1000 per day, fall under a conditional exemption.
- Partial: Unregistered persons supplying goods within states (intrastate) to a registered individual can enjoy tax exemption under reverse charge only if the aggregate value of a supply does not exceed Rs.5000 per day.
Now let us delve deeper into the GST exempt items.
List of GST exemption
Goods, services, supplies, businesses, and individuals must register for GST provided they fulfill certain conditions. However, there are few exceptions to this. In the following section, you will find a list mentioning all the items, businesses, and taxpayers who can avail of tax exemption under the Goods and Services Tax regime.
GST exemption from registration
The following category of taxpayers need not register for GST:
- Individuals belonging to the threshold exemption limit (whose turnover during financial year does not exceed the threshold limit of Rs.40 lakhs)
- Exempt suppliers of goods and services.
- A person supplying non-GST goods and services.
- Taxpayers engaging in activities other than the supply of goods or services.
- Agriculturists.
- Ones supplying goods covered under reverse charge.
Therefore, if you belong to the above list, you can enjoy a full GST exemption.
GST exemption for start-ups and small businesses
Individuals aspiring to start a business can benefit greatly from the latest regulations of the GST scheme. Here are a few pointers to keep in mind regarding GST exemption for start-ups.
- Any business engaged in exclusive supply of goods with a turnover of less than Rs.40 lakhs is recognised as a GST-exempt business.
- Businesses that have a lower annual aggregate turnover than Rs.1.5 crores can avail of a composition scheme under GST. The scheme allows individuals to pay taxes at a fixed rate depending on the turnover amount. The rate may vary between 1-6%.
- Also, small businesses are exempted from e-invoicing under GST. However, businesses with a turnover of more than Rs.10 crores have to apply for e-invoicing mandatorily.
- Small businesses with an income below Rs.5 crores can opt for a quarterly filing system.
Hence, it is evident that small businesses can accrue several benefits under this new tax scheme.
Exempted goods under GST
In the following section, you will find a list of the GST exempted goods in India:
- Fresh and dry vegetables like potatoes, onions, and other leguminous vegetables.
- Non-GST goods include fish, egg, fresh milk, etc.
- Grapes, melons, ginger, garlic, unroasted coffee beans, green tea leaves that are not processed, and more.
- Food items that are not put into branded containers like rice, hulled cereal grains, wheat, corn, etc.
- Components like human blood.
- Unspun jute fibres, raw silk, khadi fibre, etc.
- Hearing aid manufacturing parts, chalks, slates, handloom, etc.
Note: Certain non-GST items, once processed, will attract a GST.
Exempted services under GST
A number of services qualify for GST exemption. Here is a GST exemption list of services for your reference:
- Agricultural services, including harvesting, packaging, warehouse, cultivation, supply, leasing of machinery, are essentially GST exempt services. An exception to these exempted services includes the rearing of horses.
- Public transportation services, auto-rickshaws, metered cabs, metro, etc.
- Transportation of agricultural products and goods outside of India.
- Labour supply for farms.
- Goods transportation where the charges are less than Rs.1500.
- Services like retail packing, pre-conditioning, waxing, etc.
- Foreign diplomatic and government services.
- Healthcare and educational services like mid-day meal catering, VET clinics, paramedics, etc. Ambulance and charity services also qualify for exemption under GST.
- Services offered by RBI, IRDAI, Central and State Government, NPS and more.
- Banking services like Basic Saving Bank Deposit (BSBD) account operable under the Pradhan Mantri Jan-Dhan Yojana (PMJDY).
In addition to this, services related to religious ceremonies, sports organisation, tour guides, and libraries are exempted under GST.
However, one might wonder why these goods and services enjoy exemption from GST registration. One should know about the reasons for exemption as well.
Reasons for exemption under GST
The government decides on exempting goods from registering under GST in the following cases:
- In case the GST council recommends the exemption.
- The government might find certain exemptions from GST registration to be beneficial for the public.
- Under exceptional or unforeseen situations, the government might grant exemption by special order.
- Upon providing official notification, one can supply specific goods under a full exemption.
Therefore, from the points mentioned above, it is evident that several sectors can qualify for a GST exemption provided they fulfill some prerequisites. Knowing those criterias in detail will help a taxpayer to register under GST without any hassle.
Frequently Asked Questions
Will an individual dealing with tax-exempt supplies need to register under GST if his annual turnover exceeds Rs.40 lakhs?
No, dealing with any tax-exempt supplies will not attract a GST. It is considered non-taxable.
Is it mandatory to issue a tax invoice if I sell exempt goods to a single person?
No, it is not necessary to issue a tax invoice. However, you have to issue a bill of supply for your supplies.
What is the treatment of ITC in the case of exempt supply?
The ITC of the exempt supply will not be available to the recipient , however, if the recipient has availed the ITC then ITC needs to be reversed.