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Discover the list of exempted goods under GST along with the reasons for exemption, the difference between exempt, zero-rated, nil-rated & non-GST supplies and more.
The Goods and Services Tax (GST), a single, uniform indirect tax structure, has replaced other indirect taxes that were previously applicable to supplies in India.
Instead of VAT, service tax, etc., a registered taxpayer now needs to pay a single GST on the value of goods and services.
Different categories of goods and services are subject to different GST rates. However, some supplies are exempted to ensure affordability and support economic growth.
Being aware of these exemptions is not only helpful for businesses but also for consumers. So, read this guide to get an overview of the list of exempted goods under GST and understand various aspects of GST exemption.
What Are GST Exemptions?
In India, GST exemptions mean there are certain goods and services on which this indirect tax is not applicable. It means that the businesses do not have to pay any tax to the government for those transactions.
Note that governments can change the list of exempted goods and services from time to time, and both the Central and State Governments have the power to grant GST exemptions.
The government levies these exemptions to make essential items affordable, support key sectors and promote an equitable tax system.
Different Types of GST Exemptions
GST exemptions are grouped based solely on the nature of the supply without regard to the supplier. Here are the types of GST exemptions:
1. Absolute Exemption
There are certain goods and services that are completely GST-free. It means neither the supplier nor the buyer is liable to pay any tax.
Absolute exemption is applicable on essential items such as food grains, electricity by utility companies or other basic public services to eliminate financial burdens on the consumers.
2. Partial Exemption
These exemptions are offered with specific conditions. For instance, hospital bed charges, if the tariff is below ₹5,000 (excluding ICUs), are exempt from GST.
Similarly, same-state transactions from unregistered individuals to registered buyers are exempt from GST if the total invoice value does not cross the ₹5,000 threshold limit in a day.
3. Supplier-Based Exemption
As the name suggests, it applies to specific suppliers, such as non-profit organisations and businesses involved in public welfare, regardless of the nature of the goods or services they offer.
4. Supply-Based Exemption
It applies to specific goods and services, including education, healthcare or public utility services like water, which are exempt due to the nature of the supply.
5. Conditional Exemption
This type of GST exemption is determined depending on meeting specific criteria. For example, agricultural supplies.
They might be non-taxable under GST only when used in particular ways to offer relief for certain industries.
Why are certain goods exempt under GST?
The Government of India exempts certain goods and services from GST for several reasons. They are:
Affordability
The government wants to keep crucial life necessities (certain goods and services) financially accessible to every standard of people in society, targeting groups with low income.
Equity
Another significant reason behind the GST exemption is to maintain equity. It helps reduce economic disparities by lowering the tax burden on essential goods and services.
Economic Stability
GST exceptions enable stabilising specific sectors that largely impact the country's economy and public well-being, such as education, health, etc.
Social Welfare and Public Interest
Goods and services that are essential for everyday life are exempt from GST to promote the welfare of society.
Such a list of exempted goods under GST includes basic needs such as rice, wheat, milk and services like healthcare and education.
Easing Export
Exporting goods and services while they are subject to pay tax, the GST is set at zero per cent.
The government eliminates the burden of GST to encourage exporters, help them to remain competitive in the global market and promote cash flow.
Respecting Traditions and Beliefs
Certain goods that symbolise cultural heritage, along with services that strengthen religious ties or serve charitable purposes, are exempt from GST to show respect for our tradition and the social values of our society.
Easing Interstate Supplies
Some supplies between states are exempt from GST or taxed at a concessional rate to facilitate seamless trade across state borders.
Simplifying Administrative Tasks
Making certain goods and services tax-free helps simplify the tax system. It helps lower compliance costs and makes it easier to understand and adhere to GST rules, another significant reason behind GST exemptions.
List of Exempted Goods Under GST in India
Here is a list of the goods which are GST exempt:
List of Services Exempt from GST in India
Here is a list of the services that are exempt from the GST framework:
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List of Registration Exempt from GST in India
Take a look at the GST registration exemptions in India:
- If your aggregate turnover remains within the exemption limit, you do not need to apply for GST registration. This limit is up to ₹40 lakh for goods and ₹20 lakh for services. However, the limits are set to ₹20 lakh for goods and ₹10 lakh for services for states classified under special categories.
- If your business involves offering funeral services or dealing in petroleum products, you are not required to apply for GST registration.
- You are also free from paying taxes if you engage in transactions involving NIL-rated goods and services, such as fresh milk, honey, cheese, and healthcare and educational services.
- Lastly, if you supply goods under the reverse charge mechanism, such as tobacco leaves or unshelled cashew nuts, you may also be exempt from GST registration.
What is the Difference Between Exempt, Zero-Rated, Nil-Rated & Non-GST Supplies?
Under the GST structure in India, there are 4 classifications to describe different tax treatments for different goods and services.
These categories are called ‘Exempt’, ‘Zero Rated’, ‘Nil Rated’ and ‘Non-GST Supplies’, carrying unique implications under the GST framework.
Here is a clear breakdown to showcase how these categories differ from one another:
Exempt Supplies
GST Applicability: Exempt goods and services do not attract GST. It means that no tax is levied on the gross value of the supply, and the business cannot avail of input tax credit (ITC) on the tax paid for inputs and services used in making exempt supplies.
Examples: It refers to basic goods and services, including fresh fruits, vegetables, milk, educational services, public transport and healthcare services provided by an authorised establishment.
Zero-Rated Supplies
GST Applicability: This category is quite similar to nil-rated supplies, as both are imposed a 0% GST rate. But here is the main difference. Zero-rated supplies refer to goods and services that are being exported, and exporters can claim ITC on paid taxes for inputs and services.
Examples: Exported items and services are treated as zero-rated supplies.
Nil-Rated Supplies
GST Applicability: These supplies do not also attract GST liability, but they significantly differ from exempt supplies. The supplier involved in supplying nil-rated supplies can claim ITC on tax paid for inputs and services.
Examples: Exported items and services, including certain agricultural and pharmaceutical products, fall under this category.
Non-GST Supplies
GST Applicability: These are supplies that fall entirely outside the scope of GST, so the supplier cannot avail of input tax credit for them.
Examples: Items such as alcohol for human consumption, petroleum products (which attract separate state taxes), and some specified items such as stamps and currency are examples of non-GST supplies.
What is the GST on restaurants and food items in India?
Final Word
GST exemptions, which are periodically updated, are introduced to make essential supplies accessible and support specific industries such as agriculture, health and education.
The GST Council determines the list of exempted goods under GST, keeping the public in mind and ensuring relief in certain areas. So, it is essential to stay informed about the changes happening in the GST exemption list.
Note that the 54th GST Council Meeting (September 2024) introduced significant changes to the framework and ensured benefits for SEZs, railway passenger relief and GST exemptions on accommodation services for students and employees.
Frequently Asked Questions
1. What benefits does the agricultural sector get from GST exemptions?
GST exemptions on agricultural services and products not only help reduce production costs for farmers but also improve productivity and ensure stable food prices spanning India. This promotes rural living and aids in preventing price hikes for essential items.
2. Who can decide the list of GST exemptions?
Only the Indian government can decide the list of exempted goods under GST. After getting recommendations from the GST Council, the government typically grants GST exemptions by providing a notification.
3. What is the exemption limit for small business owners under GST?
Small business owners with an aggregate turnover of up to ₹40 lakh are not required to apply for GST registration or pay taxes. The limit is lower (₹20 lakh) for special category states.
4. How does GST change when a supply shifts from taxable to exempt?
If supply shifts from taxable to exempt, the registered taxpayers need to reverse the input tax credit (ITC) previously claimed on stock (inputs, finished or semi-finished items) and capital goods held before the exemption came into effect.
5. Do salaried people have to pay GST on their income?
No, salaried people are not required to pay GST on their income, as it is a personal transaction between an employee and their employer.
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