GST Exemptions Series
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Table of Contents
- Exemptions Under GST – Goods
- Understanding GST Exemptions
- Importance of GST Exemptions
- What Is Exempt Supply And How To Identify It?
- Understanding Nil-Rated, Zero-Rated, Exempt and Non-GST Supplies
- Types of GST Exemptions
- List Of Services Exempt From GST
- List Of Goods Exempt From GST
- Who are Exempted from GST Registration?
- Exemption From GST For Start-ups And Small Businesses
- Conclusion
Exemptions Under GST – Goods
Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services and is designed to bring uniformity and simplification to the taxation system. GST aims to simplify the tax system, eliminate the cascading effects of taxes, increase tax compliance, and promote economic growth. While GST generally applies to most goods and services, there are some specific exemptions provided to certain categories to ensure fairness and alleviate the burden on certain sectors. This article aims to shed light on the GST exemption series, exploring the various exemptions available to different goods, services, and taxpayers, and their importance in the broader GST framework.
Understanding GST Exemptions
GST exemptions are provisions that exclude certain goods and services from the purview of GST. These exemptions are formulated to meet specific objectives and to support certain sectors of the economy. By exempting certain goods and services from GST, the government aims to reduce the tax burden on essential items, promote certain industries, and protect vulnerable sections of society.
Importance of GST Exemptions
GST exemptions help to ensure fairness, inclusivity, and economic progress. They offer several significant advantages, which are listed below:
- Protecting the vulnerable: Exempting essential goods and services from GST ensures their affordability and availability to vulnerable sections of society, such as low-income individuals or those living in remote areas.
- Promoting key industries: GST exemptions are frequently utilized to boost specific industries, such as agriculture or healthcare. The government fosters the growth and development of these sectors by exempting certain items and services connected to them.
- Reducing compliance burden: GST exemptions make compliance easier for industries that would otherwise face complex tax calculations and reporting obligations. This reduces administrative burden and promotes compliance.
- Boosting exports: The government promotes Indian goods and services in the global market by exempting exports from GST. This increases competitiveness and aids export sector growth.
What Is Exempt Supply And How To Identify It?
Exempt from tax refers to supplies that attract the "Nil rate of Tax" or are fully exempt from tax, which includes non-taxable supplies. It refers to the supply of goods and services that is exempt from GST and is not eligible for an ITC claim. Section 11 of the CGST Act and Section 6 of the IGST Act provide the power to grant exemption from GST, and the State Act has identical provisions relating to the power to exempt SGST. It also includes supplies that come under section 2(78) of the Act including the supplies which are not taxable under the Act such as alcoholic liquor for human consumption. The section further states that such goods or services shall be exempted if the GST Council recommends it. As a result, it appears that the same items or services will be exempt in all states. However, based on the GST council's suggestion, each State will be required to issue a notification to exempt products or services from GST payment under the respective SGST Act.
Understanding Nil-Rated, Zero-Rated, Exempt and Non-GST Supplies
| Supplies | Description | Example | ITC Claim |
|---|---|---|---|
| Nil Rated | Includes those supplies which have a 0% tax rate. | Exports of goods and services like pharmaceuticals. |
ITC cannot be claimed. |
| Zero Rated | Includes export supplies to SEZ developers. |
Goods and services are exported to other nations. | ITC can be claimed. |
| Exempt | Includes tax supplies attracting no GST. |
Fresh fruits, vegetables, milk, bread, etc | ITC cannot be claimed. |
| Non-GST Supplies |
Includes supplies which is not leviable to tax under GST, but can attract other taxes. | Electricity, Diesel, Petrol, Alcohol intended for human consumption, and certain specified goods such as stamps and cash. | ITC cannot be claimed. |
Types of GST Exemptions
- Absolute: Absolute exemptions are those that are granted on the whole amount and are not subject to any limitations or restrictions. One good example is the RBI service exemption.
- Conditional: These exemptions carry a limit, condition, or restriction on the type and scope of the exemption. Hotel services, for example, are exempt to some extent but not completely.
- Partial: Unregistered individuals who offer goods within the state to a registered individual are free from GST under reverse charge only if the aggregate value of the supply is less than Rs.5000 per day.
List Of Services Exempt From GST
| SERVICES | EXAMPLE |
|---|---|
| Public transportation services | Transportation of goods by road, rail, water, etc., payment of tolls, transportation of people by air, transportation of goods for less than INR 1500, etc. |
| Agricultural services | Cultivation, farm labour supply, harvesting, warehousing activities, renting or lending agricultural machinery, services supplied by a commission agency or the Agricultural Produce Marketing Committee or Board for buying or selling agricultural produce, and so on. |
| Educational services | Transportation of faculty or students, mid-day meal scheme, examination services, services offered by IIMs, etc. |
| Medical services | Ambulance services, charities, veterinary doctors, medical experts, and the like; do not cover hair transplants or cosmetic or plastic surgery. |
| Organizational services | Services provided by exhibition organizers for international business exhibitions, tour operators for foreign tourists, and such. |
| Government services | Postal service, transportation of people or goods, services provided in India by a foreign diplomat, services provided by the Reserve Bank of India, services provided to diplomats, and so on. |
| Judicial services | Services provided by an arbitral tribunal, partnership firm of advocates, or senior advocates to an individual or business with a total annual revenue of up to INR 40 lakhs. |
| Other services | GSTN services provided to the Central or State Governments or Union Territories, admission prices charged to theatres, circuses, sporting events, and other venues charging a cost of up to INR 500 |
| Miscellaneous Services | Services offered for conducting religious ceremonies, overloading charges at a toll plaza, slaughterhouses, libraries, collection, and delivery of news. |
List Of Goods Exempt From GST
| GOODS | EXAMPLE |
|---|---|
| Food | Cereals, edible fruits and vegetables (unfrozen or processed), edible roots and tubers, fish and meat (unpackaged or processed), tender coconut, jaggery, tea leaves (unprocessed), coffee beans (unroasted), seeds, ginger, salt, turmeric, betel leaves, papad, flour, curd, lassi, buttermilk, eggs, milk, and aquatic feeds and supplements. |
| Dry Fruits | Cashews, Walnuts, almonds, etc. |
| Raw Materials | Raw jute fibre, raw silk, silk waste, wool (unprocessed), khadi fabric, the cotton used for khadi yarn, firewood, charcoal, and handloom fabrics. |
| Tools/Instruments | Hearing aids, hand tools (such as spades and shovels), tools used for agricultural purposes, handmade musical instruments, and aids and implements used by physically challenged people. |
| Beauty Products | Bindi, kajal, kumkum, etc. |
| Ornaments | Plastic and glass bangles, etc |
| Waste | Sewage sludge, municipal waste, etc. |
| Fossil Fuels | Electrical energy |
| Baked goods | Bread, pizza base, puffed rice, etc. |
| Miscellaneous | Books, maps, newspapers, journals, Indian national flag,non-judicial stamps, postal items, live animals (except horses), beehives, human blood, semen, chalk sticks, contraceptives, earthen pots, props used in pooja (including idols, bindi, kumkum), kites, organic manure, seeds (including flower seeds, oil seeds, cereal husks), and vaccines. |
Who are Exempted from GST Registration?
GST registration is not required for certain individuals and businesses, including:
- Agriculturists (Farmers)
- Individuals who qualify for the threshold exemption limit of turnover for the supply of goods INR 40 lakhs and for the supply of services INR 20 lakhs and specified categories INR 20 lakh and INR 10 lakh. (in states that fall into specified categories).
- An individual who is making NIL-rated and exempt supply of goods and services such as fresh milk, honey, cheese, agriculture services, etc.
- The individual engaged in activities not covered by the supply of goods and services, such as funeral services, petroleum products, and so on.
- An individual who makes supplies of goods covered by reverse charge, such as tobacco leaves, cashew nuts (unshelled and peeled), and so on.
Exemption From GST For Start-ups And Small Businesses
Individuals looking to start a business can benefit substantially from the recent GST regulations. Here are a few things to remember about the GST exemption for new businesses:
- A GST-exempt business is engaged in the exclusive supply of goods and has a turnover of less than Rs.40 lakhs.
- Any business that provides an exclusive supply of goods with a turnover of less than Rs.40 lakhs is considered a GST-exempt business.
- Businesses having annual revenue of less than Rs.1.5 crores are eligible for the GST composition scheme. Individuals can pay taxes at a fixed rate based on their turnover amount under the plan. The rate could range between 1 and 6%.
- Small businesses are also exempted from GST e-invoicing. Businesses with a turnover of more than Rs.10 crores are required to apply for e-invoicing.
- Small businesses with a turnover below Rs.5 crores are eligible for a quarterly filing system.
Conclusion
The GST exemption series includes a variety of exemptions intended to support essential goods and services, vulnerable sections of society, and specific industries. While these exemptions serve significant purposes, it is essential to achieve a balance between exemptions and revenue generation to maintain the GST system's financial sustainability. By understanding and carefully implementing GST exemptions, governments can ensure fairness, economic growth, and support for key sectors, making GST an efficient and equitable taxation model.
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Frequently Asked Questions
Who can grant GST Exemptions?
GST exemptions are granted by the Central or State Governments on the recommendation of the GST Council, in the public interest, by way of notification or special order.
Is it possible to sell online without paying GST?
From January 1, 2023, if the annual turnover for goods and services is less than Rs. 40 lakh and Rs. 20 lakh, respectively, the suppliers will no longer be needed to register for GST.
How do I claim for the GST Exemption?
Exempt GST supplies can be reported in a consolidated report using sections 8A, 8B, 8C, and 8D of GSTR-1 returns named Nil Rated Supplies.
Is GST registration necessary if the business supplies GST-exempt goods?
No, GST registration is not necessary if a business just offers GST-exempt goods.
About the Author
I am a content and marketing manager at Masters India. I am also a tax and finance content writer. I also write academic books on accounts and tax. I have an experience of 7+ years in Income Tax Read more...