Exemptions

Basics & Rules

What is an exemption? 

Generally, tax is levied on all goods and services according to the guidelines set by the Government. But in some cases, the Government deviates from the guidelines due to difficulties in levying the tax in various economic sectors.

There are various forms of exemptions, including threshold limits and geographical exemptions. Specific items may also be excluded from GST for reasons relating to the product or its usage. 

What are the exemption limits proposed by the Government?

 The exemption limit for businesses in the North Eastern states will be Rs.10 lakhs, and the exemption limit for businesses in other Indian states will be Rs.20 lakhs including vendors who sell services online as per the conditions specified under notification 65.

• Only supplies sold within the state and free supplies are covered under the exemption. All other supplies require registration.

• The exemption limit is applicable to all states in India, including the states of Jammu and Kashmir.

Under what conditions are there NO exemptions?

Taxable persons in the following situations will have to register irrespective of their turnover:

• An individual making taxable supplies outside the state

• Casual Taxable Person

• Individual who is required to pay under the Reverse Charge Mechanism

• Non-Resident Taxable Person

• A person who is required to deduct tax (such as an e-commerce operator)

• A person who supplies goods or services as an agent of any other person

• An Input Service Distributor

• Any e-commerce operator

• An aggregator who supplies services under their brand name

Why are there so few exemptions under GST?

Under the previous tax laws, the system of exemptions became increasingly complex over time, causing poor compliance. Eventually it became doubtful whether the exemptions even served their intended purpose. Under GST, the Indian Government is limiting exemptions so as to keep the system simple and rational.

Types of exemptions

What are the internationally accepted exemptions?

The forms of internationally accepted exemptions are:

• Exempt supplies: These supplies do not attract output tax, so suppliers need not collect or remit tax for them. (They are excluded from Input Credit Tax as well.)

• Out-of-scope supplies: These supplies are not included within the scope of GST due to technical reasons related to the product design.

• Businesses with turnover less than the mandatory GST threshold.

• Entities that are excluded from the scope of GST due to judicial interpretations of the legislation.

• Entities that are explicitly prevented from registration by legislative exclusions.

What is Merit-based or Concessional Exemption?

Merit-based or Concessional Exemption is the exemption provided to essential products — like certain food items and other basic amenities — to maintain the stability of the GST rate.

What are Technical Exemptions?

Certain supplies are exempted owing to the pragmatic difficulties in collecting taxes on them. The 3 types of technical exemptions are:

• Supplies related to immovable property.

• Financial services.

• Intermediary pooling services, like insurance and gambling.

You can find some more cases here - IGST Exemptions document.

Exemption list

What entities are exempted from CGST and SGST under the new laws?

The following entities are exempted from CGST and SGST according to the 13th Finance Commission’s Task Force:

• All public services provided by the Government.

• Service transactions between employees and employers.

• Unprocessed food items included under the Public Distribution System.

• Educational services provided by non-government schools and colleges.

• Health services provided by non-government agencies.

What items are exempted under GST?

 The list of goods classified as exempt for intrastate supplies can be found in the CBEC notification published on 28th June 2017.

What services are exempted under GST?

 The list of services classified as exempt can be found in this CBEC notification published on 28th June 2017.

What are the exemptions for the handicraft industry?

Handicraft traders (also known as casual taxable persons) who make interstate supplies but whose total aggregate turnover is below 20 lakh rupees per annum (10 lakh for special states and NE India) are exempted from registering under the GST. They are still required to have a valid PAN and raise e-way bills for interstate transactions. Kindly refer to notification 32/2017 and notification 38/2017 for the list of goods that have been categorised as handicraft goods.

If all the goods and/or services I sell attract tax on reverse charge basis, am I exempted from registering under GST?

Yes. According to notification 5/2017, businesses that supply goods and/or services that attract tax on reverse charge as specified under section 9(3) are exempted from registering themselves under GST.