1. What is Exempt Supply?
Exempt supplies comprise the following three types of supplies:
- Supplies taxable at a ‘NIL’ rate of tax* (0% tax);
- Supplies that are wholly or partially exempted from CGST or IGST, by way of a notification amending Section 11 of CGST Act or Section 6 of IGST Act;
- Non-taxable supplies as defined under Section 2(78) – supplies that are not taxable under the Act (For Example Alcoholic liquor for human consumption.
Tax need not be paid on these supplies. Input tax credit attributable to exempt supplies will not be available for utilization/setoff.
*Zero-rated supplies such as exports would not be treated as supplies taxable at ‘NIL’ rate of tax;
Central or the State Governments are empowered to grant exemptions from GST. Conditions are:
- Exemption should be in public interest
- By way of issue of notification
- Must be recommended by the GST Council
- Absolute exemption or conditional exemption may be for any services and / or services of any specified description.
- Exemption by way of special order (not notification) may be granted exceptional circumstances.
- Registered person supplying the services and / or services is not entitled to collect tax higher than the effective rate, where the supply enjoys an absolute exemption.
Classification of Exemptions:
Supplier may be exempt – Exemption to the person making supplies-i.e supplier, regardless of the nature of outward supply.
Ex: Services by Securities and Exchange Board of India, Services by Charitable entities.
Certain Supplies may be exempt –Certain supplies due to their nature and type are exempted from GST. All supplies that are notified would be eligible for the exemption. Here, irrespective of who the the supplier is, exemption is allowed. not very much relevant.
Ex: Services by way of sponsorship of sporting events, Services by way of public conveniences
Types of Exemptions:
Absolute exemption: Exemption without any conditions.
Ex: Transmission or distribution of electricity by an electricity transmission or distribution utility, Services by Reserve Bank of India.
Classification of Exemptions:
Supplier may be exempt – Exemption to the person making supplies-i.e supplier, regardless of the nature of outward supply.
Ex: Services by Securities and Exchange Board of India, Services by Charitable entities.
Certain Supplies may be exempt –Certain supplies due to their nature and type are exempted from GST. All supplies that are notified would be eligible for the exemption. Here, irrespective of who the the supplier is, exemption is allowed. not very much relevant.
Ex: Services by way of sponsorship of sporting events, Services by way of public conveniences
Ex: Services by way of sponsorship of sporting events, Services by way of public conveniences
Absolute exemption: Exemption without any conditions.
Absolute exemption: Exemption without any conditions.
Conditional Exemption: Exemption subject to certain conditions.
Ex: Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation less than ` 1000/- per day”.
Conditional or partial exemption:
Intra-State supplies of services and/or services received from an unregistered person by a registered person is exempted from payment of tax under reverse charge provided the aggregate value of such supplies received by a registered person from all or any of the suppliers does not exceed ` 5000/- in a day.
Exemption under one GST Law and the effect on another GST Law:
Note that the exemption allowed under the CGST Act cannot be deemed to be applicable under IGST Act. In other words, GST Exemption allowed in case of inter-State transactions is not the same as the GST exemptions available in case of Intra-State transactions.
| Exemption under CGST Act | Deemed to be exempt under SGST / UTGST Act |
| No auto-application of exemption under IGST Act | |
| Exemption under IGST Act | No auto-application of exemption under CGST Act |
Important Notifications issued for exemption from payment of GST:
| Notification No. | Particulars |
| 02/2017
Central Tax (Rate) dated 28.06.2017 |
Exempted supplies of around 149 items of services in terms of Section
11(1) of the CGST Act, 2017. Ex. Electricity, Salt, fresh fruits, plastic bangles, passenger baggage etc. |
| 12/2017
Central Tax (Rate) dated 28.06.2017 |
Exemption to supply specified services under the CGST Act. More or less, all the exemptions were available earlier under the erstwhile service tax law Amended vide Notification No.21/2017, 25/2017, 32/2017 and 47/2017, 2/2018 – Central Tax (Rate) |
2. Treatment of ITC if supply is exempt
In case of exempt supplies, amount of credit as attributable to exempt supplies shall be reversed.
How to determine the credit attributable to exempt supplies in the above case?
Credit attributable to exempt supplies = (A/T) x C
Where,
A = Aggregate value of exempt supplies (all supplies other than taxable and zero-rated supplies)
T = Total turnover of the person in the tax period
C= Common Credit
| Common Credit | Total input tax in a period |
| Less: | Tax attributable exclusively for non-business purpose |
| Less: | Tax attributable exclusively for exempt supplies |
| Less: | Ineligible credits as per Section 17(5) Works contract, Rent a cab etc. |
| Less: | Tax attributable exclusively for taxable supplies (including zero-rated supplies) |
3. What is a non-taxable supply?
“non-taxable supply” means a supply of goods or services or both which is not leviable to tax under CGST Act or under the IGST Act.
A transaction must be a ‘supply’ as defined under the GST law to qualify as a non-taxable supply under the GST.
Note: Only those supplies that are excluded from the scope of taxation under GST are covered by this definition – i.e., alcoholic liquor for human consumption, articles listed in section 9(2) or in schedule III.
- It must also be noted that the following items are not out of scope of GST. That means GST Rate has not yet been announced or notified for them.
- petroleum crude
- high-speed diesel
- motor spirit (commonly known as petrol)
- natural gas and
- aviation turbine fuel
4. Negative list under GST
- Services by employee to employer in the course/ relation to employment
- Services of funeral, burial, crematorium or mortuary
- Sale of land
- Sale of completed buildings
- Actionable claims (other than lottery, betting and gambling)
- Services by any court or Tribunal
- Functions performed by the MPs, MLAs etc.
- Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity.
5. Difference between Nil Rated, Exempt, Zero Rated and Non-GST supplies
| Supply Name | Description |
| Zero Rated | Exports
Supplies made to SEZ or SEZ Developers. |
| Nil Rated | Supplies that have a declared rate of 0% GST.
Example: Salt, grains, jaggery etc. |
| Exempt | Supplies are taxable but do not attract GST and for which ITC cannot be claimed.
Example: Fresh milk, Fresh fruits, Curd, Bread etc. |
| Non-GST | These supplies do not come under the purview of GST law.
Example: Alcohol for human consumption, Petrol etc. |