Some goods and services are exempt from GST registration. Some supplies of goods or services have zero tax rate, subject to GST registration exemption. The GST exemption list is followed to comprehend the specifics of the GST exemption.
Look at this article for more information on the GST exemption.
Who is eligible for tax exemption?
The GST exemption limit depends on annual aggregate turnover. Businesses with an annual turnover of up to Rs.20 lakhs are exempt from GST registration. The amount is Rs.10 lakhs for north-eastern or hilly states such as Meghalaya, Sikkim, Mizoram, Arunachal Pradesh, Nagaland, Himachal Pradesh, Manipur, Assam, Tripura, Uttarakhand, and Jammu and Kashmir.
What are the types of GST exemptions?
The Act specifies three types of GST registration exemption:
Absolute exemption:
The specified supply of goods is exempt from GST regardless of who the supplier/recipient is and whether the goods are delivered intrastate/interstate.
Conditional exemption:
Such supplies are exempt subject to a few specific conditions laid out in the GST Act, amendment, or notification.
Partial exemption:
An unregistered person who supplies goods to a registered person within the state (intrastate) to a registered individual enjoys tax exemption under reverse charge if the aggregate value of a supply per day does not exceed Rs.5000.
What is the benefit of tax exemption?
Tax exemption refers to a lowering of taxable income; they are a form of tax relief or tax breaks provided by the government. Tax exemption benefits include complete relief from taxes, reduced rates, and tax on a specific amount of income.
Reduced Tax Burden: It aids in reducing the tax burden on an individual or business.
Socio-economic Benefits: Providing tax incentives for public welfare programs refines business structures and provides many socio-economic benefits.
No income minimization: Filing tax-exempt forms on specified investments reduces the odds of reporting incorrect financial statements.
Who are the persons exempt from registration?
Persons exempt from GST registration are:
- Agriculturists
- A person who has a turnover of INR 40 lakh for the supply of goods, INR 20 lakh for the supply of services, and INR 20 lakh and INR 10 lakh for specified categories.
- A person who is making NIL Rated and exempt supply of goods and services such as fresh milk, honey, cheese, agriculture services, etc.
- Person-making activities such as funeral services, petroleum products, etc.
- Persons making supplies that are covered under reverse charge such as tobacco leaves, cashew nuts(not shelled and peeled), etc.
What is a tax exemption certificate?
A tax-exempt certificate is an official document that declares exempted business purchases from the taxation system, such as sales tax, VAT, or GST.
It is a legal document that allows the taxpayer (who deducts tax at source) to deduct tax at a much lower or zero rate. A tax exemption certificate is only valid for the time specified on the certificate (i.e, the financial year).
What is a Startup Exemption?
The following tax exemptions are available for eligible startups :
Holiday breaks: Eligible start-ups can claim 100% profit and profit for three consecutive years in blocks of 10 years, provided that the company’s turnover in any previous financial year does not exceed 100 crores.
Exemptions for tax on Long term Capital Gains: Under section 54EE, an eligible company can claim an exemption if it invests a portion of its long-term capital gains within six months of the transfer of the asset into an approved fund.
Tax exemption on investments above fair market value: The government has waived the tax on investments in eligible startups that exceed the fair market value. Investments made by local angel investors or incubators that are not registered as venture capital funds are examples of this type of investment.
Long-term capital gains tax exemption available to individuals or HUF: Section 54GB exempts long-term capital gains on the sale of residential property from taxation if such gains are invested to acquire 50% or more equity shares of the eligible startups, tax on long-term capital will be exempt provided that such shares are held at least for 5 years from the date of its acquisition.
Carrying forward losses are set off: Losses in respect of eligible start-ups may be carried forward if all shareholders of the company who held the shares incurring the loss continued to hold them on the last day of the previous year in which the loss was carried forward.
Who is exempt from registering their business?
Small and medium-sized businesses are exempt from GST if their aggregate turnover does not exceed a certain threshold. The new aggregate turnover limits for GST exemption are as follows:
- Businesses and individuals who supply goods can claim GST exemption if their aggregate turnover is less than INR 40 lakhs.
- The limit for hilly and northeastern Indian states is INR 20 lakhs.
- The limit for claiming GST exemption for businesses and individuals involved in the supply of services is INR 20 lakhs.
- Businesses and individuals supplying services in hilly and northeastern states can claim GST exemptions if their aggregate turnover is less than INR 10 lakhs.
Hilly and north-eastern States include Arunachal Pradesh, Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Tripura, Nagaland, Sikkim, Meghalaya, Mizoram, Assam, and Manipur.
Which goods are exempted from GST?
Section 11(1) of the CGST Act, 2017/section 6(1) of the IGST Act, 2017 notifies a list of items. These items are exempted from the whole tax. Some examples of goods exempted from tax are:
| Goods | Examples |
| Live animals | Asses, cows, sheep, goats, poultry, etc. |
| Vegetables and fruits | Tomatoes, potatoes, onions, Bananas, grapes, apples, etc. |
| Dry fruits | Cashew nuts, walnuts, etc. |
| Grains | Wheat, rice, oats, barley, etc. |
| Seeds | Flower seeds, oil seeds, cereal husks, etc. |
| Baked goods | Bread, pizza base, puffed rice, etc. |
| Fertilizers | Goods and organic manure |
| Fabrics | Raw silk, silkworm cocoon, khadi, etc. |
| Pottery | Earthen pots, clay lamps, etc. |
| Newsprint | Judicial stamp paper, envelopes, rupee notes, etc. |
| Printed items | Printed books, newspapers, maps, etc. |
| Fabrics | Raw silk, silkworm cocoon, khadi, etc. |
Which services are exempted from GST?
Some services are also GST-exempt. List of the exempt services:
| Services | Examples |
| Agricultural services | Cultivation, supplying farm labor, harvesting, warehouse-related activities, renting agricultural machinery, and services provided by a commission agent or the Agricultural Produce Marketing Committee or Board. |
| Government services | Postal service, transportation of people or goods, services by a foreign diplomat in India, and services by the Reserve Bank of India. |
| Educational services | Faculty transportation for students, mid-day meal scheme, examination services, and IIM services |
| Organizational services | Exhibition organizers provide services for international business exhibitions, tour operators provide services to foreign tourists, and so on. |
| Transportation services | Transportation of goods by road, rail, water, etc., payment of toll, transportation by air, transportation of goods where the cost of transport is less than INR 1500 |
| Judicial services | Services offered by an arbitral tribunal, a partnership firm of advocates, to a business entity whose aggregate turnover, is up to INR 40 lakhs |
| Medical services | Services offered by ambulances, charities, doctors, medical professionals, |
| Other services | GSTN services provided to the Central or State Governments or Union Territories, admission fees payable to theaters, circuses, sporting events, and other venues charging up to Rs. 250 |
What is an example of a tax exemption?
Let’s compute the taxable salary and payable tax amount of businessmen. The applicable tax rate is 24%.
The details of his gains are as follows:
| S.NO | Particulars | Amount |
| 1 | Income from business after deducting the expense | 6,00,000 |
| 2 | Interest income earned from bonds | 20,000 |
| 3 | Total income | 6,20,000 |
The details of losses, donated amount, interest, and taxes paid:
| S.NO | Particulars | Amount |
| 1 | Amount contributed to a charitable institution | 5,000 |
| 2 | Loss by disaster | 10,000 |
| 3 | Mortgage interest | 15,000 |
| 4 | Incurred state tax | 12,000 |
| 5 | Student loan interest | 5,000 |
| 6 | Total income | 47,000 |
So, the payable tax amount :
| Particulars | Amount | Remark |
| Income from business after deducting the expense | 6,00,000 | |
| Interest income earned from bonds | 20,000 | |
| Total Income | 6,20,000 | |
| Non-taxable income | ||
| Bonds Interest | 20,000 | |
| Total taxable income before deduction | 6,00,000 | |
| Eligible Exemption/Deductions | ||
| Amount contributed to a charitable institution | 5,000 | |
| Loss by disaster | 10,000 | |
| Mortgage interest | 15,000 | |
| Incurred state tax | 10,000 | |
| Student loan interest | 2,500 | |
| Total Eligible deduction | 42,500 | |
| Total taxable income | 5,57,500 | |
| Total tax payable | 1,33,800 | (5,57,500*24%) |
Frequently Asked Questions (FAQs):-
Is GST needed for small businesses?
Yes, all small businesses register for GST, they must do so under the GST Act.
What is the limit of business without GST?
Persons providing services must register if aggregate turnover exceeds Rs. 20 lakh (for normal category states) and Rs. 10 lakh (for special category states)
Can I operate a company without registering?
You could incorporate the company as a sole proprietorship.
From what date is GST exemption available?
GST exemptions are available from the date they are notified.
Who can offer GST exemptions?
Government grants GST exemption. After receiving recommendations from the GST Council, the government announces the exemption through a notification.
Wrapping Up
Though GST is levied on all businesses and the supply of goods and services, there are some exemptions. These exemptions reduce the GST burden and contribute to the country’s socioeconomic development.