Grasping tax implications requires knowing which items are exempt under GST. With the broadened scope of taxable supplies, GST exemptions are precisely outlined. It is crucial not only to be aware of the exemption list but also to understand the consequences of an item being exempt, such as Input Tax Credit (ITC) reversal requirements. Furthermore, a nil-rated item could be subject to a higher tax rate in the future. Therefore, distinguishing between nil-rated, exempt, zero-rated, and non-GST supplies is essential. Read through and get the complete list of all the GST Exemptions notified on services.

What Defines an Exempt Supply?

Exempt supplies consist of three main categories:

• Supplies subject to a ‘NIL’ tax rate (0% GST).
• Supplies fully or partially exempted from CGST or IGST via amendments to Section 11 of the CGST Act or Section 6 of the IGST Act.
• Non-taxable supplies, as defined under Section 2(78), which are not taxable under the Act (e.g., alcoholic liquor for human consumption).

Tax payment is not required for these supplies. The Input Tax Credit (ITC) linked to exempt supplies cannot be used or offset. It is important to note that zero-rated supplies, such as exports, are not considered nil-rated supplies. Central or State Governments possess the authority to grant GST exemptions, provided specific conditions are met:

• The exemption serves public interest.
• It is issued through a formal notification.
• It has been recommended by the GST Council.
• Exemptions can be absolute or conditional, covering any services or specified descriptions thereof.
• In exceptional situations, an exemption may be granted via a special order, not necessarily a notification.
• A registered person providing services under an absolute exemption cannot charge tax exceeding the effective rate.

Exemptions can be classified based on either the supplier or the nature of the supply.

• Supplier-Based Exemption: An exemption granted to the person making the supply, irrespective of the outward supply’s nature (e.g., services provided by charitable entities).
• Supply-Based Exemption: Certain supplies are exempted due to their inherent nature and type. All notified supplies qualify for this exemption, regardless of the supplier (e.g., sponsorship of sporting events or public conveniences).

Exemptions are categorized into absolute and conditional types.

• Absolute Exemption: Provided without any specific conditions (e.g., electricity transmission or distribution by a utility).
• Conditional Exemption: Subject to meeting specific criteria (e.g., healthcare services by a clinical establishment for rooms, excluding ICUs/CCUs/ICCUs/NICUs, with charges exceeding Rs. 5000 per day).
• Conditional or Partial Exemption: Intra-State supplies of services or services received from unregistered individuals by registered persons are exempt from reverse charge tax if the total value of such supplies from all suppliers does not exceed Rs. 5000 in a day.

An exemption granted under the CGST Act does not automatically apply to the IGST Act. This means that GST exemptions for inter-State transactions differ from those for intra-State transactions.

Key notifications have been issued to grant GST payment exemptions:

Treatment of Input Tax Credit (ITC) for Exempt Supplies

For exempt supplies, the Input Tax Credit (ITC) amount directly linked to them must be reversed.

How to determine the credit attributable to exempt supplies?

To calculate the ITC attributable to exempt supplies, use the following formula:

Credit attributable to exempt supplies = (A / T) x C

Where:

• A represents the aggregate value of exempt supplies (which includes all supplies except taxable and zero-rated ones).
• T denotes the person’s total turnover during the tax period.
• C stands for Common Credit.

Common Credit Calculation

Clarifying Non-Taxable Supplies

A “non-taxable supply” refers to the provision of goods, services, or both, which are not subject to tax under either the CGST Act or the IGST Act. For a transaction to be classified as non-taxable under GST, it must first meet the definition of a ‘supply’ within GST law. This definition specifically covers supplies excluded from GST’s taxation scope, such as alcoholic liquor for human consumption and items listed in Section 9(2) or Schedule III. It is also important to note that certain items, while currently not having a notified GST rate, are not outside the purview of GST entirely. These include petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel.

The GST Negative List

The negative list under GST includes certain activities and transactions that are specifically excluded from the definition of ‘supply’ and thus are not subject to GST:

• Services provided by an employee to an employer during the course or in relation to employment.
• Funeral, burial, crematorium, or mortuary services.
• Sale of land.
• Sale of completed buildings.
• Actionable claims, excluding lottery, betting, and gambling.
• Services rendered by any court or Tribunal.
• Functions carried out by Members of Parliament (MPs), Members of Legislative Assembly (MLAs), etc.
• Duties performed by individuals holding posts pursuant to constitutional provisions in that specific capacity.

Differentiating Nil-Rated, Exempt, Zero-Rated, and Non-GST Supplies

Understanding the distinctions between various supply classifications under GST is vital: