Exempted Services Under GST

Understanding the taxability also involves knowing whether item is exempt or not under GST. Due to the scope of taxable supplies being widened under GST, GST Exemptions have clearly been defined. Not just knowing the Exemption list, but also understanding the implication of item being exempt is important as certain conditions are attached to it like reversing the ITC. Also, what can be Nil rated today may become charged to a higher tax rate in the future.

Hence, clearly demarking the various terms such as Nil Rated, Exempt, Zero-rated and Non-GST supplies under GST is important. Read through and get the complete list of all the GST Exemptions notified on services in a click of a button!

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 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 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 supplier is, the exemption is allowed.

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. 

Conditional Exemption: Exemption subject to certain conditions. 

Ex: Health care services by a clinical establishment by way of providing room [other than Intensive Care Unit (ICU)/ Critical Care Unit(CCU)/ Intensive Cardiac Care Unit (ICCU)/ Neonatal Intensive Care Unit (NICU)] having room charges exceeding Rs. 5000 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.

Important Notifications issued for exemption from payment of GST

Complete list of services Exempt

Click here to view the complete list of services exempted under GST.

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

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

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.

Difference between Nil Rated, Exempt, Zero Rated and Non-GST supplies

Frequently Asked Questions

Who has the powers to grant exemption from payment of taxes?
 

Only Government has the power to grant exemption. On the recommendations of the GST Council, the Government by notification may grant exemption from tax.

From which date does exemption apply? Date of notification or date of publication of notification?
 

Exemption notifications will apply from the effective date as specified in the notification.

I am a trader dealing with dealing with only tax-exempt supplies. Is it necessary to register under GST, if the turnover exceeds Rs.20 lakh?
 

There is no requirement of registration under GST if a person is dealing with 100 per cent exempt supplies.

Is supply of exempt services considered taxable or non-taxable supply?
 

Supply of exempt services is considered non-taxable. Hence, such supplies do not trigger Registration, claim for input tax credit and other relevant provisions.

Should I issue a tax invoice if I sell only exempted products to a single customer?
 

A bill of supply should be issued when a registered dealer supplies exempt goods or services. For example, when a registered taxpayer supplies handloom, they have to issue a Bill of Supply instead of a tax invoice.

Whether Petrol is exempt good or non-taxable good?
 

Petrol is non-taxable good since it is excluded from levy of tax for the time being.

Is e-way bill required to be generated in case of movement of exempt supplies?
 

Not required to be generated. As per provisions of rule 138 (14) of CGST Rules, E-way bill is not required to be generated when services specified in notification no. 2/2017-Central Tax (Rate) dated 28.06.2017 other than de-oiled cake, is being transported. And, basically, services specified in notification no. 2/2017-Central Tax are exempt services.

Is e-way bill required to be generated in case of movement of exempt supplies?
 

Not required to be generated. As per provisions of rule 138 (14) of CGST Rules, E-way bill is not required to be generated when services specified in notification no. 2/2017-Central Tax (Rate) dated 28.06.2017 other than de-oiled cake, is being transported. And, basically, services specified in notification no. 2/2017-Central Tax are exempt services.

Should I report exempt supplies separately in the GSTR-1 Return? If yes, in which tile / table?
 

Yes. Taxpayers should report consolidated details of nil rated, exempted and non-GST outward supplies in the tile “8A, 8B, 8C, 8D – Nil Rated Supplies”

Should I report exempt supplies separately in the GSTR-3B Return? If yes, in which tile/section?
 

Yes. Taxpayers should report details of nil rated and exempted outward supplies in the Section “3.1 Tax on outward and reverse charge inward supplies” and the details of exempt, Nil and Non-GST inward supplies in the Section “5. Exempt, nil and Non-GST inward supplies”.

What is tax treatment in case when a supply becomes chargeable to tax when earlier was exempt?
 

In this case, the taxpayer will be entitled as follows: 1.On Inputs: Can claim credit of tax paid related to such exempt supply on stock held (inputs, semi-finished services or finished services) preceding the day when the supply becomes taxable. 2.On the capital services exclusively used for exempt supply: The credit of capital services shall, however, stand reduced by 5 percentage points for every quarter or part thereof from the date of the issue of the invoice for such services.

What is tax treatment in case when a supply becomes exempt from tax when earlier was taxable?
 

Yes. Taxpayers should report co In case of switchover from taxable to exempt transactions, an amount equal to the credit of tax paid on stock held (inputs, semi-finished services or finished services) and capital services (reduced by percentage points) on the day preceding the date of effecting exempt supplies will have to be paid. In other words, input tax credit is fully restricted. However, the taxpayer has the option to pay the same by utilization of available credit.

Can a taxpayer claim input tax credit pertaining to capital services used for both taxable and exempt supply?
 

No. A taxpayer is not eligible to claim the tax paid on capital services used for both, taxable and exempt supply

Does exemption from CGST automatically apply as an exemption from SGST?
 

Yes, notification issued under section 11(1) or 11(2) of the CGST Act will be deemed to be issued under the SGST Act / UTGST Act.

Does exemption from IGST automatically apply as exemption from CGST?
 

There are no such correlated sections between the two Acts. Hence an exemption from IGST does not automatically apply as exemption from CGST

For purposes of input tax credit reversal, what are the supplies that are included in exempt supplies?
 

As per section 17(3) read with explanation (2) in rule 45, ‘Exempt Supplies’ for the purpose of input tax credit means all supplies other than taxable and zero rated supplies and specifically include the following: a. Supplies liable to tax under reverse charge mechanism b. Transactions in securities c. Sale of land d. Sale of building

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