What is meant by exempt supply under GST?
As per section 2(47) of the CGST Act, 2017, “exempt supply” means the supply of any goods or services or both that attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.
In simple words, exempt supply means supply on which GST is not levied due to any of the below reasons:
- Its GST rate is 0 as per the HSN code list i.e. Nil rated goods or services
- There is a specific provision in the notification issued by GSTN to exempt such goods or services from GST
- Such goods or services are not covered under GST.
Give some examples of Exempt supply.
Examples of exempt goods under GST are live animals (except horses), eggs, honey, milk, and milk products.
Examples of exempt services under GST are health care services, supply of electricity, etc.
If trading only exempted goods or services, registration for GST is necessary if turnover exceeds the threshold?
A person dealing with 100% exempted supply is not liable to register irrespective of turnover.
Can input tax credit be claimed of exempt supply?
As per section 17(2) of the CGST Act, Input Tax Credit can not be claimed on inputs that are used for effecting exempted supplies. Where the inputs are used partly for effecting taxable supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies.
Also, Rules 42 and 43 of the CGST Rules, 2017 define the calculation of ITC when common inputs and capital goods are partly used for exempted supplies.
Where to disclose exempt supply in GSTR 1 and GSTR 3B?
In GSTR 1, it should be disclosed in Table 8A, 8B, 8C, 8D: Nil-rated, exempted, and Non-GST supplies. Amounts are to be entered in the Exempted column. Bifurcation of supply to registered/unregistered persons and intra-state/ inter-state is provided.
In GSTR 3B, exempt supply is to entered in Table 3.1- Tax on outward and reverse charge inward supplies. The amount is to be entered in sr no c- Other outward supplies (Nil rated, exempted).
Are zero-rated supplies included in the definition of exempt supply?
No. Zero-rated supplies i.e. exports and supplies to SEZ are not covered in the definition of exempt supply.
What are the types of exemptions under GST?
There are two types of exemptions:
- Absolute exemption: This exemption is granted without any conditions to be complied by the supplier. For example, Transmission or distribution of electricity by an electricity transmission or distribution utility..
- Conditional exemption: This exemption is allowed only if conditions laid down by the Government are satisfied by the supplier. For example, health care services by an authorized medical practitioner, a clinical establishment, or paramedics except for hospital rooms (excluding ICU/CCU/ICCU/NICU) costing up to Rs.5,000 per day are exempt under GST. However, such services are taxable if room rent is more than Rs. 5,000 per day.
Which are the notifications which cover exemptions under GST?
Following is the list of exemption notifications:
Goods:
Notification №02/2017 Central Tax (Rate) dated 28.06.2017
Amendment notifications:
Notification №28/2017 — Central Tax (Rate), dated 22.09.2017
Notification №35/2017 — Central Tax (Rate), dated 13.10.2017
Notification №42/2017 — Central Tax (Rate), dated 14.11.2017
Notification №7/2018 — Central Tax (Rate), dated 25.01.2018
Notification №19/2018 — Central Tax (Rate), dated 26.07.2018
Notification №25/2018 — Central Tax (Rate), dated 31.12.2018
Notification №15/2019 — Central Tax (Rate), dated 30.09.2019
Notification №9/2021 — Central Tax (Rate), dated 30.09.2021
Notification №19/2021 — Central Tax (Rate), dated 28.12.2021
Notification №07/2022 — Central Tax (Rate), dated 13.07.2022
Notification №13/2022 — Central Tax (Rate), dated 30.12.2022
Notification №04/2023 — Central Tax (Rate), dated 28.02.2023
Notification №18/2023 — Central Tax (Rate), dated 19.10.2023
Services:
Notification №12/2017 Central Tax (Rate) dated 28.06.2017
Amendment notifications:
Notification №21/2017 — Central Tax (Rate), dated 22.08.2017
Notification №25/2017 — Central Tax (Rate), dated 21.09.2017
Notification №30/2017 — Central Tax (Rate), dated 29.09.2017
Notification №32/2017 — Central Tax (Rate), dated 13.10.2017
Notification №47/2017 — Central Tax (Rate), dated 14.11.2017
Notification №02/2018 — Central Tax (Rate), dated 25.01.2018
Notification №14/2018 — Central Tax (Rate), dated 26.07.2018
Notification №23/2018 — Central Tax (Rate), dated 20.09.2018
Notification №28/2018 — Central Tax (Rate), dated 31.12.2018
Notification №04/2019 — Central Tax (Rate), dated 29.03.2019
Notification №13/2019 — Central Tax (Rate), dated 31.07.2019
Notification №21/2019 — Central Tax (Rate), dated 30.09.2019
Notification №28/2019 — Central Tax (Rate), dated 31.12.2019
Notification №4/2020 — Central Tax (Rate), dated 30.09.2020
Notification №5/2020 — Central Tax (Rate), dated 16.10.2020
Notification №07/2021 — Central Tax (Rate), dated 30.09.2021
Notification №16/2021 — Central Tax (Rate), dated 18.11.2021
Notification №04/2022 — Central Tax (Rate), dated 13.07.2022
Notification №15/2022 — Central Tax (Rate), dated 30.12.2022
Notification №01/2023 — Central Tax (Rate), dated 28.02.2023
Notification №07/2023 — Central Tax (Rate), dated 26.07.2023
Notification №13/2023 — Central Tax (Rate), dated 19.10.2023
Conclusion
In conclusion, understanding exempt supply under GST is crucial for businesses to navigate the tax landscape effectively. Whether it’s nil-rated goods or services, specific exemptions through notifications, or dealing with 100% exempted supply, businesses must adhere to GST regulations.
