Exemption from GST

Exemption from GST refers to goods or services which are exempted from the purview of GST and are not subject to tax. The concept of exemption is different from zero-rated supplies, as in the latter, the goods or services are taxable, but at a rate of 0%.

The GST Act provides for a list of goods and services that are exempted from GST. These exemptions are provided to certain goods and services based on social, economic, or administrative grounds. The rationale behind providing such exemptions is to provide relief to certain sectors or categories of taxpayers.

Types of Exemptions under GST:

• Absolute Exemption: Goods or services that are completely exempt from GST are known as absolute exemptions. These are goods and services that are not subject to any tax, and the taxpayer need not file any returns for such supplies. Examples of absolute exemptions include unprocessed food grains, milk, and educational services provided by recognized institutions.
• Conditional Exemption: Goods or services that are subject to certain conditions or criteria are known as conditional exemptions. The exemption is provided only if the specified conditions are met. Examples of conditional exemptions include healthcare services provided by registered medical practitioners, which are exempt from GST, provided that the annual turnover of the practitioner does not exceed Rs. 20 lakhs.
• Exemption for specific persons: Exemptions are also provided to specific persons or categories of taxpayers. For example, the government may exempt goods or services provided to specific organizations or persons, such as charitable organizations, religious institutions, etc.

Exemptions under GST:

• Healthcare Services: Healthcare services provided by clinical establishments, authorized medical practitioners, and paramedics are exempt from GST. This includes services provided by hospitals, nursing homes, diagnostic centers, etc. However, certain services, such as cosmetic surgery, are not exempt from GST.
• Educational Services: Educational services provided by recognized educational institutions are exempt from GST. This includes services provided by schools, colleges, and universities.
• Agricultural Services: Services provided in relation to agriculture, such as harvesting, threshing, packaging, transportation, and warehousing of agricultural produce are exempt from GST.
• Services by Charitable Organizations: Services provided by charitable organizations are exempt from GST. This includes services provided by religious institutions, trusts, and societies registered under the relevant laws.
• Services by Government: Services provided by the government, local authorities, and governmental agencies are exempt from GST. This includes services provided by the police, judiciary, and other government departments.
• Transportation Services: Services provided by the transportation sector, such as railways, roadways, and airways, are exempt from GST. However, certain services, such as transportation of goods by air or sea, are not exempt from GST.
• Financial Services: Services provided by banks and financial institutions are exempt from GST. This includes services provided by non-banking financial companies, insurance companies, and stockbrokers.
• Precious Metals: The supply of gold, silver, and other precious metals in any form, other than jewelry, is exempt from GST.
• Unprocessed Food Grains: Unprocessed food grains, such as rice, wheat, maize, etc., are exempt from GST.
• Textile Industry: The supply of khadi, handloom, and silk fabrics, and products made from these fabrics, are exempt from GST.

Exemption and Input Tax Credit:

One important aspect of exemption under GST is that if goods or services are exempted from GST, the supplier will not be eligible to claim input tax credit (ITC) for any taxes paid on inputs used in making such supplies. This means that the cost of inputs used in making exempt supplies cannot be offset against the output tax liability.

Exemptions for specific sectors and activities

Certain sectors and activities have been granted exemption from GST to promote their growth and development. Some of these sectors are:

a) Agriculture and allied activities: Agricultural produce and related goods are exempt from GST. This includes live animals, meat, fish, eggs, milk, fruits, vegetables, cereals, etc. Services related to agricultural activities like harvesting, packaging, and transportation of agricultural produce are also exempt.

b) Education: Services related to pre-school, school education, and higher education are exempt from GST. This includes services provided by educational institutions, coaching centers, and training centers.

c) Health care: Services provided by hospitals, clinics, and medical practitioners are exempt from GST. This includes services related to diagnosis, treatment, and care of patients.

d) Charitable activities: Services provided by charitable organizations like trusts, societies, and non-profit organizations are exempt from GST. This includes services related to the advancement of religion, education, and other charitable activities.

e) Financial services: Certain financial services like banking and insurance are exempt from GST. However, some services like mutual funds, stock broking, and portfolio management services are not exempt.

Exemptions for specific goods and services

Certain goods and services have been granted exemption from GST to promote their affordability and availability. Some of these goods and services are:

1. Petroleum products: Petroleum products like crude oil, petrol, diesel, and natural gas are exempt from GST. However, they are subject to excise duty and VAT.
2. Alcohol for human consumption: Alcoholic beverages are exempt from GST. However, they are subject to excise duty and VAT.
3. Education services: Services provided by educational institutions are exempt from GST.
4. Healthcare services: Services provided by hospitals, clinics, and medical practitioners are exempt from GST.
5. Agricultural produce: Agricultural produce like live animals, meat, fish, eggs, milk, fruits, vegetables, cereals, etc. are exempt from GST.
6. Government services: Services provided by the government like passport services, visa services, and consular services are exempt from GST.
7. Services provided to SEZ units and developers: Services provided to SEZ units and developers are exempt from GST.
8. Export of goods and services: Export of goods and services are exempt from GST.

Advantages of GST Exemptions:

• Promotes affordability: GST exemption on certain goods and services promotes their affordability and availability. This benefits the common man as well as businesses.
• Boosts growth of specific sectors: Exemption from GST on specific sectors and activities like agriculture, education, healthcare, and charitable activities promotes their growth and development.
• Encourages exports: GST exemption on export of goods and services promotes their competitiveness in the global market.
• Simplifies compliance: Exemption from GST reduces the compliance burden on businesses as they do not have to maintain records and file returns for exempt supplies.

Disadvantages of GST exemptions:

• Restricts input tax credit: Businesses cannot claim input tax credit on goods and services that are exempt from GST. This increases their cost of production and reduces their competitiveness.
• Increases complexity: The exemption list is complex and varies across different goods and services. This makes compliance difficult for businesses and tax authorities.
• Creates distortions: GST exemptions create distortions in the market and lead to differential treatment of similar goods and services. This affects the competitiveness of businesses and creates market inefficiencies.