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Goods and Services Tax (GST) exemptions are provisions where certain goods and services are not subject to GST. Understanding the concept of GST exemptions, how they apply, and what qualifies as tax-free is essential. Goods and services exempt from GST provide monetary relief to consumers and suppliers by reducing the tax burden on essential products.
Zero-rated supplies are taxable at 0% but the supplier can claim/recover input tax credit (ITC) (usually via refund or under LUT/bond). Exempt supplies attract no GST and the supplier cannot claim ITC on inputs used to make those supplies. Let’s understand the two in more detail.
Zero-rated Supply
It is defined in the IGST Act as exports of goods or services and supplies to SEZ/SEZ developers. So, they are treated as supplies taxed at 0%. However, special rules let the supplier claim refund of unutilised ITC or export under a bond / Letter of Undertaking.
Exempt Supply
This is defined in the CGST Act as any supply that either attracts a nil rate of tax. These are wholly exempt by notification, or outside GST’s scope (non-taxable). Exempt supplies do not attract GST and are not eligible for ITC.
For Zero-rated supply, you can recover the GST charged on inputs (ITC). If you export under LUT/bond without paying IGST, you can claim refund of accumulated ITC. Alternatively you can pay IGST on export and claim refund of that IGST. That mechanism prevents GST from becoming a cost in the export chain.
No GST is charged on the output on exempt supply, but ITC on inputs is blocked. That means tax paid on inputs becomes a cost and may increase the effective cost of making exempt supplies.
For example, If you manufacture widgets and export them, being zero-rated means you can recover tax paid on raw materials (so GST doesn’t inflate your cost). If you manufacture a product that is exempt, the GST you paid on inputs becomes a non-recoverable cost and will affect margins and pricing.
Several essential goods exempted from GST have been identified to ensure they remain affordable and to support certain sectors by reducing the financial burden. This GST exemption list includes categories such as basic necessities, agricultural products, and healthcare items. Here's a breakdown of goods that fall under these exemptions:
Types of goods |
Examples |
|---|---|
Water |
Tender coconut water, mineral water, etc. |
Vegetables |
Onions, potatoes, tomatoes, etc. |
Live animals |
Goats, poultry, cows, sheep, etc |
Grains |
Barley, wheat, rice, oats, etc. |
Products of the milling industry |
Different types of flour |
Seeds |
Oil seeds, cereal husks, flower seeds, etc. |
Sugar |
Sugar, jaggery, etc. |
Meat |
Fresh and frozen meat |
Fish |
Fresh or frozen fish |
Natural products |
Honey, fresh and pasteurised milk, eggs, cheese |
Live trees and plants |
Bulbs, flowers, foliage, roots, etc. |
Fruits |
Grapes, apples, bananas, etc. |
Dry fruits |
Walnuts, cashews, etc. |
Tea, coffee, and spices |
Ginger, turmeric, tea leaves, coffee beans, etc. |
Drugs and pharmaceuticals |
Contraceptives, human blood, etc. |
Fertilizers |
Organic manure |
Waste |
Municipal waste, sewage sludge, etc. |
Printed items |
Maps, newspapers, printed books, etc. |
Fabrics |
Silkworm cocoon, raw silk, khadi, etc. |
Hand tools |
Hammer, space, etc. |
Pottery |
Earthen pots, clay lamps, etc. |
Baked goods |
Bread, puffed rice, etc. |
Similar to goods, there is a list of GST exempted services designed to ensure affordability for the general population. Additionally, GST exempted services help reduce the tax burden on individuals from weaker sections of society. These services include agricultural, educational, and healthcare-related activities. Below is a breakdown of such services:
Types of services |
Examples |
|---|---|
Agricultural services |
Cultivation, farm labour supply, harvesting, renting agricultural machinery, commission agents for selling produce |
Government services |
Postal services, public transportation, foreign diplomat services, services by the Reserve Bank of India |
Transportation services |
Goods transport by road, rail, water; passenger air transport; toll payments; goods transport under ₹1,500 |
Judicial services |
Services by arbitral tribunals, advocates to entities with turnover under ₹40 Lakhs |
Educational services |
Student/faculty transport, mid-day meal schemes, IIM examination services |
Medical services |
Ambulance services, veterinary care, charity medical services (excluding cosmetic procedures) |
Organizational services |
Services for international exhibitions, tour operators for foreign tourists |
Other services |
GSTN services for governments, admission fees up to ₹250 for theatres, circuses, sports events |
Here are the conditions and legal provisions for getting a GST exemption in India (i.e. when supplies are exempt under GST):
Section 2(47) of CGST Act: This defines ‘exempt supply’ as including supplies which attract nil rate of tax, or which are wholly exempt under Section 11 of CGST Act, or Section 6 of the IGST Act; and also non-taxable supplies.
Section 11 of CGST Act: This empowers the Government (Central or State, as applicable) to grant exemptions by notification.
Note: Sometimes special orders, in exceptional cases, may grant exemptions even apart from full notifications.
These are the requirements or pre-conditions for a supply to be exempt, or for the government to grant exemption notifications:
Condition |
Description |
|---|---|
Public interest |
The exemption should serve the public interest. The government usually grants exemptions for goods/services that are essential, socially important, or have broad public welfare implications. |
Recommendation by the GST Council |
Notification or exemption is generally issued only after consideration and recommendation by the GST Council. |
Notification by the Government |
The exemption must be formalised via an official notification (under Section 11 of CGST, or equivalent in State Acts) or via orders / rules published. |
Absolute or Conditional Exemption |
Exemption may be absolute, meaning no conditions for suppliers beyond those in notification; or conditional, meaning certain requirements must be met (e.g. room tariff limits, whether establishment qualifies, etc.) |
Special Orders in Exceptional Cases |
In special or exceptional circumstances, despite there being no general notification, the government may grant exemption by a specific order. |
Suppliers cannot charge more than effective rate |
If an absolute exemption is granted for a supply, the registered person cannot charge tax higher than what is legally effective (which in this case is nil or no GST). They must issue correct invoices (or bills of supply) for exempt supplies. |
If a person only makes exempt or nil‐rated or non-taxable supplies, they may not be required to register under GST (if their turnover is below threshold), since there’s no GST liability in such supplies.
Exemption does not allow the supplier to claim Input Tax Credit (ITC) on inputs used in making those supplies. Section 17 of CGST Act deals with apportionment of input tax credit when supplies are partly exempt.
The notification granting exemption must clearly specify the goods/services covered, date from which exemption is effective, conditions (if any). Failure to meet any condition means exemption may not apply.
These categories make it easy to see whether the relief depends on who is supplying the good or service, or on the nature of the supply itself.
Sometimes the relief applies to the person or organisation providing the supply, no matter what they supply. For example, certain services delivered by charitable organisations are treated as exempt because of who is supplying them.
In other cases, it’s the nature of the good or service that makes it exempt. When a supply type is notified as exempt, any supplier can provide it without GST, regardless of who they are. Examples include sponsorship services for sporting events and services that provide public conveniences.
Knowing about these upfront helps you decide which rules apply and how to treat a transaction for GST purposes.
Exemptions differ in how strict or flexible they are; some carry no conditions while others are tied to specific limits or requirements.
This is a full exemption with no strings attached. If a supply falls under this category, it attracts no GST and there are no extra conditions to meet. Example: transmission or distribution of electricity by a licensed utility.
Here the exemption applies only if specific conditions are met. If you fail to meet those conditions, the supply may become taxable. Example: healthcare provided by a clinic is exempt except when room charges exceed a specified limit (for instance, rooms other than ICU or NICU with daily charges above ₹5,000).
Some exemptions are conditional and limited in scope. For example, a registered person need not pay tax under reverse charge for intra-state supplies received from unregistered suppliers, provided the total value from those suppliers does not exceed ₹5,000 in a single day.
Identifying the type of exemption quickly shows you whether extra compliance, limits or documentation will be needed.
Below is a detailed explanation of the GST threshold and criteria for small businesses:
The GST registration threshold depends on a business’s annual turnover as follows:
For traders dealing in goods, the limit is ₹40 Lakhs
For service providers it is ₹20 Lakhs
Special category states in the north-east and hilly regions have a lower goods threshold of ₹10 Lakhs.
Note: If a business supplies both goods and services, total combined turnover should be used to check whether registration is required.
Businesses with turnover below these limits are generally not required to register for GST, but they may opt in voluntarily. Voluntary registration enables a business to claim input tax credit (ITC) on taxes paid for purchases, which can be offset against output tax. It also helps when working with GST-registered clients who usually prefer GST-compliant invoices and can improve credibility and market access.
Certain categories must register regardless of turnover. These include interstate traders, e-commerce operators and notified categories such as agents supplying goods for others.
These thresholds are designed to simplify compliance for micro and small enterprises. This allows low-turnover firms to operate without compulsory GST registration and reduce administrative burden.
Here are the special exemptions available for charitable organisations and NGOs:
Charities and NGOs working in education, healthcare and similar public-benefit areas often qualify for special GST relief to keep their services affordable. To be eligible:
Organisations typically need registration under the Societies Registration Act, 1860 or recognition under section 12AA of the Income-tax Act, 1961.
Their activities fall within legally accepted charitable purposes.
Income should be applied to those charitable objectives and not distributed for private gain.
Commonly exempt activities include:
Recognised educational services (from pre-school to higher education and courses leading to legally recognised qualifications),
Authorised healthcare and diagnostic services provided by registered medical establishments and veterinary services
Public religious activities.
These exemptions reduce operating costs and help NGOs channel more resources into public service. Note that eligibility depends on the specific notification and compliance with prescribed conditions, so accurate registration and records are essential.
A business eligible for GST exemption is not required to apply for an exemption status. If their annual turnover remains below the set limit, they are automatically exempt from registering for GST. To avail the exemption status, businesses must ensure their turnover does not exceed the prescribed limit.
If a business has already registered for GST but their turnover is below the exemption limit, they can choose to cancel their GST registration. They simply need to raise a cancellation request on the GST portal and provide a valid reason. Once reviewed, the relevant authorities will cancel the registration, and the business will no longer need to comply with GST filing requirements.
A business eligible for GST exemption cannot claim ITC on goods and services used as inputs. This means they cannot reduce their overall tax liability by deducting the GST paid on purchases from the GST collected on sales.
For example, if a business pays ₹1,000 in GST on the purchase of raw materials but collects ₹1,500 in GST from customers for the sale of these materials. They would normally subtract the ₹1,000 paid from the ₹1,500 collected and only pay ₹500 to the government. However, exempt businesses cannot claim this credit, so the GST paid on inputs becomes a cost that cannot be recovered.
For exempt businesses, while the initial benefit is reduced compliance and tax obligations, they may face higher operational costs due to the inability to claim ITC. On the other hand, a business that voluntarily registers for GST, despite being eligible for exemption, is allowed to claim ITC, which helps reduce their overall tax burden. This permits them to be more competitive in terms of pricing.
Businesses dealing with GST-registered suppliers and customers must evaluate whether opting for voluntary registration or remaining exempt will be more beneficial in the long run.
In India, the GST framework categorises the supply of goods and services into four main groups, each subject to unique tax treatments: Exempt, Zero Rated, Nil Rated and Non-GST. These classifications have varying implications for how GST is applied. Here’s a breakdown of the key differences between them:
These are goods or services that do not attract GST, either due to government notifications or their nature. Input Tax Credit (ITC) cannot be claimed.
Examples:
Healthcare services by hospitals and clinics
Education services by recognised institutions
Public transport (other than air-conditioned)
Unbranded food items like fresh fruits, vegetables, and milk
These are taxable supplies but charged at 0% GST. The key difference is that ITC can be claimed, and refunds are allowed. Mainly applicable to exports and SEZ.
Examples:
Export of goods (e.g., textiles sent abroad)
Export of services (IT services delivered to a client overseas)
Supplies made to SEZ units or SEZ developers
These are items notified with a 0% GST rate. Like exempt supplies, ITC cannot be claimed.
Examples:
Salt
Unbranded atta (flour), dal, rice
Fresh meat, fish, and eggs
These are completely outside the scope of GST and covered under other taxation laws. GST does not apply at all.
Examples:
Alcoholic liquor for human consumption
Petrol, diesel, and other petroleum crude products
Electricity
Stamp duty and property tax (covered by state levies)
Businesses with an annual turnover of up to ₹40 Lakhs are exempt from paying GST on goods. For services, the exemption limit is ₹20 Lakhs. However, for states classified as special category states, the turnover limit is lower: ₹20 Lakhs for goods and ₹10 Lakhs for services.
You can refer to the list of exempted goods and services provided in Schedule II of the GST Act to check whether a service is GST-exempt. Common exempt services include healthcare, educational services, and services provided by charitable organisations.
No, if you are dealing in exempt supplies, you cannot claim Input Tax Credit (ITC) on goods or services used to make those exempt supplies.
Yes, freelancers can avail GST exemption if their annual turnover is below ₹20 Lakhs. However, if they provide services to clients abroad, these supplies fall under the zero-rated supplies category, allowing them to claim ITC on inputs.
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