Exemptions from GST: formula sheet

Key formulas

Section 11(1): general exemption

Public interest + GST Council recommendation + notification = exemption of specified goods/services, in whole or in part

Applies generally to all suppliers of the described goods or services. It may be absolute or subject to conditions.

Section 11(2): special exemption

Public interest + GST Council recommendation + special order in each case + exceptional circumstances stated in the order

Case-specific. The order must state the exceptional circumstances. It is not a notification of general application.

Absolute vs conditional exemption

Absolute = no conditions, tax cannot be collected. Conditional = exempt only if every specified condition is satisfied

If a condition is not met, the exemption is not available and the supply is taxable at the applicable rate.

Exemption by way of rate

Exemption from 'whole or any part of the tax' = nil rate or concessional rate

A partial exemption reduces the effective rate. It is still an exemption under Section 11.

Clarificatory explanation

Explanation inserted within 1 year of the notification or order = effect as if it had always been part of the original

Applies to explanations under both Section 11(1) notifications and Section 11(2) orders.

No collection of tax on absolute exemption

Absolutely exempt supply: registered supplier shall not collect tax from the recipient

A condition-based exemption works differently. If the conditions are met, the supply is exempt, and if not, tax applies.

Exempt supply (section 2(47) CGST)

Exempt supply = nil-rated supply + wholly exempt supply (section 11 CGST / section 6 IGST) + non-taxable supply

Non-taxable supply is expressly included. Zero-rated supply is not part of exempt supply.

Non-taxable supply (section 2(78) CGST)

Supply not leviable to tax under the CGST Act or the IGST Act

It differs from a wholly exempt supply, which is leviable but exempted by notification.

ITC restriction (section 17(2))

Eligible ITC on common inputs = credit attributable to taxable supplies (including zero-rated supplies)

Credit on inputs used exclusively for exempt supplies is not available.

Rule 42 common credit reversal (inputs and input services)

Reversal = Common credit × (Value of exempt supplies ÷ Total turnover in the State/UT of the registered person for the period)

Common credit means total ITC less exclusive taxable credit, exclusive exempt credit, non-business credit and blocked credit. Value of exempt supplies is as defined in the Explanation to section 17, which excludes supplies on which the recipient pays tax under reverse charge. The denominator is total turnover in the State/UT, after the exclusions specified in Rule 42 and the Explanation to section 17, not 'aggregate turnover' under section 2(6). The reversal is worked provisionally each month and finalised as an annual computation on the annual common credit and annual turnover, with interest on any shortfall.

Rule 43 capital goods

Monthly credit Ta = ITC on the capital goods ÷ 60. Exempt portion Te = Ta × (Exempt turnover ÷ Total turnover of the tax period). Te is added to the output tax liability of the month, which reverses that part of the credit.

Rule 43 applies to capital goods used or intended to be used partly for exempt supplies and partly for taxable supplies (or non-business use). The 60 months reflect a five-year life. The ratio is exempt turnover to total turnover of the tax period. Capital goods used exclusively for exempt supplies get no credit.

Basic rule of an exemption entry

Exempt only if: service + supplier + recipient + conditions all match the entry, and no exclusion applies

Test all four parts. Failing any one makes the supply taxable.

Education

Services by an educational institution to its students, faculty and staff are exempt. Services to an educational institution by way of catering including mid-day meals, security, cleaning or housekeeping, and services relating to admission or conduct of examinations are exempt only for pre-school up to higher secondary level or equivalent

An educational institution means one giving pre-school to higher secondary education, education leading to a qualification recognised by law, or an approved vocational course. Coaching centres do not qualify. The exemption for transport of students, faculty and staff to an educational institution, which is a service provided to the institution, was withdrawn with effect from 18 July 2022. Such transport is therefore taxable.

Healthcare

Health care services by a clinical establishment, an authorised medical practitioner or paramedics are exempt

Covers diagnosis, treatment or care in recognised systems of medicine, including transport of the patient to and from a clinical establishment. Cosmetic and plastic surgery is excluded unless it restores or reconstructs the body affected by congenital defects, developmental abnormalities, injury or trauma. Hospital room rent above the limit in the notification is taxable, with ICU-type rooms outside that rule; check the latest text.

Residential renting

Renting of a residential dwelling for use as residence is exempt. Where the dwelling is rented to a registered person, the exemption holds only if it is the personal residence of the proprietor or partner, and not for business use. Otherwise it is taxable, and reverse charge applies if the landlord is unregistered

Registration of the tenant alone does not decide the question. The use does. Renting to a registered person for business purposes, such as staff accommodation for a registered firm, is taxable. A dwelling rented for the personal residence of the proprietor or partner remains exempt. Where the landlord is unregistered, the registered recipient pays tax under reverse charge (Notification 5/2022-CT(R)). Where the landlord is registered, the landlord charges tax under forward charge. Check the latest text.

Financial services

Extending deposits, loans or advances is exempt in so far as the consideration is interest or discount

Interest involved in credit card services is not covered. Processing fees, documentation charges and other fees are separate consideration and are not covered by this entry.

Agriculture

Services relating to cultivation of plants and rearing of animals (other than horses) for food, fibre, fuel or raw material, and processes on the farm that only make produce marketable, are exempt

If a process changes the essential characteristics of the produce, it is not exempt. Services such as renting of agro machinery or vacant land for agriculture and warehousing of agricultural produce are also covered.

Government and local authority

Certain services by the Central or State Government, Union territory or local authority are exempt, except specified services such as postal services of the kinds listed, services relating to aircraft or vessels, and transport of goods or passengers

Another entry exempts certain services by Government or local authority to a business entity with turnover up to the notified limit in the preceding financial year. Read the exact text and the exclusions.

Passenger transport

Exempt: metered cabs and auto-rickshaws, metro, monorail and tramway, inland waterways, and the other modes listed in the notification

Many entries depend on class, such as non-air-conditioned stage carriage and second or sleeper class rail. Tour, charter and hire services are generally not exempt.

Goods transport

Transport of goods by road other than by a goods transport agency or courier, and by inland waterways, is exempt. Goods transport agency services are exempt only for the goods and the small-consignment limits listed in the notification

Check the commodity and the consignment value limits. The recipient and the reverse charge position matter.

Exemption test

Goods exempt = item described in the Notification entry + form matches + no disqualifying condition

All three must hold. If the form or a condition fails, the exemption is lost.

Effect of pre-packaging and labelling

Cereals, pulses, flour etc. loose (not pre-packaged and labelled) = exempt; pre-packaged and labelled as defined in the Legal Metrology Act, 2009 = outside the exemption and taxable at 5% under 1/2017-CT(R)

The test follows the Legal Metrology Act, 2009 definition of pre-packaged commodity, not the mere use of a brand name. Do not state a 25 kg ceiling as a GST rule; the GST notifications do not set one. Always read the entry's condition.

Form of goods

Fresh/chilled ≠ frozen/dried/preserved

Different forms of the same product are different entries and may have different tax treatment.

Tax on a taxable pack

GST = Value of supply × 5%

Applies when an item that is normally exempt becomes taxable due to pre-packaging and labelling. Split CGST and SGST equally, 2.5% each, for intra-State supply.

Parallel notifications

Intra-State (CGST) = 2/2017-CT(R); inter-State (IGST) = 2/2017-Integrated Tax (Rate); SGST/UTGST = State/UT notifications

Each tax has its own notification. 2/2017-CT(R) itself covers only CGST on intra-State supplies.

Aggregate turnover

Aggregate turnover = taxable supplies (excluding inward supplies under reverse charge) + exempt supplies + exports (same PAN, all-India), excluding taxes and cess

Inter-State supplies are already within these items, so do not add them again. Non-taxable supplies are not included. GST, cess and inward supplies on which you pay tax under reverse charge are left out.

Threshold exemption test

Aggregate turnover ≤ notified limit → no registration needed (unless compulsory registration applies)

Check whether the limit is for goods, services or both, and whether the State is a special category State. Use the limit given in the question.

Exclusive non-taxable supplier

Only non-taxable or wholly exempt supplies → no registration needed

One taxable supply takes you out of this relief. Supplies where tax is payable by the recipient under reverse charge are treated separately.

Composition vs exemption

Composition: registered, flat low rate on turnover, no ITC, no tax collected from buyer. Threshold exemption: unregistered, no tax, no ITC

Composition is available only to eligible persons and has conditions such as no inter-State outward supplies of goods. Turnover is tested against the preceding year's turnover.

Default rule for cross-border supplies

Import of goods or services = inter-State supply = IGST

Supply to or by an SEZ unit or developer is also treated as inter-State. Only supply to an SEZ for authorised operations is zero-rated. Goods from an SEZ to the DTA are treated as imports and taxed with customs duty and IGST. Services from an SEZ to the DTA are inter-State supplies taxed under IGST.

Zero-rated vs exempt

Zero-rated: tax nil + refund of IGST paid or of unutilised ITC. Exempt: tax nil + no ITC

The question usually turns on this difference.

SEZ supply options

Supply under bond or LUT without IGST, OR pay IGST and claim refund

Applies to goods or services supplied to an SEZ unit or developer for authorised operations.

Import of services liability

IGST on imported service = value × rate, paid by recipient under reverse charge

Recipient can take ITC if used for taxable business supplies.

Customs vs IGST exemption

Exemption from basic customs duty ≠ exemption from IGST on import

Check whether the notification also covers integrated tax.

Exemption notification route

Exempt supply = covered by IGST (Rate) notification for goods or services, subject to conditions

Always check description and conditions in the notification.

Composite supply

Tax treatment of the whole bundle = treatment of the principal supply

Applies under Section 8 where the supplies are naturally bundled and supplied together in the ordinary course of business, and no specific notification entry covers the whole bundle. If the principal supply is exempt, the whole bundle is exempt. If it is taxable, the whole bundle is taxed at the rate applicable to that principal supply.

Mixed supply

Tax rate on the whole bundle = rate of the item attracting the highest rate of tax

Applies under Section 8 where two or more individual supplies are made together for a single price and are not a composite supply, and no specific notification entry covers the whole bundle.

Exemption test

Exempt only if description matches AND every condition is met AND any limit is not crossed

Failing any one part means the exemption is lost and the supply is taxable at the rate applicable to that supply.

ITC on exempt supplies

No ITC on inputs and input services used for exempt supplies; common credit is apportioned and the exempt share reversed (Section 17(2), Rules 42 and 43)

State this consequence in every answer where the supplier makes an exempt supply, unless the question is only about tax on the outward supply. Credit on inputs used exclusively for taxable supplies is not affected.

Binding effect of advance ruling

Binds the applicant and the jurisdictional officer, for the question and the supply covered by the ruling

It is not a general precedent for other taxpayers. Use it only to show how an entry has been read.

Quick revision

• An exemption is given by notification or order under the exemption powers in the CGST Act, when the government finds it to be in the public interest.
• Exemption can be full or partial, with or without conditions, and for all or a class of supplies.
• Under section 2(47), exempt supply includes nil-rated supplies, wholly exempt supplies and non-taxable supplies.
• Alcohol for human consumption is a non-taxable supply, meaning GST is not leviable on it. It is outside the GST levy, not exempted by a section 11 notification, yet it falls within the definition of exempt supply.
• ITC reversal for exempt supplies is governed by section 17(2) and (3) and Rules 42 and 43. Section 17(3) says the value of exempt supply is as prescribed. Explanation to section 17: the aggregate value of exempt supplies excludes supplies on which tax is payable on reverse charge basis, and includes transactions in securities, sale of land and, subject to the para 5(b) clause, sale of building. Check the exact wording before you quote a conclusion.
• Always read the notification entry in full, including the condition and the description of the supplier and the recipient.
• If a condition is not met, the exemption does not apply and normal tax liability arises.
• Under section 23(1)(a), a person engaged exclusively in the supply of goods or services that are not liable to tax or are wholly exempt from tax is not liable to registration. Check for other provisions, such as reverse charge liability, that may still apply.
• Composition and small supplier relief depend on the person and turnover, not on the nature of the goods or services.
• Imports and SEZ supplies need IGST rules and place of supply to decide taxability.
• In answers, write the provision, the facts, then the conclusion.

Common mistakes

• Saying the Central Government can grant exemption on its own wish. Fix: Always write the pre-conditions of the route. Both Section 11(1) and Section 11(2) need public interest and the GST Council's recommendation. Section 11(2) also needs a special order in each case stating the exceptional circumstances.
• Treating a special order under Section 11(2) as a general exemption, or saying it does not need public interest or the Council's recommendation. Fix: General exemption goes by notification and applies to a described class. Special exemption goes by a special order in each case and must state exceptional circumstances. Both routes need public interest and the Council's recommendation.
• Treating non-taxable supply as outside the reversal rule because it is 'not under GST'. Fix: Section 2(47) includes non-taxable supply in exempt supply. ITC on inputs used for it is restricted under section 17(2).
• Treating exports or SEZ supplies as exempt and reversing ITC. Fix: These are zero-rated and taxable. ITC is allowed, and the tax or refund route applies.
• Treating every educational service as exempt. Fix: Separate services by an institution to its students (exempt) from services to an institution (exempt only up to higher secondary, and only for the listed services such as catering, security, cleaning and examination work). Transport provided to an institution, which was withdrawn from the exemption from 18 July 2022, and coaching are taxable.
• Exempting all hospital and doctor-related services. Fix: Check who supplies it, whether it is diagnosis, treatment or care, and the cosmetic surgery exclusion. Also check the hospital room rent rule in the current text.
• Treating any branded or packed item as exempt because the base item is on the list Fix: Always run the pre-packaged and labelled test for cereals, pulses and flour before concluding.
• Saying the exemption is lost just because the seller has a brand name Fix: Apply the current test: pre-packaged and labelled as per the Legal Metrology Act, 2009. Such goods fall outside the exemption and are taxable under 1/2017-CT(R). Loose sale of a brand's product from an open sack does not lose exemption.
• Leaving exempt supplies out of aggregate turnover Fix: Remember the definition lists exempt supplies explicitly. They have no tax, but they still count towards the limit. Non-taxable supplies are different and do not count.
• Including GST charged in the turnover figure Fix: Use the value excluding CGST, SGST/UTGST, IGST and cess.

Exam tips

• Write the pre-conditions every time, matched to the route: public interest and GST Council recommendation for Section 11(1); public interest, GST Council recommendation, and exceptional circumstances stated in the special order for Section 11(2).
• Use a two-column comparison in descriptive answers: general exemption (notification, class of goods or services, public interest, Council recommendation) vs special exemption (special order in each case, exceptional circumstances stated in the order, case-specific, public interest, Council recommendation).
• In case scenarios, read the conditions line by line. Many MCQs hinge on one unmet condition.
• Mention that an explanation can be inserted within one year of the notification or order, and that it has effect as if it had always been part of the original notification or order.
• Link to related topics: exempt supplies affect input tax credit, and the actual exempted items are in the exemption notifications for goods and services.
• Start every answer with the definition in section 2(47) and state that non-taxable supply is included. This earns the first mark in most answers.
• In MCQ cases, check first whether the supply is zero-rated. Exports and SEZ supplies are a favourite trap against 'exempt'.
• In calculations, show the common credit step clearly. Marks are given for the method even if the final figure is off.