CA Intermediate · Taxation

Exemptions from GST: formula sheet

Full chapter guide

Key formulas

Section 11(1): exemption by notification: Public interest + GST Council recommendation + notification = general exemption (absolute or conditional, whole or part of tax); Applies to goods or services of a specified description, so it covers every supplier of that description.
Section 11(2): exemption by special order: Exceptional circumstances (stated in the order) + GST Council recommendation + special order = exemption in a specific case; Used case by case. The order must state the exceptional circumstances.
Section 11(3): explanation inserted in a notification or order: Explanation inserted within one year of issue = treated as part of the original notification or order; Used to clarify scope. It has effect from the date of issue of the original notification or order. This is different from the Explanation appended to Section 11.
Absolute vs conditional exemption: Absolute = no conditions. Conditional = available only if every stated condition is satisfied.; If a condition fails, the exemption is lost and tax is payable at the normal rate.
Exempt supply (Section 2(47)): Exempt supply = nil-rated supply + wholly exempt supply (Section 11 CGST or Section 6 IGST) + non-taxable supply; Non-taxable supply is one not leviable to tax under the CGST or IGST Act.
Section 23(1): no registration: Exclusively non-taxable or wholly exempt supplier, or agriculturist (own produce from cultivation of land) = generally not liable to register, subject to Section 24 compulsory registration; Section 23 relief is subject to the compulsory registration cases in Section 24. Section 23(2) lets the Government notify further categories on the Council's recommendation.
Collection of tax where exemption is absolute (Explanation to Section 11): Wholly exempt supply: no tax can be collected. Partly exempt supply (absolute exemption): tax collected cannot exceed the effective rate.; This comes from the Explanation appended to Section 11, not from Section 11(3).
Source of exemption: Section 11, CGST Act, 2017 + Notification 2/2017-Central Tax (Rate); Section 11 gives the power. The notification lists the goods.
Core test for goods: Exempt if: item is in the list + in the described form + conditions met; If any one fails, the supply is taxable at the rate applicable to it.
Pre-packaged and labelled rule: Loose or unpackaged cereals, pulses, etc. = exempt; pre-packaged and labelled = taxable at notified rate; Applies only to the items where the notification states 'other than pre-packaged and labelled'. Do not apply it to every item. For flour, jaggery and similar items, check the exact entry text.
Fresh vs processed: Fresh vegetables and fruits = exempt; preserved, frozen or processed = check separately; Word 'fresh' in the entry is a condition.
Effect on ITC: Credit on inputs and input services used for exempt supplies is not allowed (Section 17(2)); common credit is apportioned under Rule 42; credit on capital goods is dealt with under Rule 43, CGST Rules; Credit on inputs used for taxable supplies stays available. Common credit on mixed inputs must be apportioned.
Tax on a taxable pre-packaged supply (intra-State): CGST = SGST = ½ × rate × value; Example: 5% rate gives 2.5% CGST + 2.5% SGST.
Aggregate turnover (Section 2(6)): Taxable supplies (excluding inward supplies on RCM) + exempt supplies + exports, same PAN, all India, excluding taxes; Taxes means CGST, SGST/UTGST, IGST and cess. Inter-State supplies are already inside taxable supplies, so do not add them again. Compute on a PAN basis for all registrations.
Threshold test (Notification 10/2019-CT): Goods only: ₹40 lakh in most States (₹20 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana and Tripura; Himachal Pradesh and Uttarakhand stay at ₹40 lakh) | Services or mixed: ₹20 lakh (₹10 lakh for services in Manipur, Mizoram, Nagaland and Tripura); Turnover is tested in a financial year. Use the limit stated in the question. Compulsory registration cases can override it.
Composite supply: Tax treatment = treatment of the principal supply; If the principal supply is exempt, the whole bundle is exempt.
Mixed supply: Tax treatment = supply with the highest rate of tax; Applies when the items are not naturally bundled.
Credit attributable to exempt supplies (Section 17(2)): Common credit is apportioned between taxable and exempt supplies. Credit on exempt supplies is not allowed.; Rule 42 (inputs and input services) and Rule 43 (capital goods) give the working. Rule 42 does not deal with capital goods.
Rule 42 common credit and reversal (monthly): C1 = T − (T1 + T2 + T3) | C2 = C1 − T4 | D1 = (E ÷ F) × C2; T is total input tax credit on inputs and input services for the tax period. T1 is credit used exclusively for non-business purposes. T2 is credit used exclusively for exempt supplies. T3 is credit blocked under Section 17(5). C1 is the credit left after removing T1 to T3. T4 is credit attributable exclusively to supplies other than exempt supplies (including zero-rated supplies), which is fully allowed. C2 is the common credit. E is exempt turnover and F is total turnover of the tax period. D1 is the amount of common credit reversed for exempt supplies. Adjust at year end. Check the labels T1 to T4 against the Rule 42 text in your study material.

Quick revision

Section 11 CGST Act, 2017 lets the Government exempt supplies by notification, absolutely or on conditions.
If a supply is absolutely exempt, the supplier cannot collect tax on it.
Notification 12/2017 covers services; Notification 2/2017 covers goods.
Exempt supply (Section 2(47)) means supply that attracts a nil rate of tax or is wholly exempt under Section 11 of the CGST Act or Section 6 of the IGST Act, and it includes non-taxable supply.
Non-taxable supply is not leviable to GST at all, such as alcohol for human consumption.
Section 23(1)(a): a person engaged exclusively in supplying goods or services that are not liable to tax or are wholly exempt is not liable to register, regardless of turnover, subject to Section 24 (compulsory registration cases).
A person liable to pay tax under reverse charge must still register under Section 24, even if the other supplies are exempt.
Section 23: an agriculturist supplying produce from cultivation of land is not liable to register.
Aggregate turnover for the registration limit includes exempt supplies. It is computed for all taxable persons having the same PAN, across India, and excludes central tax, State tax, UT tax, integrated tax, cess and inward supplies under reverse charge.
The small supplier limit is a registration threshold under Section 22 and Section 23, not a Section 11 exemption.
Credit on inputs used for exempt supplies (including nil-rated and non-taxable) is not available under Section 17(2). Common credit is apportioned under Rule 42 (inputs and input services) and Rule 43 (capital goods). Zero-rated supplies are not restricted.
In a composite supply, tax follows the principal supply; in a mixed supply, the highest rate applies.
Always check conditions in the entry before declaring a supply exempt.

Common mistakes

Treating exempt supply, nil-rated supply and non-GST supply as three unrelated things. Fix: Remember that Section 2(47) defines exempt supply to include nil-rated, wholly exempt and non-taxable supplies. They differ in cause, not in broad treatment.
Saying a special order under Section 11(2) applies to everyone. Fix: A notification is general. A special order is for a specific case and needs exceptional circumstances stated in the order.
Treating all food grains as exempt Fix: Add the words 'other than pre-packaged and labelled' every time you note cereals and similar items, and check the entry text. For flour, check the exact entry.
Using 'branded' as the test Fix: Use the pre-packaged and labelled test. Check whether the facts show packing with a label.
Leaving exempt supplies out of aggregate turnover. Fix: Aggregate turnover includes exempt supplies and exports. Only taxes and RCM inward supplies are excluded.
Testing the limit separately for each GST registration or each State. Fix: The test uses the same PAN across India. Add turnover of all businesses of that PAN.

Exam tips

Quote Section 11(1) for a notification and Section 11(2) for a special order. Examiners test whether you can tell them apart.
Always write the two preconditions: public interest and the GST Council's recommendation.
For classification MCQs, remember Section 2(47) includes non-taxable supply in exempt supply. Do not pick an option that says it does not.
Link exemption to consequences: no tax collection, no ITC on goods or services used for exempt supplies other than zero-rated supplies (apportioned under Section 17(1)-(2) read with Rules 42 and 43 where inputs, input services or capital goods serve both taxable and exempt supplies) and registration under Section 23. These links often earn extra marks.
In conditional exemption problems, test each condition one by one in your answer. Show the failed condition clearly, then compute normal tax.
Learn the list in groups: farm produce, animal products (milk, eggs), basic food items and salt. For any other item, read the exact entry text in the notification before you call it exempt.
Always mark the exception wording. Most MCQ traps are 'other than pre-packaged and labelled' and 'fresh'.
In mixed computation questions, split exempt and taxable values in a small table in your working, then compute tax only on the taxable part.