CMA Intermediate · Direct and Indirect Taxation

Exemption from Tax: formula sheet

Full chapter guide

Key formulas

Authority and conditions: Exemption = Government satisfied of public interest + Council's recommendation; Both are needed under sub-section (1) and sub-section (2).
Section 11(1): general exemption: Notification → goods/services of a specified description → whole or part of tax → absolute or conditional → from a specified date; Applies generally to a class of supplies, not one person.
Section 11(2): special exemption: Special order in each case + circumstances of an exceptional nature stated in the order; Case-by-case. Exceptional circumstances must be recorded in the order.
Section 11(3): explanation: Explanation by notification within one year of the notification or order; effect as if always part of it; Only to clarify scope or applicability. The one-year limit counts from issue of the notification or order.
Explanation: absolute exemption: Absolute exemption → supplier shall not collect tax in excess of the effective rate; Collecting tax on an absolutely exempt supply is not permitted.
Section 11A: general practice: Generally prevalent practice of non-levy or short-levy + supplies actually liable → Government may direct tax not be recovered, on Council's recommendation; Inserted w.e.f. 1-11-2024. Different from exemption: the supply is taxable, but past recovery is waived.
Conditions for exemption: Government satisfied + public interest + Council's recommendation = power to exempt; All three must be present for both the notification route and the special order route.
General exemption, s.6(1): Notification → specified goods/services → whole or part of tax → absolute or conditional → from the stated date; Applies generally to goods or services of a specified description.
Special order, s.6(2): Special order → each case → exceptional circumstances stated in the order; Not a general relief. It is case-specific and must record the exceptional circumstances.
Explanation by notification, s.6(3): Explanation inserted within 1 year of issue → effect as if always part of the original; Used to clarify scope or applicability only. It operates retrospectively to the original date.
Effective rate bar (Explanation to s.6): Absolute exemption → supplier must not collect tax in excess of the effective rate; Applies to a registered person supplying the exempted goods or services.
Section 6 IGST vs section 11 CGST: Same structure; s.6 IGST covers integrated tax, s.11 CGST covers central tax; The text of sub-sections (1) to (3) and the Explanation is the same in both Acts.
Power to exempt generally: Public interest + Council's recommendation + notification = exemption of specified goods/services, absolute or conditional, whole or part of tax (Section 11(1) CGST; Section 6(1) IGST); The notification must state the effective date and any conditions.
Special order: Public interest + Council's recommendation + special order in each case + exceptional circumstances stated in the order (Section 11(2) CGST; Section 6(2) IGST); Case-specific, not general. The exceptional circumstances must be stated in the order.
Explanation clause: Explanation inserted by notification within one year of the notification or order = treated as always part of it (Section 11(3) CGST; Section 6(3) IGST); Used only to clarify scope or applicability. It acts retrospectively once validly inserted.
Cap on collection: Absolute exemption: supplier shall not collect tax in excess of the effective rate (Explanation to Section 11 CGST and Section 6 IGST); Under absolute exemption the effective rate is nil, so no tax may be collected.
Section 17(2) restriction: Eligible ITC = ITC attributable to taxable supplies (including zero-rated supplies); Input tax attributable to exempt supplies is not available as credit.
Common credit proportion (working idea): ITC to be reversed = Common credit × Value of exempt supplies ÷ Total turnover; Use this as the working ratio for common inputs. Direct inputs used only for exempt supplies are fully ineligible; inputs used only for taxable supplies are fully eligible. Confirm the exact rule wording and the turnover definition from your study material.
Section 17(4) option for banks and NBFCs: Credit taken = 50% × eligible ITC of the month; the rest lapses; The option cannot be withdrawn in the rest of the financial year. The 50% limit does not apply to tax on supplies between registered persons with the same PAN.
Zero-rated supplies: Exports and supplies to SEZ: ITC allowed; no reversal; Not exempt supplies for the purpose of section 17(2).
Value of exempt supply includes (section 17(3)): Reverse charge supplies + transactions in securities + sale of land + sale of building (subject to clause (b) of paragraph 5 of Schedule II); Sale of building is included only subject to clause (b) of paragraph 5 of Schedule II. Schedule III activities are excluded, except para 5 and prescribed transactions under para 8(a).

Quick revision

Section 11 CGST and Section 6 IGST have near-identical wording; one deals with central tax, the other with integrated tax.
The Government acts only when satisfied that it is necessary in the public interest.
Exemption is granted on the recommendations of the Council.
Sub-section (1): general exemption by notification, absolute or conditional, whole or part of the tax.
General exemption takes effect from the date specified in the notification.
Sub-section (2): special order in each case, for circumstances of an exceptional nature stated in the order.
Sub-section (3): an explanation can be inserted within one year of the notification or order and applies as if always part of it.
Where exemption is absolute, the supplier must not collect tax in excess of the effective rate.
Section 18(1)(d) CGST allows credit on stock and exclusive capital goods when an exempt supply becomes taxable.
Section 18(4) CGST requires payment of credit when supplies become wholly exempt; the balance credit lapses.
Section 11A CGST lets the Government direct non-recovery of tax not levied or short-levied due to a general practice.

Common mistakes

Saying the Council itself grants the exemption. Fix: Write: the Government exempts by notification or order, on the Council's recommendation.
Treating a special order as a notification for a class of goods. Fix: Sub-section (1) is a notification for goods or services of a specified description. Sub-section (2) is a special order in each case for exceptional circumstances.
Saying the GST Council grants the exemption. Fix: Write that the Government exempts on the Council's recommendation. The Council recommends. It does not itself exempt.
Quoting section 11 of the CGST Act for an inter-State supply. Fix: Match the section to the tax. IGST exemption is section 6 of the IGST Act. CGST exemption is section 11 of the CGST Act.
Saying the Central Government may exempt on its own, without the Council. Fix: Always add that the power is exercised on the recommendations of the Council.
Treating the whole exemption as retrospective because explanations are retrospective. Fix: The exemption takes effect from the date specified. Only an explanation, inserted within one year, is treated as always part of the notification or order.
Treating exports as exempt supplies and reversing ITC on them. Fix: Remember that section 17(2) allows credit for zero-rated supplies. Exports need no reversal.
Saying nil-rated, exempt and non-taxable supplies are the same thing. Fix: Nil-rated has a 0% rate in the schedule. Wholly exempt comes from a notification. Non-taxable is not leviable to GST. Name the category first. Then state the ITC result: under section 2(47) all three are exempt supply, so section 17(2) restricts credit for all of them.

Exam tips

Write the two preconditions (public interest and Council's recommendation) in every answer. They earn easy marks.
In MCQs, watch for options that swap the notification and special order, or change the one-year limit.
Mention that section 6 of the IGST Act mirrors section 11 for integrated tax when the question involves inter-State supply.
Quote the Explanation (no collection in excess of the effective rate) in case-study questions about invoices.
Keep section 11A separate. If asked, describe it as non-recovery due to a general practice, not as an exemption.
For a comparison between section 11 CGST and section 6 IGST, state that the structure and wording are the same and the difference lies in the tax covered: central tax versus integrated tax.
In short notes, use the order: authority, conditions, two routes, Explanation within one year, effective-rate bar. It earns step marks.
In MCQs, watch for options that replace the Government with the Council or a State, or drop the public interest condition. Those are usually the wrong ones.