Indirect Tax Laws · Exemptions from GST

Exemption of Goods under Notification 2/2017-CT(R)

Updated 5 October 2026 · Fact-checked

Notification 2/2017-CT(R) lists goods exempt from CGST on intra-State supplies, such as live animals, fresh vegetables, milk, salt and loose cereals. Inter-State supplies use the parallel IGST notification. To solve a question, find the item, check its form, then check any pre-packaging and labelling condition that removes the exemption.

Understand Exemption of Goods under Notification 2/2017-CT(R)

GST applies to all supplies of goods and services unless the law exempts them. The government uses its power to exempt, in public interest, to free many essential goods from tax. For goods, the CGST exemption list is in Notification 2/2017-CT(R), which covers intra-State supplies. Inter-State supplies are exempted by the parallel IGST notification (2/2017-Integrated Tax (Rate)), and State/UT notifications cover SGST/UTGST.

The list is built around necessities and unprocessed goods. Typical entries are live animals, fresh vegetables and fruits, eggs, milk, curd and lassi, natural unprocessed produce, cereals, pulses and flour in loose form, salt, and certain handloom and khadi items. Think of it as a list of food staples and basic agricultural goods, plus items that support rural livelihoods.

The most examined point is the form of the goods. An entry covers only the goods described. Fresh vegetables are exempt, but the same vegetables once frozen, dried or preserved fall under a different entry, which may be exempt or taxable. Always read the description word by word.

The second examined point is packaging and labelling. Goods like cereals, pulses and flour are exempt only when they are not pre-packaged and labelled. When they are pre-packaged and labelled, they fall outside the exemption in 2/2017-CT(R) and are taxable at 5% under the rate notification 1/2017-CT(R). The test is not the brand name itself. It is whether the goods are pre-packaged and labelled as defined under the Legal Metrology Act, 2009. Do not present a 25 kg ceiling as a GST rule, because the GST notifications do not set one. If you mention a size limit, attribute it to the Legal Metrology Act definition of pre-packaged commodity, which covers packs up to 25 kg or 25 litres. Loose supplies, for example from an open sack, are not pre-packaged and labelled and stay exempt. Always check the exact wording of the entry and its condition.

The list is amended often. The exam tests the principles and well-known examples. Learn the logic: essential, unprocessed, loose or unlabelled goods are exempt. Pre-packaged and labelled cereals, pulses and flour are taxable at 5%. For other processed goods, check the entry that covers that form, since many have their own exemption or rate entry.

Key rules to remember

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.

How to solve Exemption of Goods under Notification 2/2017-CT(R) questions

Use this method for any question asking whether a supply of goods is exempt under Notification 2/2017-CT(R).

1Identify the goods exactly. Note the nature (live, fresh, processed), the form (loose, frozen, dried), and the packaging.
2Match the goods to an entry in the exemption notification. Read the description in the entry and any exclusion in it.
3Check the form. If the goods are processed, frozen, dried, roasted or preserved, they may no longer fit the entry. Look for the entry that covers that form.
4Check the packaging and labelling condition. Ask: is it pre-packaged and labelled as defined under the Legal Metrology Act, 2009? If yes, the goods fall outside the exemption and are taxable at 5% under the rate notification 1/2017-CT(R).
5Confirm there is a supply of goods under section 7 (supply as defined), then check whether it is exempted by the notification.
6Conclude: exempt (nil tax; it is treated as an exempt supply, so ITC on related inputs is denied or reversed under section 17(2)) or taxable at the specified rate. Compute tax if values are given.
7State the answer in provision, facts, conclusion form.

Quickest way: Three-gate check

When to use it: Use for case-scenario MCQs where you have about a minute per question.

Gate 1: Is the item on the exempt list (animals, fresh vegetables, milk, salt, loose cereals, handloom)? If not, check the rate notification for its rate.
Gate 2: Is the form unchanged (fresh, loose, unprocessed)? If processed or frozen, stop and look for the entry that covers that form. It may be exempt or taxable.
Gate 3: Is it pre-packaged and labelled as defined under the Legal Metrology Act, 2009? If yes, cereals, pulses and flour are taxable at 5%. If no, exempt.
Scan the options for traps: use of the word brand without pre-packaging, or bulk loose supply of a normally branded item.

Common mistakes in Exemption of Goods under Notification 2/2017-CT(R)

Treating any branded or packed item as exempt because the base item is on the list
Students remember the list but forget the packaging condition.
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
Older rules used a branding test, and many students still recall it.
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.
Applying the fresh vegetable entry to frozen, dried or preserved vegetables
Students treat product name as enough.
Fix: Read the form word in the entry. Fresh or chilled is exempt. Other forms need a separate entry.
Confusing exempt supplies with zero-rated supplies for ITC
Both show no tax on the invoice, so they look alike.
Fix: Nil-rated, wholly exempt and non-taxable supplies are all treated as exempt supplies for ITC under section 17(2). ITC on related inputs is denied, and reversed where the inputs are common to exempt and taxable supplies. Only zero-rated supplies (exports) allow ITC or refund.
Assuming the same CGST notification governs inter-State supplies
Students think one notification covers every supply, but 2/2017-CT(R) is a Central Tax (Rate) notification under the CGST Act.
Fix: Use 2/2017-CT(R) for intra-State supplies under CGST. For inter-State supplies, look to the parallel IGST notification (2/2017-Integrated Tax (Rate)). State/UT notifications cover SGST/UTGST.

Worked examples

Example 1

Ravi runs a grain shop in Indore. He sells wheat flour (atta) of a well-known company from an open 50 kg sack by weight to walk-in customers, with no packing or label. Is his supply exempt under Notification 2/2017-CT(R)?

Show the solution

Goods: wheat flour, which is a cereal-based flour covered by the exempt list of food staples in loose form.
Form: loose, sold by weight from an open sack, not a retail pack.
Packaging test: the flour is not pre-packaged and labelled for retail sale, so the disqualifying condition does not apply.
The brand of the manufacturer does not matter, since the test is pre-packaging and labelling, not brand name.

Answer: The supply is exempt. No GST is charged on the loose flour.

Example 2

Meera, a trader in Pune, supplies the following within Maharashtra in a month: fresh vegetables worth ₹2,00,000, and 5 kg retail packs of wheat flour, pre-packaged and labelled, worth ₹1,00,000. Compute the GST payable on these supplies.

Show the solution

Fresh vegetables: covered by the exemption entry for fresh vegetables, so tax is nil on ₹2,00,000.
Wheat flour packs: each is a 5 kg retail pack that is pre-packaged and labelled as defined under the Legal Metrology Act, 2009, so the packs fall outside the exemption for loose flour.
The packs attract GST at 5% under the rate notification 1/2017-CT(R) on ₹1,00,000: 1,00,000 × 5% = ₹5,000.
Split for intra-State supply: CGST 2.5% = ₹2,500 and SGST 2.5% = ₹2,500.
Total tax = ₹2,500 + ₹2,500 = ₹5,000.

Answer: GST payable is ₹5,000 (CGST ₹2,500 and SGST ₹2,500) on the flour packs. The vegetables are exempt.

Exam tips

Expect case scenarios where one fact (a pouch, a label, frozen form) flips the answer. Underline these facts in the question.
In written answers, name the notification, state the entry in words, apply the condition, then conclude. Skip serial numbers unless you are sure of them.
Keep a mental list of examples: live animals, fresh vegetables, milk, curd, eggs, salt, loose cereals and flour, handloom items. Pair each with the form or packaging fact that takes it out of the entry.
Link the topic with ITC reversal on exempt supplies and with composite and mixed supply questions, which often combine exempt and taxable items.
Since there is no negative marking in MCQs, never leave a case-scenario MCQ blank.

Practice questions from Exemptions from GST

Exemption of Goods under Notification 2/2017-CT(R) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA IntermediateExemptions for Goods (Notification 2/2017)

Exemption of Goods under Notification 2/2017-CT(R): frequently asked questions

Is branded atta exempt from GST?

Not if it is pre-packaged and labelled as defined under the Legal Metrology Act, 2009. Such atta falls outside the exemption and attracts GST at 5% under 1/2017-CT(R). Loose atta sold without pre-packing and labelling stays exempt, even if the flour is of a known brand.

Are fresh vegetables and agricultural produce exempt from GST?

Fresh vegetables and fruits are exempt, and so are many unprocessed agricultural items listed in the notification. Once the goods are processed, frozen, dried or preserved, you must check whether another entry covers them.

Where do I find the exempt goods list for CA Final?

The list is in Notification 2/2017-CT(R), as amended. For the exam, learn the main categories and the conditions attached, since the notification is long and changes from time to time.

Is ITC allowed on inputs used for exempt goods?

No. Nil-rated, wholly exempt and non-taxable supplies are all treated as exempt supplies under section 17(2), so inputs used for them get no ITC. Where inputs are used for both taxable and exempt supplies, credit must be apportioned and reversed to the extent used for exempt supplies. Only zero-rated supplies allow ITC or refund.