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Indirect Tax Laws · Exemptions from GST

Exemption for Small Suppliers and Composition Related Relief under GST

Updated 5 October 2026 · Fact-checked

Small suppliers are relieved from GST registration if their aggregate turnover stays below the notified threshold, and a supplier dealing only in non-taxable or wholly exempt supplies needs no registration. To solve a question, compute aggregate turnover on a PAN, all-India basis, compare it with the limit, then check for compulsory registration cases.

Understand Exemption for Small Suppliers and Composition Related Relief

GST is a tax on supply, but it would be a heavy burden to make every tiny trader register and file returns. So the law gives relief in two ways. First, a person who supplies only goods or services that are not taxable or are wholly exempt need not register. Second, the Government can notify a turnover limit. A supplier whose aggregate turnover is below that limit is exempt from registration. This is the threshold exemption under section 23.

The key word is aggregate turnover. It is not just your taxable sales. It is the total value of taxable supplies (leaving out inward supplies on which tax is payable under reverse charge), exempt supplies, exports of goods or services, and inter-State supplies, of all persons with the same PAN, computed on an all-India basis. Inter-State supplies are not a separate extra item. They are already part of your taxable or exempt supplies, so do not count them twice. Exports are counted as part of the total. The value excludes CGST, SGST/UTGST, IGST and cess. Exempt supplies count towards the limit even though they carry no tax. Non-taxable supplies (those outside GST, such as alcohol for human consumption) are not included.

The threshold exemption is only a relief from registration. It is not an exemption of the supply itself. If you are below the limit and unregistered, you cannot collect GST from customers, and you cannot claim input tax credit. If you voluntarily register, you become a normal taxpayer.

The threshold does not protect everyone. Some categories of persons must register whatever their turnover, for example casual taxable persons, non-resident taxable persons, persons liable to pay tax under reverse charge, and e-commerce operators. Persons making inter-State taxable supplies are also liable to register under section 24, but notifications relieve small inter-State suppliers whose aggregate turnover is below the threshold, subject to the conditions stated in them. Special rules and lower limits apply in special category States. So always follow the facts, the limit and the notification given in the question.

Composition under section 10 is a different relief. It is an optional scheme for eligible small taxpayers with turnover up to the prescribed limit. They pay tax at a low flat rate on turnover, do not take input tax credit, and cannot collect tax from the buyer. So exemption means no registration, while composition means registration with simpler compliance and low-rate tax.

Key rules to remember

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.

How to solve Exemption for Small Suppliers and Composition Related Relief questions

Use this order for any question on small supplier relief. It stops you from missing a compulsory registration trigger.

  1. 1Identify what the supplier supplies: goods, services or both. Note the State, since the limit can differ for special category States.
  2. 2Check if all supplies are non-taxable or wholly exempt. If yes, the person needs no registration under section 23.
  3. 3Check for compulsory registration triggers, such as casual taxable person, non-resident taxable person, reverse charge liability or e-commerce operator. If the supplier makes inter-State taxable supplies, apply the notification relief given in the question. If a trigger applies, the threshold does not help.
  4. 4Compute aggregate turnover: add taxable, exempt and export supplies for the same PAN on an all-India basis. Do not add inter-State supplies again as a separate item.
  5. 5Remove GST and cess from the figures, and leave out inward supplies on which reverse charge tax is paid. Do not include non-taxable supplies.
  6. 6Compare the result with the notified limit. Below or equal means exempt from registration. Above means registration is required.
  7. 7If the question mentions composition, test the eligibility conditions of section 10 separately and state the consequences: flat tax, no ITC, no tax collection.
  8. 8Write the conclusion with the reason in one line, and mention the registration timing if the limit has been crossed.

Quickest way: Five-line turnover check

When to use it: Use this in MCQs and in short written answers when a table of supplies is given.

  1. Tick which items count: taxable, exempt and export supplies. Inter-State supplies are already inside these, so count them once. Non-taxable supplies do not count.
  2. Cross out GST charged, cess and reverse charge inward supplies.
  3. Add the remaining figures across all branches with the same PAN.
  4. Compare the total with the limit. Equal to the limit is not above it.
  5. Scan the facts once more for casual dealers, reverse charge, e-commerce or inter-State supplies, and apply any notification relief the question gives.

Common mistakes in Exemption for Small Suppliers and Composition Related Relief

  • Leaving exempt supplies out of aggregate turnover

    Students think exempt means outside GST, so it feels like it should not count.

    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

    The invoice total is used instead of the taxable value.

    Fix: Use the value excluding CGST, SGST/UTGST, IGST and cess.

  • Adding inward supplies under reverse charge

    The word 'supplies' makes students add purchases too.

    Fix: Inward supplies on which tax is payable under reverse charge are excluded. Aggregate turnover is about outward supplies.

  • Counting inter-State supplies twice

    The definition mentions inter-State supplies, so students add them on top of taxable and exempt supplies.

    Fix: Inter-State supplies are already part of taxable or exempt supplies. Add each rupee of supply once.

  • Computing turnover state-wise instead of PAN-wise

    Registration is State-wise, so students assume the test is State-wise too.

    Fix: Compute on an all-India basis for all persons with the same PAN. Once the limit is crossed, each State registration is needed.

  • Treating the threshold exemption and composition as the same thing

    Both help small taxpayers and both involve low or no tax.

    Fix: Exemption means unregistered. Composition means registered, flat rate, no ITC, no tax collected from the customer.

  • Ignoring compulsory registration cases

    Students focus on the numbers and forget the facts.

    Fix: Check for casual taxable person, non-resident taxable person, reverse charge and e-commerce first. For inter-State supplies, use the notification relief stated in the question. Do not assume a blanket rule either way.

Worked examples

Example 1

Ravi, a trader of goods in a non-special category State, has these figures for the year: taxable intra-State supplies ₹28,00,000 (excluding GST), exempt supplies ₹9,00,000, export of goods ₹5,00,000, and inward supplies on which he paid tax under reverse charge ₹6,00,000. Assume the goods threshold is ₹40 lakh, that exports are counted in aggregate turnover as the definition provides, and that no compulsory registration category (such as casual taxable person or e-commerce operator) applies to him. Can he use the threshold exemption?

Show the solution
  1. Ravi supplies taxable goods, so he cannot use the relief for exclusively non-taxable or exempt supplies.
  2. Aggregate turnover includes taxable supplies, exempt supplies and exports: ₹28,00,000 + ₹9,00,000 + ₹5,00,000 = ₹42,00,000. The export is counted once, as part of the total.
  3. Reverse charge inward supplies of ₹6,00,000 are excluded, and the taxable figure is already without GST.
  4. Compare ₹42,00,000 with the limit of ₹40,00,000. It is higher.
  5. So the threshold exemption is not available and registration is required because his aggregate turnover exceeds the limit. The export of goods is an inter-State supply, but the notification relief for small inter-State suppliers applies only where aggregate turnover is below the threshold, so it cannot help him here.

Answer: Ravi's aggregate turnover is ₹42,00,000, which is above the ₹40 lakh limit, so he must register. Exempt supplies and exports count, and the reverse charge inward supplies do not.

Example 2

Meera provides taxable consulting services from Delhi and also runs a branch under the same PAN in another State. Her figures for the year are: taxable services in Delhi ₹17,00,000, exempt services in Delhi ₹4,00,000, taxable services from the other State branch ₹6,00,000. All values exclude GST. Assume the limit for a pure services supplier is ₹20 lakh and no compulsory registration case applies. Is registration required?

Show the solution
  1. Meera supplies taxable services, so she is not an exclusively exempt supplier.
  2. Aggregate turnover is computed on an all-India basis for the same PAN.
  3. Add the figures: ₹17,00,000 + ₹4,00,000 + ₹6,00,000 = ₹27,00,000.
  4. Compare ₹27,00,000 with ₹20,00,000. It is higher.
  5. Looking at Delhi alone (₹21,00,000 including exempt) or the branch alone (₹6,00,000) does not change the test, because the PAN-level total is what counts.
  6. As the limit is crossed, registration is needed. Registration is State-wise, with a separate registration for each State under the same PAN. So she must register in each State from which she makes taxable supplies, which means the branch in the other State needs its own registration as well as her Delhi business.

Answer: Meera's all-India aggregate turnover is ₹27,00,000, above the ₹20 lakh limit. She is not eligible for the threshold exemption and must register. She needs a separate registration (under the same PAN) in each State from which she makes taxable supplies, including the other State where her branch operates.

Exam tips

  • Always show the aggregate turnover working line by line. Marks are given for including exempt supplies and excluding taxes and reverse charge inward supplies.
  • Read the facts for compulsory registration triggers before using the threshold. Examiners often hide one in the case.
  • Use the threshold and any notification relief given in the question. If none is given, state the general limit and mention that special category States have different limits.
  • When composition appears in the case, state the consequences: no ITC, no tax collection, and the eligibility conditions. Do not call it an exemption.
  • In MCQs, watch for equal-to-the-limit cases, for figures that include GST, and for items counted twice.

Practice questions from Exemptions from GST

Exemption for Small Suppliers and Composition Related Relief in other exams

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

Exemption for Small Suppliers and Composition Related Relief: frequently asked questions

Are exempt supplies included in aggregate turnover for GST?

Yes. Aggregate turnover includes taxable supplies, exempt supplies and exports of persons with the same PAN, computed on an all-India basis. It excludes taxes and cess, inward supplies on which reverse charge tax is payable, and non-taxable supplies.

Is a supplier below the threshold allowed to collect GST?

No. An unregistered person cannot collect tax from customers and cannot claim input tax credit. If the supplier wants to collect GST, it must register, even if voluntarily.

What is the difference between the threshold exemption and the composition scheme?

Under the threshold exemption, the supplier is not registered and pays no GST. Under composition, the supplier is registered, pays a flat low rate on turnover, cannot take ITC and cannot charge tax to the customer. Composition is optional and has eligibility conditions.

Does the threshold exemption apply to inter-State supplies?

Under section 24, persons making inter-State taxable supplies are liable to register. Notifications, however, relieve small inter-State suppliers whose aggregate turnover is below the threshold, subject to their conditions. In an answer, follow the facts and the notification given in the question.