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Taxation · Exemptions from GST

GST Exemption Limit for Small Suppliers and Composite Cases

Updated 4 October 2026 · Fact-checked

A small supplier whose aggregate turnover in a financial year does not exceed the threshold is not liable to register under GST. Section 22 with Notification 10/2019-CT gives the limit. Calculate aggregate turnover on a PAN basis, include exempt supplies and exports, exclude taxes and RCM inward supplies, then check State, supply type and compulsory registration.

Understand Exemption Limit for Small Suppliers and Composite Cases

GST is charged on supplies, but the law does not force every tiny business into registration. Section 22 read with Notification 10/2019-CT gives the turnover threshold. Section 23 is separate. It lists persons not liable to register: those making only exempt or non-taxable supplies, and agriculturists for agricultural produce. Do not cite Section 23 as the source of the turnover limit.

The threshold is tested on aggregate turnover (Section 2(6)), not on taxable turnover alone. Aggregate turnover is the total value of taxable supplies (excluding inward supplies on which tax is payable under reverse charge), exempt supplies and exports, of persons with the same PAN, computed on an all-India basis. Inter-State supplies are already part of taxable supplies, so do not add them a second time. It excludes central tax, State or UT tax, integrated tax and cess.

Notification 10/2019-CT (as amended) sets the limits. For a person making supplies of goods only (exclusively goods), the limit is ₹40 lakh in most States. For goods it is ₹20 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana and Tripura. Himachal Pradesh and Uttarakhand are special category States but stay at ₹40 lakh for goods. So do not assume ₹40 lakh everywhere, and do not assume every special category State has a lower goods limit. For a person making any supply of services, or both goods and services, the limit is ₹20 lakh. It is ₹10 lakh for services in Manipur, Mizoram, Nagaland and Tripura. Limits vary by State, so always use the limit stated in the question and check it against the current notification.

The threshold does not help everyone. Section 24 requires registration for persons making inter-State taxable supplies. For inter-State supply of goods, registration is needed from the first rupee, whatever the turnover, barring specific notified exceptions such as certain handicraft suppliers. For inter-State supply of services, Notification 10/2017-IT exempts the supplier from registration up to ₹20 lakh (₹10 lakh in special category States). Other compulsory registration cases include casual taxable persons and e-commerce operators who must collect tax at source. Check these before applying the limit.

Reverse charge needs care. Section 24(iii) requires persons who are liable to pay tax under reverse charge to register, subject to relief given by notification. Do not state a blanket rule either way. Follow the facts and the notification the question refers to. This is different from the supplier side. Section 23(1)(a) covers a person engaged exclusively in supplying goods or services that are not liable to tax or are wholly exempt from tax. A person who makes only supplies on which the recipient pays the whole tax under reverse charge is relieved from registration by notification, not by Section 23(1)(a) itself. Use the notification the question refers to.

Exempt supplies and composite or mixed supplies link to this topic. A composite supply takes the tax treatment of its principal supply. If the principal supply is exempt, the whole supply is exempt. A mixed supply takes the treatment of the supply attracting the highest rate of tax. Where a person makes both taxable and exempt supplies, input tax credit must be apportioned under Section 17. Rule 42 covers inputs and input services. Rule 43 covers capital goods. Credit for the exempt portion is reversed.

Key rules to remember

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.

How to solve Exemption Limit for Small Suppliers and Composite Cases questions

Use this order for any question on the small supplier limit and exempt or composite supplies.

  1. 1List every supply made. Classify each as taxable, exempt, nil-rated, non-taxable or export.
  2. 2Compute aggregate turnover on a PAN basis across all States. Add exempt supplies and exports to taxable supplies. Remove taxes and RCM inward supplies. Do not count inter-State supplies twice.
  3. 3Check if the person falls under compulsory registration: inter-State supplier of goods (registration from the first rupee, barring notified exceptions), inter-State supplier of services (exempt up to the Notification 10/2017-IT limit), e-commerce operator, casual taxable person, or a notified reverse charge case. If so, registration may be needed despite the limit.
  4. 4Pick the limit by supply type and State category: goods only, any services or mixed, general or special category State. Use the limit given in the question.
  5. 5Compare aggregate turnover with the limit and state whether registration is required, citing Section 22 with Notification 10/2019-CT.
  6. 6For bundled supplies, decide if it is composite (principal supply) or mixed (highest rate). Apply the resulting rate or exemption.
  7. 7If both taxable and exempt supplies exist, separate credit into direct credit, exempt-only credit and common credit. Reverse the exempt share under Rule 42 (inputs and input services) or Rule 43 (capital goods).
  8. 8Conclude with the registration status, tax rate and ITC amount, with one line of reasoning.

Quickest way: Four checks in sixty seconds

When to use it: Use for MCQs and for the opening of a descriptive answer when time is short.

  1. Check type: goods only, or any services or mixed. This picks the limit.
  2. Check scope: does the turnover include exempt and export supplies? Yes, so add them. Do not subtract exempt supplies.
  3. Check exclusions: inter-State supplies, e-commerce operators, casual taxable persons and notified reverse charge cases. For inter-State goods, registration is needed from the first rupee unless a specific notified exception applies. For inter-State services, see whether Notification 10/2017-IT exempts the supplier. For reverse charge, do not assume registration from the first rupee; follow the notified rule given in the question.
  4. For MCQs, eliminate options that use only taxable turnover or ignore PAN-based aggregation.
  5. For written answers, write: provision, facts with figures, calculation, conclusion. Show the aggregate turnover working line by line to earn step marks.

Common mistakes in Exemption Limit for Small Suppliers and Composite Cases

  • Leaving exempt supplies out of aggregate turnover.

    Students think exempt means outside GST altogether.

    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.

    GST registration is State-wise, so students assume the test is also State-wise.

    Fix: The test uses the same PAN across India. Add turnover of all businesses of that PAN.

  • Applying the threshold to a person who is under compulsory registration.

    Students memorise the limit and forget the exceptions.

    Fix: Check first for inter-State supplies, e-commerce operators, casual taxable persons and reverse charge cases. Section 24 requires registration in these cases. Inter-State supply of goods needs registration from the first rupee, barring specific notified exceptions. Inter-State supply of services is exempt up to the Notification 10/2017-IT limit. Section 24(iii) covers reverse charge payers, subject to notified relief. Apply the rule that fits the facts.

  • Treating a composite supply as exempt just because one component is exempt.

    Students look at each item separately.

    Fix: Identify the principal supply. Only if that is exempt is the whole supply exempt.

  • Claiming full ITC when making both taxable and exempt supplies.

    Students forget Section 17(2) and Rules 42 and 43.

    Fix: Split credit into taxable use, exempt use and common. Reverse the exempt share of common credit using exempt turnover ÷ total turnover. Use Rule 42 for inputs and input services and Rule 43 for capital goods.

  • Using the ₹40 lakh goods limit for a person who also supplies services, or in every State.

    Students see goods in the business and use the goods limit without checking the State.

    Fix: The ₹40 lakh limit is only for a person supplying goods exclusively, and it applies in most States. The goods limit is ₹20 lakh in States such as Telangana, Puducherry, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura. Himachal Pradesh and Uttarakhand stay at ₹40 lakh. A person making any supply of services, or both goods and services, is tested against ₹20 lakh in most cases. Use the limit given in the question. Also check for inter-State supplies: registration is needed under Section 24, and for goods there is no general exemption.

Worked examples

Example 1

Asha, a trader in a general category State, supplies only goods within her State. In the financial year her supplies are: taxable goods ₹28,00,000, exempt goods ₹9,00,000, and she paid GST of ₹1,40,000 included in none of these figures (it is separate). She has no other business. Is she liable to register if the limit is ₹40 lakh?

Show the solution
  1. List supplies: taxable ₹28,00,000 and exempt ₹9,00,000. Both count.
  2. Aggregate turnover = ₹28,00,000 + ₹9,00,000 = ₹37,00,000. The GST of ₹1,40,000 is a tax and is excluded; it was not in these figures anyway.
  3. Check exclusions: supplies are intra-State goods only, with no e-commerce or reverse charge supply stated.
  4. Limit for goods only in a general category State is ₹40 lakh.
  5. ₹37,00,000 is less than ₹40,00,000.

Answer: Aggregate turnover is ₹37,00,000, which does not exceed ₹40 lakh. Asha is not liable to register under Section 22 read with Notification 10/2019-CT, as she is not excluded by any compulsory registration rule.

Example 2

Ravi is registered and makes taxable supplies of ₹60,00,000 and exempt supplies of ₹40,00,000 for a month (use these as the turnover for the period). Total input tax credit T on inputs and input services is ₹5,00,000, of which ₹1,00,000 is used exclusively for taxable supplies, ₹50,000 exclusively for exempt supplies, and ₹3,50,000 is common. No credit is blocked and none relates to non-business use. There are no capital goods. Find the credit he can take for the period under Rule 42, ignoring year-end adjustment.

Show the solution
  1. Total turnover F = ₹60,00,000 + ₹40,00,000 = ₹1,00,00,000. Exempt turnover E = ₹40,00,000.
  2. Remove credit that is not allowed: non-business credit T1 = ₹0, exempt-only credit T2 = ₹50,000, blocked credit T3 = ₹0. Credit of ₹50,000 used exclusively for exempt supplies is not allowed.
  3. C1 = T − (T1 + T2 + T3) = ₹5,00,000 − ₹50,000 = ₹4,50,000.
  4. Credit used exclusively for taxable supplies, T4 = ₹1,00,000. It is fully allowed and is kept out of the common pool.
  5. Common credit C2 = C1 − T4 = ₹4,50,000 − ₹1,00,000 = ₹3,50,000.
  6. Reversal on common credit D1 = (E ÷ F) × C2 = (₹40,00,000 ÷ ₹1,00,00,000) × ₹3,50,000 = 0.4 × ₹3,50,000 = ₹1,40,000.
  7. Eligible common credit = ₹3,50,000 − ₹1,40,000 = ₹2,10,000.
  8. Eligible credit = exclusive taxable ₹1,00,000 + eligible common ₹2,10,000 = ₹3,10,000.

Answer: Ravi can take ITC of ₹3,10,000. The ₹50,000 exempt-only credit is not allowed and ₹1,40,000 of the common credit is reversed.

Exam tips

  • Always show the aggregate turnover working. Even if your final decision is wrong, the steps can earn marks.
  • In MCQs, watch for traps: figures that include GST, RCM inward supplies, or exempt supplies. Decide which to add or remove before comparing with the limit.
  • Read the question for State category and whether the supplier deals in goods, services or both. This picks the limit.
  • For ITC reversal problems, set out the credit in three buckets first, then apply the exempt turnover ratio only to the common bucket.
  • For composite supply questions, name the principal supply in one line before stating the treatment.

Practice questions from Exemptions from GST

Exemption Limit for Small Suppliers and Composite Cases in other exams

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

Exemption Limit for Small Suppliers and Composite Cases: frequently asked questions

What is the GST exemption limit for small suppliers?

Under Section 22 read with Notification 10/2019-CT, a person supplying goods only is exempt from registration up to ₹40 lakh aggregate turnover in most States. For goods the limit is ₹20 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana and Tripura, while Himachal Pradesh and Uttarakhand stay at ₹40 lakh. For any supply of services, or goods and services together, the limit is ₹20 lakh in most cases, and ₹10 lakh for services in Manipur, Mizoram, Nagaland and Tripura. Use the limit given in the question.

Does aggregate turnover include exempt supplies?

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 the value of inward supplies on which reverse charge tax is payable.

Can a person below the threshold still need registration?

Yes. Section 24 requires registration in cases such as inter-State taxable supplies, e-commerce operators, casual taxable persons and persons liable to pay tax under reverse charge (Section 24(iii)), subject to notified relief. Inter-State supply of goods needs registration from the first rupee, barring specific notified exceptions. Inter-State supply of services is exempt up to ₹20 lakh (₹10 lakh in special category States) under Notification 10/2017-IT. Check these before applying the threshold.

How is ITC treated when a person makes exempt and taxable supplies?

Credit on inputs used only for exempt supplies is not allowed. Common credit is apportioned, and the part relating to exempt supplies is reversed under Rule 42 for inputs and input services, and Rule 43 for capital goods.