Taxation · Exemptions from GST

Exemptions for Goods under GST (Notification 2/2017-Central Tax (Rate))

Updated 4 October 2026 · Fact-checked

Notification 2/2017-Central Tax (Rate) lists goods that attract nil GST, such as fresh fruits and vegetables, milk, eggs and loose cereals. To solve a question, identify the item, check that it is in the listed form (fresh, loose, unprocessed), then test whether pre-packaged and labelled status removes the exemption.

Understand Exemptions for Goods (Notification 2/2017)

GST is charged on supply of goods and services. Section 11 of the CGST Act allows the Government to exempt goods or services from tax, fully or partly, on the recommendation of the GST Council. Notification 2/2017-Central Tax (Rate) is the main notification that does this for goods. It lists the goods by tariff heading and description. Supplies of the listed goods are exempt supplies. Under Section 2(47) of the CGST Act, exempt supply includes supply that attracts nil rate of tax and supply that is wholly exempt under Section 11, and it also includes non-taxable supply.

The logic is simple. Many items in the list are basic necessities: fresh farm produce, milk, eggs and unprocessed food. The aim is to keep everyday food cheap and protect small farmers.

The exemption depends on the form of the goods. Fresh vegetables and fruits are exempt, but processed or preserved forms are generally not. Loose cereals are exempt, but cereals that are pre-packaged and labelled are taxable at the rate notified for them. Pre-packaged and labelled means packed and labelled so that it falls under the Legal Metrology Act, 2009 and its rules. Earlier the wording was branded vs unbranded. The test now is pre-packaged and labelled status, not just the brand.

Other goods you should link to the list include live animals of the kinds named in the specific entries (such as bovine animals, sheep, goats, swine and poultry), birds' eggs in shell (fresh or preserved), fresh or pasteurised milk and common salt. Live plants and flowers are not exempt as a blanket class. Only the specific entries are exempt, for example certain live trees, plants, bulbs, roots, cut flowers and ornamental foliage as worded in the relevant entry. The notification has many other entries. Do not assume an item is covered because it sounds like a necessity, or because it is a handloom, khadi, newspaper or religious item. Find the specific entry and verify its exact text and conditions in the notification. Entries are amended often. For items such as jaggery and flour, do not assume a blanket rule. The exemption and any 'other than pre-packaged and labelled' condition depend on the wording of the entry. Use the ICAI study material as your final reference.

An exempt supply has a cost for the supplier. Under Section 17(2) of the CGST Act, input tax credit is allowed only to the extent the inputs and input services are used for taxable supplies (including zero-rated supplies). Credit attributable to exempt supplies is not available. Where inputs and input services are common to taxable and exempt supplies, the credit is apportioned and the exempt portion is reversed under Rule 42 of the CGST Rules. Credit on capital goods used for exempt supplies is dealt with under Rule 43. Credit on inputs used for taxable supplies remains available. Nil-rated supplies and wholly exempt supplies are both exempt supplies under Section 2(47), so credit is restricted for both. Contrast this only with zero-rated supplies (exports and supplies to SEZ). Those are taxable supplies and allow refund of tax paid or of unutilised ITC.

Key rules to remember

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.

How to solve Exemptions for Goods (Notification 2/2017) questions

Use this method for any question asking whether a good is exempt, or asking for GST on a mix of exempt and taxable goods.

1Identify the exact good and its form: fresh, loose, cooked, frozen, processed, pre-packaged or labelled.
2Check if the good is in Notification 2/2017 by description (for example fresh vegetables, milk, eggs, cereals, salt).
3Read the condition in the entry: words such as 'fresh', 'unprocessed', or 'other than pre-packaged and labelled' decide the answer.
4Check packing and labelling facts in the question. If the item is sold in a pack with a label under the Legal Metrology rules, treat it as pre-packaged and labelled.
5If the exemption fails, apply the rate given in the question or the rate for that item. Compute CGST and SGST (or IGST) on the taxable value.
6Add only the taxable supplies for tax. Leave exempt supplies out of the tax computation, but show them separately.
7State the effect on ITC if asked: credit attributable to exempt supplies is not allowed. Common credit on inputs and input services is apportioned under Rule 42, and credit on capital goods is dealt with under Rule 43.
8Write a one-line conclusion: 'Hence the supply is exempt / taxable at __%.'

Quickest way: Fresh-Loose-Listed (FLL) check

When to use it: Use in MCQs and short written answers when you must classify a good in under a minute.

F – Is it fresh or unprocessed? Fresh produce, milk and eggs usually pass.
L – Is it loose, not pre-packaged and labelled? Loose cereals usually pass where the entry has this condition. Labelled packs fail. For flour and similar items, check the exact entry.
L – Is it listed in the notification (for example fresh produce, milk, eggs, cereals, salt)? Find the specific entry and read its wording. If you cannot place it in an entry, assume taxable.
In MCQs, eliminate options that include 'branded', 'packed and labelled' or 'processed' foods first.
In written answers, use this format: Provision (Section 11 + Notification 2/2017) → Facts (form, packing) → Conclusion (exempt or taxable). This earns step marks even if one detail is wrong.

Common mistakes in Exemptions for Goods (Notification 2/2017)

Treating all food grains as exempt
Students remember 'cereals are exempt' and forget the exception.
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
Old notes used branded vs unbranded.
Fix: Use the pre-packaged and labelled test. Check whether the facts show packing with a label.
Saying fresh and processed fruits or vegetables are both exempt
The entry looks like one general exemption for fruits and vegetables.
Fix: The exemption is for fresh items. Dried, frozen or preserved forms need separate checking and are not covered by the fresh entry.
Confusing exempt with zero-rated
Both mean no tax is collected from the buyer.
Fix: Nil-rated and wholly exempt supplies are exempt supplies under Section 2(47). ITC attributable to them is not allowed under Section 17(2). Common credit on inputs and input services is apportioned under Rule 42, and capital goods credit is dealt with under Rule 43. Zero-rated supplies (exports and supplies to SEZ) allow refund of tax paid or unutilised ITC. Never mix them.
Charging tax on exempt goods in a computation question
Students add all sale values together.
Fix: Separate the sales into exempt and taxable first. Apply the rate only to taxable ones.
Quoting rates and lists from memory without checking the facts
Lists are amended often and notes get old.
Fix: Use the rate given in the question. If none is given, use the ICAI study material position for the exam you are writing.

Worked examples

Example 1

Mehta Traders, registered in Gujarat, sold within the State: loose rice ₹2,00,000, fresh vegetables ₹80,000, and 5 kg pre-packaged and labelled packs of rice ₹3,00,000. Assume the labelled rice attracts GST at 5%. Compute the GST liability.

Show the solution

Loose rice is a cereal in loose form. It is in Notification 2/2017 and the pre-packaged exception does not apply. So it is exempt.
Fresh vegetables are listed in the notification, so they are exempt.
Rice in 5 kg packs that are pre-packaged and labelled is outside the exemption. It is taxable at 5%.
Taxable value = ₹3,00,000.
Total GST = 5% × ₹3,00,000 = ₹15,000.
Supply is intra-State, so CGST = ₹7,500 and SGST = ₹7,500.

Answer: GST liability is ₹15,000 (CGST ₹7,500 + SGST ₹7,500). Sales of ₹2,80,000 are exempt and attract no tax.

Example 2

State with reasons whether GST applies to each supply: (a) fresh milk sold by a dairy, (b) hen eggs sold in shell, (c) wheat sold loose by a trader, (d) wheat sold in a 10 kg labelled pack under a brand name.

Show the solution

Fresh milk is listed in Notification 2/2017. Supply (a) is exempt.
Hen eggs in shell are covered by the entry for birds' eggs in shell (fresh or preserved). Supply (b) is exempt.
Loose wheat is a cereal not pre-packaged and labelled. Supply (c) is exempt.
Wheat in a 10 kg labelled pack is pre-packaged and labelled, so the cereal exemption does not apply. Supply (d) is taxable at the notified rate.
Credit on inputs and input services used only for (a) to (c) is not allowed under Section 17(2), because these are exempt supplies. Where inputs are common to these and taxable supplies such as (d), credit is apportioned under Rule 42. Capital goods credit is dealt with under Rule 43.

Answer: (a), (b) and (c) are exempt. (d) is taxable because it is pre-packaged and labelled.

Exam tips

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.
Mention Section 11 and Notification 2/2017 in your first line. Then give facts and conclusion.
MCQs have no negative marking. If unsure, eliminate processed and labelled options and attempt the question.

Practice questions from Exemptions from GST

Exemptions for Goods (Notification 2/2017) in other exams

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

Exemptions for Goods (Notification 2/2017): frequently asked questions

Are all unbranded food grains exempt from GST?

Loose or unpackaged cereals are exempt under Notification 2/2017. The exemption is lost when the cereal is pre-packaged and labelled. The packing and labelling test matters more than whether a brand name exists.

Is milk exempt under GST?

Fresh and pasteurised milk is in the exempt list. Check the question for the form of milk, because other dairy products may have different treatment. Follow the ICAI material for the exam you are taking.

Is salt or jaggery exempt?

Common salt is in the exempt list. For jaggery and similar items, the exemption and any pre-packaged and labelled condition depend on the exact wording of the entry. Read the notification text and the facts about packing before you answer.

How do I remember the exempt goods list?

Group the items: fresh farm produce, milk and eggs, loose basic foods and salt. Then add the two conditions: fresh and not pre-packaged and labelled, where the entry says so. For any other item, find its specific entry and verify the wording.

Do exempt goods allow input tax credit?

Not for the part attributable to the exempt supplies. Section 17(2) of the CGST Act allows credit only to the extent inputs and input services are used for taxable supplies, so credit on those used for taxable supplies is still available. Where inputs and input services are common to taxable and exempt supplies, credit is apportioned under Rule 42 of the CGST Rules. Credit on capital goods is dealt with under Rule 43.