Understanding GST Exemptions: Meaning, Scope & Legal Power

When Goods and Services Tax (GST) came into force in 2017, it aimed to bring all indirect taxes under one umbrella. However, not every supply of goods or services is taxable under GST. Some are completely exempt, either because they are essential for the public or because the government decides to offer relief to certain sectors.

Let’s explore what “exemption” means under GST, how the government grants it, and the legal framework behind it — including real examples from the law itself.

1. What Do You Mean by Exemption Under GST?

Under the GST framework, every supply of goods and services that falls under the charging section is generally taxable. But before calculating tax, businesses must check whether their supply is exempt.

The term “exempt supply” is defined in Section 2(47) of the CGST Act. It includes:

• Supplies attracting nil rate of tax,
• Supplies that are wholly exempt from tax, and
• Non-taxable supplies — goods or services that are not leviable to GST at all.

Similarly, Section 2(78) defines “non-taxable supply” as a supply that is not leviable to tax under the CGST Act or IGST Act.

So, in simple words — a non-taxable supply is automatically an exempt supply under GST.

2. Examples of Non-Taxable Supplies

Certain products are kept completely outside the GST network, meaning no GST applies to them at all. For example:

• Alcoholic liquor for human consumption
• Petroleum products such as:

• Petroleum crude
• High-speed diesel
• Motor spirit (petrol)
• Natural gas
• Aviation turbine fuel

These are non-taxable supplies, even though they are part of trade and commerce.

3. Why Are Some Goods and Services Exempted?

The GST Council and the Government of India exempt goods and services in public interest. These typically include essential commodities and services of public welfare, such as:

• Unpacked food grains like wheat, rice, and pulses
• Milk, eggs, curd, and lassi
• Fresh vegetables and fruits
• Healthcare and education services

The idea is to ensure that basic necessities remain affordable to the common man.

4. Legal Power to Grant Exemptions

The power to grant exemptions comes from:

• Section 11 of the CGST Act, and
• Section 6 of the IGST Act

State GST laws also contain similar provisions.

These provisions empower the Central and State Governments, on the recommendation of the GST Council, to grant exemption from tax either absolutely (without conditions) or conditionally (with specific terms).

5. How the Government Grants Exemption

There are two main ways exemptions can be provided under GST:

(a) General Exemption by Notification

If the government believes that it is necessary in the public interest, it can issue a notification exempting certain goods or services. This exemption can be:

• Absolute (unconditional) – where no conditions are attached; or
• Conditional – where exemption applies only if specific conditions are met.

For instance, services related to education or healthcare are generally granted absolute exemption.

(b) Special Exemption by Order

In exceptional circumstances, the government can issue a special order exempting a specific transaction or supply. This is used rarely and only in cases of extraordinary situations.

6. Absolute vs Conditional Exemption

Understanding the difference between absolute (unconditional) and conditional exemption is crucial.

Example:

• If a service is wholly exempt from GST under an unconditional exemption, the supplier cannot charge GST.
• But if it’s a conditional exemption, the supplier may choose not to claim the exemption and pay GST voluntarily.

7. Diagrammatic Explanation (Simplified)

Here’s how the exemption structure works:

Government (on recommendation of GST Council) ↓ May issue exemption for goods/services ↓ By Notification → General exemption (absolute or conditional) OR By Special Order → Exceptional case-based exemption ↓ Purpose → In public interest

So, exemptions can cover either:

• The whole tax, or
• Part of the tax (partial exemption).

8. Explanation with Retrospective Effect (Clarification Power)

Section 11(3) allows the government to insert an explanation into an exemption notification or order within one year from its issue to clarify its scope.

This explanation applies retrospectively, meaning it takes effect from the original date of the notification — not from the date when the explanation was added.

9. Example: Clarification with Retrospective Effect

Here’s a real-life illustration from the GST framework:

• Principal Notification: No. 11/2017 – Central Tax (Rate), dated 28.06.2017
• Effective from: 01.07.2017
• New Entry Added: Entry 3(vi) – effective from 21.09.2017
• Explanation Inserted: 26.07.2018 (within one year)

Although the new explanation notification mentioned effective date as 27.07.2018, it was clarified that the explanation would be deemed effective from 21.09.2017 (the date of the original entry).

This retrospective clarification was confirmed by Circular No. 120/39/2019-GST dated 11.10.2019.

10. How Exemption Notifications Are Structured

Every exemption notification contains:

• Serial number and description of goods/services
• Conditions (if any)
• Applicable tax rate (if partial exemption)
• Notification number and date
• Authority – GST Council’s recommendation

For example, Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 lists all exempted services under CGST, such as:

• Charitable and religious activities
• Agricultural services
• Educational and healthcare services

Likewise, Notification 9/2017 – Integrated Tax (Rate) provides exemptions under IGST.

11. Who Can Get Exemptions Under GST?

Exemptions can apply based on:

• Nature of activity or transaction
• Type of supplier
• Type of recipient
• Specific combination of supplier and recipient

Let’s look at each type briefly.

(a) Exemption to Specific Activities or Transactions

Here, exemption applies irrespective of who supplies or receives the service.

Examples:

• Services by way of transfer of a going concern (whole or part of business)
• Services of loading/unloading or storage of rice

(b) Exemption to Specific Suppliers

Applies based on who is supplying the service, not the recipient.

Examples:

• Services by Central/State Government or local authority, where consideration does not exceed ₹5,000
• Services by a charitable entity registered under Section 12AA or 12AB of the Income Tax Act

(c) Exemption to Specific Recipients

Granted based on who receives the service, regardless of supplier.

Examples:

• Insurance schemes where the premium is paid by the Government
• Training programs where 75% or more cost is borne by the Central or State Government

(d) Exemption to Both Specified Supplier and Recipient

Applicable only when both sides are specific. Examples:

• Services by the Employees’ State Insurance Corporation (ESIC) to persons covered under the ESI Act, 1948
• Services by the National Pension System (NPS) Trust to its members against administrative fees

12. Impact of Exemption on Taxpayers

While exemptions seem beneficial, they also mean that Input Tax Credit (ITC) cannot be claimed on related purchases. Businesses dealing only in exempt supplies cannot collect GST and cannot claim ITC on inputs or services used for such supplies.

Hence, before opting for any conditional exemption, businesses must analyze whether it saves more tax or blocks their ITC unnecessarily.

13. Key Takeaways

• Exempt supplies include nil-rated, non-taxable, and wholly exempt items.
• The power to exempt lies with the Central and State Governments under Section 11 of the CGST Act and Section 6 of the IGST Act.
• Exemptions can be granted by notification (general) or by special order (specific).
• Unconditional exemptions are mandatory — the supplier must not collect tax.
• Conditional exemptions are optional and can be ignored at the supplier’s discretion.
• Clarificatory explanations may be added within a year and are retrospective.
• Different exemptions exist for activities, suppliers, recipients, and specific supplier-recipient combinations.

14. Final Thoughts

GST exemptions reflect the government’s intent to maintain social balance — ensuring that essential goods and services remain affordable, while the tax net captures luxury and commercial activities.

By understanding how exemptions operate — and the difference between unconditional and conditional ones — taxpayers can make smarter compliance decisions, avoid errors in tax collection, and align with the public-interest goals of GST law.

Also Read: Place of Supply Rules for Imports & Exports of Services