Under the earlier tax regime, various goods and services were exempted from tax, be it Central Excise levy or Service Tax. The same way, few goods and services have been relieved from the burden of tax by the government under the new GST regime as well.

In our previous blogs, we have already discussed that for a supply to attract GST, the supply must be taxable. The term “ Supply” has been broadly defined and means any supply of goods or services or both which is leviable to tax under the GST. Exemptions may be provided to the specified goods or services or to a specified category of persons / entities making supply. 

What is exempt supply?

There are certain supplies on which there is no need to pay tax and input tax credit attributable to exempt supplies will not be available for utilisation. The exempt supplies include the following three types of supplies:

(i) Supplies taxable at a ‘NIL’ rate of tax (0% tax); 

(ii) Supplies that are wholly or partially exempted from CGST OR IGST, by way of a notification issued under Section 11 of CGST Act or Section 6 of IGST Act;

(iii) Non-taxable supplies as defined under section 2(78) – means a supply of goods or services or both which is not leviable to tax under the CGST Act or IGST Act  

Power to grant exemption from tax

The Central or the State governments, based on the recommendations of the GST Council, are empowered to grant exemptions from levy of GST

(i) on taxable goods and / or services of any specified description;

(ii) where it is satisfied that it is necessary in the public interest;

(iii) by way of issuing notification [Section 11(1)] or by way of special order [Section 11(2) – issued under exceptional circumstances, specifically stated in the order issued] as the case may be;

(iv) exemption could be absolute (without any condition / not optional) or subject to prescribed conditions;

(v) it may be from the whole or any part of the tax

The Government is also empowered to issue a notification in terms of the provisions of Section 11(3) for the purpose of clarifying the scope or applicability of any notification issued under Section 11(1) or order issued under 11(2) of the CGST Act, as the case may be. 
Notification under Section 11(3) should be issued within one year of issue of Notification under Section 11(1) or order issued under 11(2) of the CGST Act, as the case may be. Explanation inserted vide Notification issued under Section 11(3) shall have retrospective effect.

Note- Pari materia provisions are contained under Section 6 of the IGST Act, 2017.