An Introduction to GST

The goods and services tax (GST) is an indirect tax on the supply of goods and services for domestic consumption. The GST Act was introduced in India in 2017, and it came into effect from July 1st. GST has since brought several tax reforms in the country and has made the taxation process simpler, faster, more uniform and transparent.

One of the main purposes of GST was to eliminate the cascading effect of taxes, where earlier, a tax was added at every stage of the value chain, compounding the effect by the time the good was purchased by the end-user. However, GST and its amendments have also made exceptions for several goods and businessmen based on certain criteria. This essay on GST aims to elaborate on the terms and conditions for GST exemption.

What and Who are Exempted from GST? 

GST exemptions are granted to certain types of taxpayers and businessmen and certain categories of goods and services. The GST council has the authority to decide all the rules and modifications to the rates, deadlines, processes etc. and all decisions regarding these aspects are taken in meetings held regularly.

  1. Exemptions for Businessmen 

Businesses and suppliers are exempt from GST if their annual aggregate turnover is less than a specific amount: INR 40 lakhs for businesses, INR 20 lakhs for suppliers and INR 10 lakhs for north-eastern states and hill states. The GST Act defines “aggregate turnover” as the total value of all taxable supplies (excluding charges paid on reverse charge mechanism), exempt supplies, the inter-state supply of goods and exported goods and services.

  1. GST Composition Scheme

All taxpayers with a turnover of less than INR 1.5 crores can avail the GST composition scheme, which allows them to register as non-GST taxpayers and hence, pay a nominal tax. This, however, doesn’t apply for e-commerce businessmen and intra-state businesses. They still have to register online in the GST portal as a GST taxpayer, fill in the relevant business details, and check your GST registration status till you get a unique GSTIN number.

  1. Exemptions for Goods

The GST Act announced five tax slabs for all good and services in India: 0%, 5%, 12%, 18% and 28%. The goods that come under the 0% slab include essential goods like fruits, vegetables, bread, salt, and newspapers.

However, few goods, namely, petroleum products, electricity, and alcohol products, are not taxed as per this system. Instead, states can levy a value-added tax (VAT) for these, with different rates in each state.

Petrol and diesel have a VAT of 6% in Andaman and Nicobar Islands, the cheapest rate across the country. On the other hand, Mumbai charges 39.12% VAT on petrol and Telangana levies 26% on diesel, the highest rates in India. Alcohol is not covered under GST either to ensure state governments to have a good source of revenue – nearly INR 90,000 crores through taxes on liquor!

  1. Exemptions on Services

Apart from granting exemptions because of the turnover, the GST Act also allows certain other essential services categorised as “support services to agriculture, forestry, fishing and animal husbandry”. These include services related to agriculture, animal husbandry, farm labour and associated processes like threshing, sorting etc., and renting of agro machinery and vacant land.

Certain transportation services, like transportation of goods by road or inland waterways, air travel for passengers in the north-eastern states, hiring services provided to any state transport undertaking and transportation of agricultural goods, are also exempted from GST. Government services like those provided by the Reserve Bank (RBI), services provided to diplomats (including the UN) and life insurance provided by the army and navy are not taxed under the GST Act.

Essential educational services (mid-day meal catering services, admission, examination services) and judicial services (arbitral tribunal, partnership firms of advocates, etc.) are also exempted. However, all these service exemptions can be subject to periodic change based on the necessity.

Stay Alert about GST

It is important to be aware of all the rules, exemptions, schemes, and amendments of the GST since these could affect our everyday purchases and activities. If you are a small or SME businessman, some of the GST exemptions can be extremely beneficial economically. Reading the news and following up the GST council meetings will keep you up to speed on the latest developments on GST.