GST Exemptions List: Goods and Services Exempt Under GST

• A person whose turnover falls below the threshold exemption limit—INR 40 lakhs for goods, INR 20 lakhs for services, and INR 20 lakhs (or INR 10 lakhs in special category states) for specified categories.
• A person making NIL-rated or exempt supplies of goods and services, such as fresh milk, honey, cheese, agricultural services, etc.
• A person engaged in activities that are not considered as supplies of goods and services, such as funeral services, petroleum products, etc.

• A person supplying goods covered under the reverse charge mechanism, such as tobacco leaves, unprocessed cashew nuts (not shelled or peeled), etc.

  
  

GST exemption for businesses

Small and medium enterprises (SMEs) play a crucial role in the economy, and the Goods and Services Tax (GST) framework provides specific exemptions to simplify compliance. These exemptions are based on the annual aggregate turnover of a business, as detailed below:

1. GST exemption for businesses supplying goods

• Businesses engaged in the supply of goods are eligible for GST exemption if their aggregate turnover is below INR 40 lakhs in a financial year.
• For businesses operating in hilly and northeastern states, the exemption threshold is INR 20 lakhs to accommodate regional challenges.

2. GST exemption for businesses providing services

• Businesses providing services can avail of GST exemption if their aggregate turnover does not exceed INR 20 lakhs in a financial year.
• In hilly and northeastern states, the exemption threshold is INR 10 lakhs to support local service providers.

3. Definition of aggregate turnover

The term “aggregate turnover” refers to the total value of all transactions, including taxable supplies, inter-state supplies, exempt supplies, exports of goods and services.

Certain deductions are applied when calculating aggregate turnover, such as:

• GST paid under CGST, SGST, or IGST
• Taxes payable under the reverse charge mechanism
• The value of inward supplies of goods and services
• The value of non-taxable goods and services

These exemptions are designed to ease the compliance burden for SMEs, enabling them to focus on business growth while benefiting from tax relief.

Under the Goods and Services Tax (GST) system in India, some goods, services, and transactions are exempt from GST, meaning they are not subject to GST taxation. Exemptions are granted for various reasons, reflecting policy goals, socio-economic factors, and administrative convenience. Businesses can gain additional clarity by understanding the GST structure India, which outlines the tax framework and its applicability across different sectors. Here are some common reasons for these exemptions:

• Social welfare and public interest: Essential goods and services vital for societal welfare, such as basic food items (e.g., rice, wheat, milk), healthcare services, and education, may be exempt from GST.
• Small businesses: To ease the compliance burden on smaller enterprises and encourage business growth, exemptions or reduced rates may apply to businesses with lower turnover. The Composition Scheme, for instance, offers lower GST rates for small businesses within certain turnover limits.
• Export of goods and services: Exports are generally zero-rated under GST, meaning they are taxed at a zero percent rate. This helps keep exports competitive internationally and prevents the GST burden from affecting export prices.
• Interstate supplies: Certain interstate supplies of specified goods and services may be exempt or taxed at a reduced rate to facilitate the smooth movement of goods and services across state lines.
• Agriculture: Many agricultural products and services are exempt from GST to support the agriculture sector, which plays a crucial role in India’s economy.
• Government services: Some services provided by the government or local authorities are exempt from GST to avoid double taxation and simplify accounting processes.
• Financial services: Certain financial services, including banking, loan interest, and insurance, may be exempt or subject to special provisions for GST liability.
• Cultural and religious significance: Goods and services used for cultural, religious, or charitable purposes may be exempt to honour cultural and social values.
• Administrative simplicity: Exempting certain goods or services helps simplify the tax system, reducing compliance costs and making it easier for businesses and taxpayers to navigate GST regulations.
• Transitional provisions: During the transition to GST, some exemptions or concessional rates may be applied to ease the shift for businesses and mitigate the impact of the new tax regime.

Several important government notifications list the GST exemptions for goods and services under the CGST Act. Here are the main ones:

1. Notification 02/2017 – Central Tax (Rate), dated 28.06.2017 – For Goods

   This notification exempts about 149 items from GST. Some of the key items include electricity, salt, fresh fruits, and passenger baggage. It has been updated by Notifications 28/2017, 35/2017, 42/2017, 7/2018, and 19/2018.

2. Notification 12/2017 – Central Tax (Rate), dated 28.06.2017 – For Services

   This notification gives GST exemption for certain services, mostly similar to those that were exempt under the old service tax rules. It has been updated by Notifications 21/2017, 25/2017, 32/2017, 47/2017, and 2/2018.

The GST Council has been actively working to simplify the GST system and provide relief to taxpayers.

1. 56th GST Council Meeting (2025)

Held in September 2025, this meeting brought the biggest changes since GST began, introducing a simpler three-tier tax system:

• New Tax Slabs: The earlier four-tier system (5%, 12%, 18%, 28%) was replaced with three rates:
  • 5% – Essentials
  • 18% – Standard
  • 40% – Luxury / Sin items
  • The 12% and 28% slabs were mostly removed.
• Major Exemptions:
  • Health & Life Insurance: All individual health and life insurance policies are now fully GST-free.
  • Staple Foods & Dairy: Many pre-packaged and labelled staple foods, like UHT milk, paneer, roti, and paratha, are now tax-exempt.
  • Medicines: Over 30 life-saving medicines have moved from 12% GST to nil.
  • Educational Materials: Items like notebooks, pencils, erasers, and maps are now fully exempt, reducing costs for students.

2. 53rd GST Council Meeting (2024)

Key decisions included:

• SEZ Benefits: Compensation Cess on SEZ imports was removed.
• Railway Passenger Relief: GST was removed for services like platform tickets, retiring rooms, and battery-operated car services.
• Accommodation Services: Long-term stays for students and working professionals (90 days or more, rent up to ₹20,000 per month) are now GST-free.

3. 47th GST Council Meeting (2022)

This meeting focused on simplifying the exemption list and considering public feedback on GSTR-3B. However, its measures have now been superseded by the more recent major reforms.

The most common goods exempted from GST for a small business buyer are unprocessed food items, agricultural produce and certain educational goods and services. Understanding these GST-exempt categories can help small businesses estimate procurement costs and improve cash flow under the GST exemption for small business India.

GST exemptions depend on the nature of the goods or services and applicable government notifications. If you need funding to purchase inventory or expand your business, you can explore a Bajaj Finance Business Loan.

You can determine whether your business qualifies for GST exemption by following a simple four-step process based on your turnover, the nature of your supplies and your registration requirements.

• Calculate your aggregate turnover by adding all taxable supplies, inter-state supplies, exempt supplies and exports made during the financial year.
• Check the applicable threshold. If your annual turnover is below Rs. 40 lakh for goods or Rs. 20 lakh for services (subject to applicable state-specific provisions), you are generally exempt from GST registration.
• Verify the nature of your supplies. If you deal only in NIL-rated or exempt goods and services, you are generally exempt from GST registration regardless of turnover.
• Consider voluntary registration. Even if you are below the threshold, you may choose to register voluntarily to claim Input Tax Credit (ITC) or undertake inter-state taxable supplies, where permitted.

Following these steps can help you determine your GST registration status and ensure compliance with the applicable GST provisions.

Navigating the complexities of GST exemptions can significantly impact a business's financial planning and tax liabilities. For businesses seeking financial growth or support through business loans, a deep understanding of GST exempted items and services is invaluable. It not only aids in ensuring compliance with tax regulations but also enhances financial management, making the business more appealing to lenders and financial institutions.