While GST applies broadly to all supplies, numerous goods and services are exempt. Exemptions are notified under Section 11 of CGST Act 2017 and Section 6 of IGST Act 2017. The main exemption notifications are Notification No. 2/2017-CT(Rate) for goods and No. 12/2017-CT(Rate) for services.
Key Categories of Exempt Goods
Food and Agricultural Produce
- Fresh fruits and vegetables (not packaged or branded)
- Cereals, pulses, and flour in unpackaged/unbranded form
- Fresh meat, fish, eggs, honey, milk (unprocessed)
- Live animals including livestock
- Seeds, nuts for sowing
- Fresh or unprocessed spices (coriander, cumin, etc.)
Note: Branded, packaged versions of food items attract GST. For example, branded packaged wheat flour attracts 5% GST.
Healthcare
- Human blood and blood derivatives
- Contraceptives
- Hearing aids
- Ambulances
- Medical devices listed in exemption (insulin, crutches, wheelchairs, walking frames)
- Drugs and medicines covered by Government supply schemes
Education and Books
- Printed books (excluding periodicals)
- Newspapers, journals and periodicals
- Maps, charts, globes
- Children's picture/colouring/drawing books
Other Exempt Goods
- Salt (all types)
- Raw silk, silk yarn
- Khadi fabric
- National flag
- Currency (coins and paper)
- Used personal and household effects (on relocation)
Key Exempt Services
Healthcare Services
- Health care services by hospitals, clinics, dispensaries
- Services by authorized medical professionals (doctors, dentists, etc.)
- Ambulance services
- Veterinary services
- Blood banks
Educational Services
- Services by educational institutions to students (up to higher secondary level)
- Services to recognized educational institutions: transportation, mid-day meals, housekeeping, security, etc.
- Coaching provided by affiliated institutions for general education
Religious and Charitable Services
- Services by religious trusts/institutions to pilgrims/devotees
- Services provided to registered charities for carrying out charitable activities
- Religious ceremonies, Dargah, Temple, Mosque services
Government and Governmental Services
- Services provided by Central/State Government, local authorities to persons other than business entities
- Postal services by Department of Posts
- Municipal services (garbage collection, sewage treatment)
- Services by RBI, SEBI, IRDA, stock exchanges (specific)
Agriculture-Related Services
- Agricultural extension services
- Loading, unloading, packing, storage, warehousing of agricultural produce
- Services related to rearing of all life forms of animals
- Transportation of agricultural produce by road in non-AC vehicle
Financial Services
- Services by Reserve Bank of India
- Savings accounts, basic banking services to Jan Dhan holders
- Interest on loans and advances
- Pure life insurance products (term plans)
Important Distinction: Nil Rate vs Exempt vs Zero-Rated
| Category | Tax Rate | ITC Available? | Examples |
|---|---|---|---|
| Nil Rated Goods/Services | 0% | No (ITC blocked) | Fresh vegetables, milk |
| Exempt Goods/Services | Exempt by notification | No (ITC reversed) | Healthcare, education |
| Zero-Rated Supply | 0% (exports, SEZ) | Yes — full ITC with refund | Exports, SEZ supplies |
Impact of Exempt Supplies on ITC
If a registered person makes both taxable and exempt supplies, ITC must be apportioned under Rule 42/43:
- ITC directly attributable to taxable supplies: fully claimable
- ITC directly attributable to exempt supplies: must be reversed
- Common ITC (not directly attributable): apportioned in the ratio of taxable to total turnover
- Reversal calculated monthly in GSTR-3B Table 4(B)
Key Compliance Point: Even exempt supplies must be reported in GSTR-1 (Table 8) and GSTR-3B (Table 3.1(d)). Failure to report exempt supplies can lead to incorrect ITC apportionment and expose the taxpayer to demands for ITC reversal with interest.