Exemption of Tax under GST — Law of Taxation Notes

Exemption of Tax under GST

Milk carries no GST, and so do exported goods — but for very different reasons, and with opposite effects on the seller’s credit. “Exempt”, “nil-rated” and “zero-rated” sound alike but are three different things, and the exam loves testing whether you can tell them apart.

The exemption power and the three “no-tax” categories

The power to exempt — s.11 CGST (and s.6 IGST). The Government, on the GST Council’s recommendation, may by notification exempt (wholly or partly) specified goods or services from GST, in the public interest — either absolutely or subject to conditions. It may also exempt by a special order in exceptional cases.

Section 11(1) CGST: “Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally … goods or services or both of any specified description from the whole or any part of the tax leviable thereon …”

Three categories that all mean “no GST charged” — but differ crucially on input credit:

Exempt supply — a supply that attracts no GST because it is notified as exempt (or is non-taxable). The supplier cannot claim ITC on inputs used for it. Example: many essential/agricultural goods, healthcare, education services.
Nil-rated supply — a supply on which the tariff rate is 0%. Practically like exempt: no tax, and no ITC. Example: certain foodgrains.
Zero-rated supply — s.16 IGST — exports and supplies to SEZ units. Here the supply is taxed at 0% but the supplier can still claim ITC (or a refund of it) — the whole tax burden is removed from exports so India exports goods, not taxes.

⚠️ DON’T CONFUSE — Exempt vs Zero-rated vs Nil-rated supply

All three mean “no GST is collected”, but the input tax credit result splits them. Exempt and nil-rated: no output tax and no ITC — the input tax sticks as a cost (exempt = by notification; nil-rated = 0% in the tariff). Zero-rated (exports/SEZ, s.16 IGST): no output tax but ITC is allowed / refunded — the tax is fully wiped out. Rule of thumb: exempt/nil-rated = lose the credit; zero-rated = keep the credit.

In Simple Terms: The government can exempt goods/services from GST by notification in the public interest (s.11). But watch the credit: exempt and nil-rated supplies carry no tax and no input credit (the input tax becomes a cost). Zero-rated supplies — exports and SEZ — carry no tax but keep the input credit, so exports leave India tax-free.

flowchart TD
    ROOT["No GST collected — but ITC?"]:::root
    ROOT --> E["EXEMPT s.11 (notification)<br/>no tax, NO ITC"]:::bad
    ROOT --> N["NIL-RATED (0% tariff)<br/>no tax, NO ITC"]:::bad
    ROOT --> Z["ZERO-RATED s.16 IGST (exports/SEZ)<br/>no tax, ITC ALLOWED/refunded"]:::good
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef bad fill:#FDE2E2,stroke:#B00020,color:#000;
    classDef good fill:#E3F6E3,stroke:#1b7a1b,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

Union of India v Mohit Minerals (P) Ltd. (2022) — on exemptions and the interplay of notification-based relief with the levy.

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