The GST is a multi-stage, comprehensive, destination-based tax system. As a dynamic and evolving law, it is no surprise that the GST is subject to frequent changes. One of the important things in this tax structure is the exemptions under GST. The government is empowered to grant exemptions from tax payment under Section 11 of the CGST Act and Section 6 of the IGST Act, 2017. Through numerous notifications, various supplies of goods or services have been wholly or partially exempted from tax. It is important for businesses to note that exempt supply refers to the supply of goods or services that attract a nil tax rate or are wholly exempt from tax, including non-taxable supplies.
When a person supplies exempted goods or services, they are not eligible for an input tax credit on the purchase of such goods or services. Correspondingly, they cannot charge tax on supplies that are exempt from taxation. The responsibility of proving the applicability of the exemption lies with the supplier, as exemption notifications are interpreted strictly. Therefore, it is essential for suppliers to maintain proper documentation to support their claim for exemption.
Composite supply refers to the supply of goods or services that are naturally bundled and provided together during the course of business. In such cases, the principal supply determines the nature of the entire package, whether it is exempt or taxable. For instance, if fruits are supplied along with delivery charges, and the fruits are exempt from GST, the entire supply will be exempt from taxation.
On the other hand, mixed supply involves the supply of two or more individual goods or services that are not naturally bundled. In such cases, the highest tax rate applicable among the components becomes the rate for the entire package. For example, if a Diwali gift hamper consists of packaged sweets with a 5% tax rate and fresh fruits that are exempt from tax, the entire package will be taxable at 5%.
Under Section 68 of the CGST Act 2017, the generation of an e-way bill is mandatory for the movement of goods valued above Rs 50,000. However, in the case of pure supply of exempted goods, there is no requirement to generate an e-way bill. This provision reduces the compliance burden for suppliers engaged in the supply of exempted goods.
Circular No. 45/19/2018 clarifies that in the case of export of exempted goods or non-GST goods without payment of Integrated Goods and Services Tax (IGST), a Letter of Undertaking (LUT) or bond is not required. This exemption provides significant relief to suppliers involved in the export of exempt and non-GST goods, eliminating the need for additional paperwork.
Section 16(2) of the IGST Act, 2017, enables businesses to avail of an input tax credit for making zero-rated supplies, even if such supplies are exempt. Consequently, any export of exempted goods or services qualifies as a "Zero Rated Supply" and are eligible for a refund.
Understanding exemptions under the GST is crucial for businesses and taxpayers to navigate the complex tax landscape effectively. It is essential to interpret exemption notifications strictly and ensure compliance with the provisions. Failing to do so can result in the recovery of output tax, along with interest and penalties. Moreover, missing out on availing of the input tax credit due to exemption-related mistakes can lead to a loss for businesses. Therefore, staying up to date on the latest developments and seeking professional guidance is paramount for successfully managing exemptions under the GST regime.
GSTR-3B Filing on GST Portal - Step by Step Return Filing Procedure
GST on Online Gaming Companies: An Industry Conundrum