DIFFERENCE BETWEEN EXEMPT, NON GST, NIL RATED SUPPLIES

Information

GST law is prominently based on the concept of supplies. The type of supplies you made decides your GST liabilities. Thus, it becomes important to classify the correct supplies. Supply in common sense means anything be it either goods or services that you offer. There are tons of different goods and services that are being rendered or offered across the country. Some of them are necessity items or life-saving items or luxury items or we can say FMCG and so on. So, it does not justify charging the same rate of tax to each good and service. And that is why the GST act has classified and differentiate these goods and services into 4 major categories namely EXEMPT SUPPLIES, NON-GST SUPPLIES, NIL RATED SUPPLIES, ZERO RATED and the rest are TAXABLE supplies.

Let us discuss the basic difference amongst the above-mentioned different kinds of classification.

1) Exempt Supplies:

Section 2(47) of CGST act defies exempt supplies as a supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes the non-taxable supply.

• The most important aspect of EXEMPT supplies to be kept in mind is that while counting the total aggregate turnover, a taxpayer must include the value of Exempt supplies. Say for example: If I am providing various kinds of services out of which few are fully taxable whereas others are exempt. So, while counting total turnover, I am supposed to include the value of both the exempt as well as taxable supplies.
• When the government thinks it is necessary for the public interest or in trade interest to do so, they may  exempt certain goods or services from paying tax by issuing notification in an official gazette.
• The complete list of goods which are marked as EXEMPT SUPPLIES is here. (Click on the link)
• Another important aspect to be kept in mind is that when you cannot charge GST on the exempt supplies, you are also not eligible to take ITC on the exempt supplies. If you supply both exempt as well as dutiable goods/services, then you must proportionately claim ITC of dutiable goods/services.

2) Nil rated Supplies:

Nil-rated supplies have not been defied under the GST act but as common parlance, we can say that these are those services that have been given a “0” rate of tax under the GST tariff.
For example Salt, all kinds of natural grains, jaggery, etc.

3) NON GST Supplies:

NON-GST supplies have not been defined under the GST Act, but these those supplies which are neither goods nor services. They do not fall under the ambit of either goods or services. GST act has specified SCHEDULE-III containing such supplies which are neither goods nor services.
The list is mentioned below:

1. Services by an employee to the employer in the course of or concerning his employment.

2. Services by any court or Tribunal established under any law for the time being in force.

3. (a) the functions performed by the Members of Parliament, Members of State Legislature,

Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.

4. Services of funeral, burial, crematorium or mortuary including transportation of the
deceased.

5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of the building.

6. Actionable claims, other than lottery, betting, and gambling.

4) ZERO rated supplies

Zero-rated supplies are generally EXPORTS or supplies which are made to Special Economic Zones or SEZ Developers.

Export means taking out of India anything be it goods or services.

Any supplies made to SEZ/SEZ developers shall be considered as exports and hence 0 rated.

The taxpayer exclusively doing exports without payment of tax (under LUT) can get the refund of ITC on 0 rated supplies. If the taxpayer is engaged in local sales as well as exports then, in that case, they can get a refund of ITC proportionately.

5) Taxable Supplies

Taxable supplies simply mean the supply of goods or services or both which is leviable to tax under this Act. GST tax rates are specified for each good or service under the GST tariff. The taxpayer is required to identify the correct rate for goods or services they are rendering to discharge their liability appropriately.

Conclusion:

The above classification of supplies helps taxpayers in offsetting their liability correctly. A taxpayer must keep in mind this classification and report it in appropriate tables of GST returns. Wrong classification of supplies may lead to heavy penalties and further litigations against the taxpayer.