GST Exemptions in India: Complete Guide to Tax-Free Goods and Services in 2026
Quick Summary
- GST exemption means no output tax, but compliance still applies.
- Exempt supply includes nil-rated, wholly exempt, and non-taxable supplies.
- Exempt treatment affects registration, invoicing, return filing, and ITC.
- Registered suppliers of exempt goods or services must issue a Bill of Supply.
- Persons dealing exclusively in wholly exempt or non-taxable supplies are not liable for GST registration under Section 23.
- Businesses making both taxable and exempt supplies must apportion common ITC under Rules 42 and 43.
- The exemption framework changed after the 56th GST Council overhaul announced on 3 September 2025.
- Most revised goods-rate changes took effect from 22 September 2025.
- Major 2025 changes included GST exemption for all individual life and health insurance policies.
What Are GST Exemptions?
GST exemptions are cases in which a supply does not incur output GST because the law or the notification framework removes the levy. The legal starting point is Section 2(47) of the CGST Act, which says “exempt supply” means a supply of goods or services or both that attracts a nil rate of tax, or is wholly exempt under Section 11 of the CGST Act or Section 6 of the IGST Act, and includes a non-taxable supply. Section 2(78) separately defines non-taxable supply as a supply that is not leviable to tax under the CGST Act or the IGST Act.
Understanding the definition is important because many businesses, in practice, confuse four categories: exempt supply, nil-rated supply, zero-rated supply, and non-taxable supply. They do not operate the same way. Some are within the GST framework but taxed at zero. Some are exempted by notification. Some are outside the levy altogether. Some still allow ITC refund , and some do not.
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Types of GST Exemptions
To understand exemptions, divide them into four working categories.
Supplier-based exemptions
These exemptions apply because of who is providing the service. For example, some services provided by the RBI, charitable organizations, or certain public bodies may be exempt.
Supply-based exemptions
These exemptions apply because of the nature of what is being supplied. For example, fresh agricultural produce and some essential public services may be exempt. In such cases, the nature of the product or service matters more than the supplier.
Absolute exemptions
These exemptions apply automatically if the supply matches the exemption entry. No extra condition needs to be met.
Conditional exemptions
These exemptions apply only when specific conditions are fulfilled. The condition may depend on the customer type, packaging, length of stay, room rate, invoice amount, or similar factors. If the condition is not met, the exemption is not available.
What Is an Exempt Supply Under GST?
The law’s definition of exempt supply is broader than what many businesses assume. It covers three broad buckets.
The first is nil-rated supply, where the rate schedule itself applies a 0% rate.
The second is wholly exempt supply, where the exemption comes through the notification mechanism under Section 11 of the CGST Act or Section 6 of the IGST Act.
The third is a non-taxable supply, which the Act defines separately as a supply not leviable to tax under the CGST Act or the IGST Act.
The practical consequences of exempt treatment are usually as follows: the supplier does not charge output GST on the supply; ITC is not available on inputs used exclusively for exempt supplies; and common ITC must be apportioned if the business makes both taxable and exempt supplies.
Key GST Exemption Notifications and Official Sources
For services, the central exemption backbone continues to be Notification 12/2017-Central Tax (Rate) , dated 28 June 2017, read with subsequent amendments and the current CBIC rate pages. That notification still contains many core exemption entries for education, healthcare, transport, public services, and sector-specific reliefs.
For current-rate understanding following the major 2025 overhaul, the most reliable official sources are the 56th GST Council press release and FAQ, along with the current CBIC GST Goods and Services Rates page. Those sources confirm that most revised goods-rate changes took effect on 22 September 2025 and that major exemption decisions included broad life and health insurance relief for individual policies.
For return system and portal changes, especially HSN and document reporting in GSTR-1, the official GSTN advisory dated 25 April 2025 is an important reference point.
List of Goods Commonly Treated as Exempt
Exempt goods should be identified carefully based on their product category, HSN code, packaging, and the latest GST rate schedule.
In general, goods such as unprocessed fresh food items, many agricultural products, electrical energy, some medical items of public importance, and certain printed materials may fall under the exempt or nil-rate category.
However, many everyday products that people often assume are exempt become taxable when they are sold in pre-packaged and labelled form. For example, items like rice, maize, some cereals, flours, and similar staples can attract 5% GST when sold this way.
That is why the old rule of thumb, “unbranded is exempt and branded is taxable,” is no longer enough. In many cases, the real test is whether the product is pre-packaged and labelled or not pre-packaged and not labelled, along with its exact tariff description and rate entry.
HSN Codes for Exempt Goods
HSN classification is important even if the supply is exempt or taxed at 0%. If the wrong HSN code is used, it can create mismatches in GSTR-1 , make audits more difficult, and lead to wrong exemption claims. So even for exempt supplies, HSN should be reported carefully.
The GSTN advisory issued in April 2025 changed the way HSN reporting works in GSTR-1 and GSTR-1A. Table 12 was improved and split into two parts, one for B2B and one for B2C. At that stage, the B2C part was still not mandatory. However, Table 13, which covers details of documents issued, became mandatory from the May 2025 return period.
List of Services Commonly Exempt Under GST
The exemption of services under GST is mainly governed by Notification 12/2017 and its later amendments. In general, important exempt service categories include healthcare, education, agriculture-related services, some passenger transport services, certain government and judicial services, and some insurance or other public-interest services.
However, not every service in these sectors is automatically exempt. The tax treatment depends on the exact conditions mentioned in the relevant exemption entry. In the same sector, some services may be fully exempt, some may be partly exempt, some may be nil-rated, and some may be fully taxable.
This is especially common in sectors like healthcare, education, transport, real estate, and financial services.
Sector-Specific GST Exemption Details
Healthcare
Healthcare services provided by a clinical establishment, authorised medical practitioner, or paramedics generally remain exempt under GST. However, this does not mean that every hospital charge is exempt.
As per the current GST position, room charges in hospitals are treated differently. If a room other than ICU, CCU, ICCU, or NICU is charged at more than ₹5,000 per day, GST is applicable at 5%, subject to the condition that ITC on related goods and services has not been claimed.
This means:
- Regular eligible healthcare services generally remain exempt.
- ICU, CCU, ICCU, and NICU room charges continue under the exempt healthcare category.
- Only specified non-ICU room charges above ₹5,000 per day attract 5% GST without ITC.
Another important update is that the 55th GST Council recommended GST exemption on gene therapy, making it a notable recent healthcare-related change.
Education
Education is one of the most confusing areas for GST exemption. Just because an institution calls itself educational does not automatically mean its services are exempt.
The real test is whether the institution and the service fall within the legal conditions given in the exemption entries under Notification 12/2017. These exemptions do not apply to every coaching class, tutorial, training centre, or skill programme.
This is where many businesses make mistakes. Coaching centres and private training providers sometimes assume their services are exempt just because they are related to learning or teaching. But that is not always correct.
In general, services provided by recognised schools, colleges, universities, or institutions linked to qualifications recognised by law may qualify for exemption. On the other hand, commercial coaching and other non-qualifying educational services are often taxable.
Transportation
GST exemption in transport needs careful checking.
Notification 12/2017 still covers some passenger transport services such as metro, monorail, and tramway. It also gives exemption to GTA services in certain low-value cases, such as:
- where the freight for one consignment in a single carriage does not exceed ₹1,500
- where the freight for all goods of one consignee in a single carriage does not exceed ₹750
At the same time, transport rules were also affected by the 56th GST Council changes. So the tax treatment may depend on factors like:
- the type of transport
- whether it is air-conditioned
- whether the service is supplied through an e-commerce operator
- whether a revised rate applies after September 2025
The current CBIC rate page also shows that metered cabs and auto-rickshaws, including e-rickshaws, can be exempt in some cases. But this exemption does not apply when the service is supplied through a notified electronic commerce operator.
Real Estate
Real estate is one of the most confusing areas in GST because people often use words like “exempt,” “non-taxable,” and “outside GST” as if they all mean the same thing. They do not.
Schedule III is very important here. It says that some activities are treated as neither a supply of goods nor a supply of services . This includes sale of land and certain completed-building transactions.
But there is another important point. Section 17(3) says that for common ITC reversal, the value of exempt supply also includes sale of land and, in some cases, sale of building. So even if a transaction is outside GST for levy purposes, it may still matter for ITC calculations.
In simple words, some real-estate transactions may not attract GST, but they can still affect ITC reversal. So “outside GST” does not always mean there is no further compliance impact.
Financial and Insurance Services
The older explanation that life insurance is partly exempt on the savings part and taxable on the risk part is no longer the best way to explain the current position for individual policies.
According to the 56th GST Council press release, GST exemption was approved for:
- all individual life insurance policies, including term, ULIP, and endowment policies
- all individual health insurance policies, including family floater and senior-citizen policies
- reinsurance related to these policies
This is an important update. So a 2026 article should not continue using the older explanation as if nothing changed after September 2025.
Schedule III: The Negative List Under GST
Schedule III covers activities or transactions that are treated as neither a supply of goods nor a supply of services. This is different from a normal GST exemption.
Older summaries often say Schedule III has seven items. That is no longer a safe way to explain it. Over time, the law has expanded, and newer clauses have been added, such as some warehoused-goods and high-seas transaction situations. Later changes also brought some insurance-related transactions into the Schedule III framework.
The practical point is simple: do not rely on an old short list. Always check the latest law before deciding whether something is exempt or completely outside GST.
Difference Between Exempt, Nil-Rated, Zero-Rated, Non-Taxable, and Schedule III
The most important difference is between exempt supply and zero-rated supply .
- Exempt supplies usually block ITC on exclusive inputs and require proportionate ITC reversal on common inputs.
- Zero-rated supplies allow ITC refund in the export and SEZ framework.
That is why calling exports “exempt” is a mistake. It changes the ITC result.
Also:
- Nil-rated supplies are still within GST, but the tax rate is 0%
- Non-taxable supplies are not leviable to tax under the CGST Act or IGST Act
- Schedule III activities are treated as neither goods nor services
These are all different concepts and should not be mixed up.
What Is a Non-Taxable Supply Under GST?
Section 2(78) says a non-taxable supply is a supply of goods or services that is not leviable to tax under the CGST Act or the IGST Act.
This matters because many people casually use “non-taxable” for anything on which GST is not charged. That is not always correct. A supply may be exempt, nil-rated, zero-rated, non-taxable, or outside GST under Schedule III, and each one is different.
Common examples of non-taxable supplies include:
- petroleum crude
- high-speed diesel
- motor spirit
- natural gas
- aviation turbine fuel
- alcohol for human consumption
A safer way to explain this is that these supplies are not presently liable to GST under the current legal framework.
GST Exemption for Small Businesses and Registration Limits
Section 22 is the starting point for GST registration thresholds. It provides the normal registration limits, including:
- ₹20 lakh as the general threshold
- ₹10 lakh for certain special-category states
- up to ₹40 lakh in some cases for suppliers engaged only in goods, where notified conditions are met
But if a business is engaged exclusively in wholly exempt or non-taxable supplies, Section 23 becomes more important. In that case, the business is not liable to registration.
So the correct approach is:
- first check whether the business deals only in exempt or non-taxable supplies
- if yes, Section 23 may apply
- if not, then check the Section 22 threshold and Section 24 compulsory-registration rules
GST Composition Scheme and Exempt Supplies
Composition eligibility depends on aggregate turnover. The law says aggregate turnover includes:
- taxable supplies
- exempt supplies
- exports
- inter-State supplies of persons with the same PAN
Taxes and cess are excluded.
Since exempt supply also includes non-taxable supply, businesses should be careful before assuming that non-GST turnover is always outside aggregate turnover .
The law also provides separate thresholds for:
- the normal composition scheme
- the special composition-like scheme under Section 10(2A), which has a ₹50 lakh cap
A common mistake is to assume that exempt turnover does not matter because no tax is charged on it. That is incorrect. Exempt turnover can still affect:
- registration
- composition eligibility
- common ITC reversal
Treatment of Input Tax Credit for Exempt Supplies
Section 17 is the main provision for ITC restriction. It says that when goods or services are used partly for taxable supplies and partly for exempt supplies, ITC is allowed only to the extent it relates to taxable supplies, including zero-rated supplies.
It also says that for this purpose, the value of exempt supply includes:
- supplies on which the recipient pays tax under reverse charge
- transactions in securities
- sale of land
- and, in some cases, sale of building
At the same time, the law says that activities in Schedule III are generally not included in exempt supply for this purpose, except for the specified paragraph 5 items.
So exempt-supply treatment does not affect only outward tax. It also affects how much ITC the business can keep. If a business makes both taxable and exempt supplies and does not do Rule 42 and Rule 43 correctly, it may face tax demand, interest, and penalty.
ITC Reversal Formula for Mixed Supplies
A common shortcut formula used in business is:
Reversal = (Exempt turnover ÷ Total turnover) × Common ITC
This is useful for quick understanding, but the actual Rule 42 calculation is more detailed.
Rule 42 requires the taxpayer to first separate:
- credit used only for non-business purposes
- credit used only for exempt supplies
- credit used only for taxable or zero-rated supplies
After that, the common credit is identified and the amount relating to exempt supplies is calculated. Rule 43 separately applies to capital goods.
So the simple formula is useful for rough understanding, but the final compliance calculation must follow Rule 42 and Rule 43 properly.
Bill of Supply: Compliance Requirement for Exempt Supplies
Section 31(3)(c) says that a registered person supplying exempt goods or services, or paying tax under section 10, must issue a Bill of Supply instead of a tax invoice. This is important because:
- it prevents wrong tax collection on exempt supplies
- it shows the recipient that normal ITC is not available from that document
- it reduces future disputes about whether the supplier treated the transaction as taxable or exempt
BUSY's invoicing and GST billing software automatically generates Bills of Supply for registered suppliers dealing in exempt goods or services, eliminating manual document management and reducing the risk of misclassification.
E-Way Bill Rules for Exempt Goods
The e-way bill rule is often explained too loosely. The basic rule is in Rule 138(14). It says no e-way bill is required when:
- the goods are listed in the Annexure to that rule, or
- the goods are transported by a non-motorised conveyance
This means some exempt goods can be moved without an e-way bill. But businesses should not depend on memory or general assumptions. They should check:
- whether the goods fall under Rule 138(14)
- whether any state-level rule applies for intra-state movement
Even if no e-way bill is needed, proper documents are still important. A Bill of Supply or other supporting document may be needed to show that the goods are exempt.
How to Report Exempt Supplies in GST Returns
Exempt supplies still affect GST returns even though no output tax is charged.
- Nil-rated, exempted, and non-GST outward supplies are reported in the relevant outward-supply sections
- ITC reversal related to exempt supplies is shown separately in the ITC reversal tables
Businesses should be careful not to mix Schedule III activities with exempt outward supplies without checking the correct return treatment and the Section 17(3) rules.
For HSN reporting and document reporting, the April 2025 GSTN advisory is important. It clarified the updated Table 12 structure and confirmed that Table 13 document reporting became mandatory from the May 2025 return period.
CGST, SGST, and IGST Exemptions
A common mistake is to assume that if a good or service is exempt under CGST, the same answer automatically applies everywhere. That is not always correct. The law defines exempt supply by referring to:
- Section 11 of the CGST Act
- Section 6 of the IGST Act
This means inter-State exemption has to be checked separately under the IGST framework as well.
The practical rule is simple: do not assume that an intra-State exemption automatically settles the GST position for inter-State or cross-border transactions. Always check the applicable rate or exemption framework for the actual transaction.
Why GST Exemptions Are Provided
GST exemptions reflect policy choices. Essential healthcare, basic public services, recognised education-linked services, selected transport services, and public-welfare insurance products often receive favourable treatment because the policy aim is affordability, access, and lower tax burden in socially important sectors.
The 56th GST Council overhaul made this even clearer. The official press release linked the rate changes to:
- ease of doing business
- affordability for the common person
- support for labour-intensive sectors
- support for farmers and agriculture
- health-related relief
Recent GST Council Updates on Exemptions
The 53rd GST Council meeting on 22 June 2024 recommended exemption for Indian Railways services for the general public, including: platform tickets, retiring rooms, waiting rooms, cloak-room services, battery-operated car services, and intra-railway transactions
It also recommended an exemption entry for accommodation services, up to ₹20,000 per person per month, when supplied for a continuous period of at least 90 days.
The 55th GST Council meeting on 21 December 2024 recommended GST exemption on gene therapy.
The 56th GST Council announced a major overhaul of rates and exemptions on 3 September 2025, with most goods-rate changes effective from 22 September 2025. The same official material states that the exemption was approved on all individual life insurance policies and all individual health insurance policies, along with reinsurance thereof.
Practical Compliance Checklist for Businesses with Exempt Supplies
- A business dealing with exempt supplies should start by checking whether the supply is: exempt, nil-rated, zero-rated, non-taxable, or outside GST under Schedule III This first step is important because the compliance treatment is different for each one.
- Next, the business should check whether it deals only in exempt or non-taxable supplies. If yes, Section 23 may remove the GST registration requirement. If not, the normal threshold and compulsory-registration rules must still be checked.
- Then invoicing should be handled correctly. Registered persons supplying exempt goods or services should issue Bills of Supply, not tax invoices .
- After that comes ITC control. Inputs used only for exempt supplies should not carry ITC. Common credits should be apportioned using Rule 42 and Rule 43, not rough estimates.
- Finally, return filing and HSN/document reporting should be kept in line with the latest GSTN system changes, especially after the April 2025 advisory.
Conclusion
GST exemptions are not just a list of tax-free products and services. They are a compliance framework. The moment a supply is treated as exempt, the business has to think about registration, invoice type, ITC eligibility, Rule 42 or Rule 43, HSN accuracy, return disclosure, and whether the supply is actually exempt at all or belongs in some other category such as zero-rated, non-taxable, or Schedule III.
