GST Exemption in India: Exempted Goods and Services, Exemption Limit and Rules for Small Businesses

"Is my product exempt from GST?" and "Do I need to charge GST at all?" are two different questions, and people often mix them up. The first is about exempt supplies: goods or services on which no GST is payable, whoever sells them. The second is about the registration exemption limit: a turnover threshold below which a business does not have to register, even if it sells taxable products.

This guide covers both, explains how exempt, nil-rated and non-GST supplies differ, and lists the major exemptions, including the ones added in the September 2025 rate rationalisation.

Quick answer:GST exemption means no GST is levied on a supply. Exemptions are granted by government notification under Section 11 of the CGST Act, mainly through Notification No. 2/2017 (goods) and No. 12/2017 (services), as amended. Separately, businesses with aggregate turnover up to ₹40 lakh (goods) or ₹20 lakh (services) are exempt from GST registration, with lower limits in some special category states.

What Does GST Exemption Mean?

Under Section 2(47) of the CGST Act, an "exempt supply" is a supply that:

1. attracts a nil rate of tax, or
2. is wholly exempt from tax by notification under Section 11 or Section 6 of the IGST Act, or
3. is a non-taxable supply.

The practical result is the same for the buyer: no GST on the bill. But for the seller, the type of exemption affects input tax credit (ITC) and returns.

Nil Rated vs Exempt Supply vs Non-GST Supply

Zero-rated supplies are the exception. They are taxable at 0% but keep ITC, so exporters can claim refunds. Do not confuse them with exempt supplies.

GST Exempted Goods List (Major Categories)

Packaging and branding often change the rate. For example, pre-packaged and labelled cereals and pulses are taxable at 5%. Always check the description and conditions in the notification against your product.

GST Exempted Services List (Major Categories)

GST Exemption Limit for Small Business

*Manipur, Mizoram, Nagaland and Tripura have ₹10 lakh limits for both. Several other states such as Puducherry, Telangana, Meghalaya, Sikkim, Uttarakhand and Arunachal Pradesh did not opt for the higher goods limit, so the ₹20 lakh threshold applies to goods there. Check your state's current position before relying on these limits.

Turnover is calculated at the PAN level

Aggregate turnover includes taxable, exempt and export supplies across India under the same PAN, but excludes inward supplies on which you pay reverse charge.

When registration is compulsory regardless of turnover

1. Inter-state supply of goods (services have a relaxation up to the threshold).
2. Selling through e-commerce operators that collect TCS (with some relaxations for intra-state goods sellers).
3. Casual and non-resident taxable persons.
4. Persons liable to pay reverse charge.

Read our GST registration threshold guide.

GST Exemption for Startups

There is no special GST exemption for DPIIT-recognised startups. A startup's GST position depends only on its turnover and what it supplies. The income tax holiday under Section 80-IAC is a separate benefit and does not affect GST.

What startups can use:

1. The registration threshold in the early months.
2. The composition scheme if eligible.
3. Zero-rating with LUT for exports of software and services.

See our guide on Startup India tax exemptions.

Section 11 GST Exemption: How Exemptions Are Granted

Under Section 11 of the CGST Act, the central government can, on the GST Council's recommendation:

1. exempt goods or services generally by notification, either absolutely or with conditions, and
2. exempt a particular supply by special order in exceptional circumstances.

Where an absolute exemption exists, a registered supplier cannot charge GST on that supply even if they want to.

ITC Reversal When You Make Exempt Supplies

If you make both taxable and exempt supplies, you must reverse the ITC attributable to exempt supplies under Rules 42 and 43 of the CGST Rules.

Example: A medical store in Jaipur sells taxable cosmetics and exempt life-saving drugs. If exempt sales are 30% of total turnover, roughly 30% of common ITC (such as GST on rent and electricity) must be reversed, computed monthly and finalised annually.

Common Mistakes

Treating unbranded and branded goods alike. Packaging and labelling rules can turn an exempt product into a taxable one.

Assuming a turnover below ₹40 lakh means no GST in every case. Inter-state sellers and e-commerce sellers may need registration regardless.

Claiming ITC on inputs used for exempt supplies. This must be reversed.

Charging GST on an exempt supply. This is not allowed and does not become valid because the buyer paid it.

Frequently Asked Questions

1. What is GST exemption? It means no GST is levied on a supply, either because it is notified as exempt under Section 11, carries a nil rate, or falls outside GST.

2. What is the GST exemption limit for small businesses? ₹40 lakh aggregate turnover for goods suppliers and ₹20 lakh for service providers in most states, with lower limits in some special category states.

3. What is the difference between nil-rated and exempt supply? Nil-rated goods carry a 0% rate in the tariff, while exempt supplies are exempted by notification. Both block ITC on related inputs.

4. Which items became GST-exempt in September 2025? Individual life and health insurance, UHT milk, paneer, Indian breads like roti and paratha, several educational supplies, and certain life-saving drugs, among others.

5. Do startups get GST exemption? No. There is no startup-specific GST exemption; normal turnover thresholds and exemptions apply.

6. Can I claim ITC on exempt supplies? No. ITC used for exempt supplies must be reversed under Rules 42 and 43.