Glossary
What is an exempt supply?
No GST on the sale, and no credit on what went into it. The second half is the part businesses forget.
Updated
In short
An exempt supply attracts nil GST or is exempted by notification, and the input tax credit on it is not allowed. SimpleERP can mark a customer exempt so invoices print without tax.
An exempt supply under GST is a supply that attracts a nil rate of tax, is wholly exempted by notification, or is a non-taxable supply outside GST. No tax is charged on it, but input tax credit on the purchases used for it is not allowed, so a business making both taxable and exempt supplies must reverse a share of its credit. A bill of supply is issued instead of a tax invoice.
Exempt supply: a worked example
In a month Lakshmi Steel Furnitures makes ₹9,00,000 of taxable sales and ₹1,00,000 of exempt supplies, and pays ₹90,000 GST on common inputs used for both.
- Share of exempt supplies: ₹1,00,000 out of ₹10,00,000, which is 10 percent.
- ITC to reverse on common inputs: 10 percent of ₹90,000, which is ₹9,000.
- ITC available: ₹81,000.
FAQ
Questions, answered
What is the difference between exempt, nil-rated and non-GST supplies?
Nil-rated supplies carry a 0 percent rate in the rate schedule. Exempt supplies are freed from tax by notification. Non-GST supplies, such as petrol and alcohol for human consumption, are outside GST altogether. All three are reported separately in GSTR-1 table 8, and none allows input tax credit.
Can I issue a tax invoice for an exempt supply?
An exempt supply does not get a tax invoice. For an exempt supply you issue a bill of supply, which carries no tax. A registered person supplying both taxable and exempt goods to an unregistered buyer may issue one invoice-cum-bill of supply, as notified.
Do exempt supplies count towards the registration threshold?
Exempt supplies do count towards the registration threshold, because aggregate turnover includes them, so a business selling mostly exempt goods can still cross the threshold. A business making only exempt supplies does not need to register.
Do I report exempt sales in GSTR-1?
Exempt sales are reported in GSTR-1. Exempt, nil-rated and non-GST supplies are reported in GSTR-1 table 8, split by inter-state and intra-state and by registered and unregistered buyers. They also go into GSTR-3B. Your sales register gives the totals.
Related
Keep reading
Nil-rated supply
A supply notified at a 0 percent GST rate; no tax is charged and no input tax credit is allowed.
Read moreZero-rated supply
Exports of goods or services and supplies to SEZ units or developers, which carry no tax but keep input tax credit.
Read moreBill of supply
The document issued instead of a tax invoice when no GST is charged.
Read more
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