Relevant Section / Rules - GST Registration Exemptions: Complete Legal and Practical Overview

(1) GST Registration: The First Step in the Indirect Tax Journey

Goods and Services Tax (GST) has transformed the indirect tax landscape in India by bringing uniformity and transparency across sectors. While registration under GST is mandatory for most businesses once they cross a prescribed threshold, the law also carves out specific exemptions where registration is not required - irrespective of turnover or nature of supply. These exemptions are critical for small businesses, service providers, agriculturists, and certain categories of persons whose operations fall outside the tax net. Understanding who qualifies for these exemptions is essential not only to avoid unnecessary compliance but also to ensure legal clarity.

This article provides a detailed legal and practical analysis of the exemptions available from obtaining GST registration under the CGST Act, supported by relevant provisions, notifications, and real-world scenarios.

(2) Before digging down further on the exemptions available from obtaining GST registration, let us first have a look at the AATO and threshold limit applicable for obtaining registration under GST

Section 2(6) of the CGST Act, 2017: "Aggregate Turnover" means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, Integrated tax and Cess.

Section 22(1) of the CGST Act, 2017: Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees.

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

Provided further that the Government may, at the request of a special category State and on the recommendations of the Council, enhance the aggregate turnover referred to in the first proviso from ten lakh rupees to such amount, not exceeding twenty lakh rupees and subject to such conditions and limitations, as may be so notified.

Provided also that the Government may, at the request of a State and on the recommendations of the Council, enhance the aggregate turnover from twenty lakh rupees to such amount not exceeding forty lakh rupees in case of supplier who is engaged exclusively in the supply of goods, subject to such conditions and limitations, as may be notified.

Explanation.-For the purposes of this sub-section, a person shall be considered to be engaged exclusively in the supply of goods even if he is engaged in exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.

Analysis of Section 2(6) of the CGST Act, 2017

Aggregate Turnover includes:

(a) Value of all taxable supplies,

(b) Value of exempt supplies,

(c) Export of goods or services or both,

However, the AATO does not include value of supply the tax on which is to be paid under Reverse Charge Mechanism. It is pertinent to note here that the turnover for checking the threshold limit for GST registration purposes is to be calculated on PAN Basis. Therefore, even if the branch wise Turnover of a branch of an organization is less than the threshold limit as prescribed u/s 22(1) of the CGST Act, 2017 but the PAN basis Turnover exceeds the threshold limit then registration has to be mandatory taken.

Analysis of Section 22(1) of the CGST Act, 2017

(a) If the AATO of a supplier exceeds ₹ 20 lakh at any point then such supplier is required to obtain a registration from the state from where he is engage in supply of such taxable goods or services,

(b) The first proviso to Section 22(1) of the CGST Act, 2017 has specified that if a supplier is making supply of goods or services from special category states then the threshold limit for checking the eligibility of registration would be ₹10 Lakh. However, as per the second proviso to Section 22(1) of the CGST Act, 2017 such limit may be increased from ₹10 lakh to ₹20 lakh on the request of a special category state and on the request of the Council. [List of special category states has been provided in Annexure 1 of this article].

(c) As per the third proviso to Section 22(1) of the CGST Act, 2017, the threshold for exclusive supply of goods may be enhanced from ₹ 20 Lakh to ₹ 40 Lakh at the request of a state and the recommendation of the Council. The notification issued for enhancing the threshold from ₹ 20 Lakh to ₹ 40 Lakh will be discussed later in this article.

Further, as per the explanation to Section 22(1) of the CGST Act, 2017, if a person is receiving any consideration in the form of earning or any discount from exempt supply of services such as extending deposits, loans, advances etc. , the said person shall be deemed to be engaging specifically and exclusively in supply of goods. In easy terms, suppose Mr. A is engaged in the supply of goods and receiving interest as well from granting loans, advances etc. which is a supply of services.

Thus, for the purpose of Section 22(1) of the CGST Act, 2017 Mr. A shall be deemed to be engaged in exclusive supply of goods and the threshold limit for goods shall be applicable to Mr. A.

(3) Notification issued for increasing the threshold limit of ₹ 20 Lakh as prescribed under Section 22(1) of the CGST Act, 2017

As mentioned in point (2) above, according to the third proviso to Section 22(1) of the CGST Act, 2017, the threshold for exclusive supply of goods may be enhanced from ₹ 20 Lakh to ₹ 40 Lakh at the request of a state and the recommendation of the Council.

To give impact to the above, NN 01/2020-CT Dated 01.01.2020 was issued by CBIC enhancing the threshold limit from ₹ 20 Lakh to ₹ 40 Lakh for suppliers engaged exclusively in the supply of goods. The same is effective from 01.01.2020.

(4) Analysis of Section 23 of the CGST Act, 2017

Extract of Section 23 of the CGST Act, 2017:

"(1) The following persons shall not be liable to registration, namely:-

(a) any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;

(b) an agriculturist, to the extent of supply of produce out of cultivation of land.

(2) Notwithstanding anything to the contrary contained in sub-section (1) of section 22 or section 24, the Government may, on the recommendations of the Council, by notification, subject to such conditions and restrictions as may be specified therein, specify the category of persons who may be exempted from obtaining registration under this Act.

Therefore, Section 23 of the CGST Act, 2017 carves out exemptions from registration, stating that the following persons shall not be liable to registration:

(a) Any person engaged exclusively in supplying goods or services that are not liable to tax or wholly exempt from tax;

(b) An agriculturist, to the extent of supply of produce out of cultivation of land;

(c) Specified persons not liable for registration under GST.

It can be inferred that Section 23 of the CGST Act, 2017 forms the foundation of exemption categories under GST.

Furthermore, it is Section 23(2) of the CGST Act, 2017 which grants the power for providing exemption from obtaining registration under GST. Since, sub-section (2) of Section 23 starts with an non-obstante clause thereby implying that the same would override the threshold limit provision provided under Section 22(1) of the CGST Act, 2017 and mandatory registration requirement under Section 24 of the CGST Act, 2017.

(5) Notifications issued by using the power granted under Section 23(2) of the CGST Act, 2017

(i) NN 05/2017-CT Dated 19th June, 2017: Vide this notification, exemption from obtaining registration has been granted to suppliers engaged exclusively in making supply of only those taxable goods and services which are taxable completely under RCM.

(ii) NN 32/2017-CT Dated 15th September, 2017: Vide this notification, exemption from obtaining registration has been granted to Casual taxable persons making taxable supplies of handicraft goods with the condition that aggregate value of such supplies, to be computed on all India basis, does not exceed an amount of twenty lakh rupees in a financial year. For special category states other than Jammu & Kashmir, the aggregate value of such supplies should not exceed ₹ 10 Lakh.

However, this notification is no longer in use and has been suspended vide NN 56/2018-CT Dated 23rd October, 2018 which has specified the category of casual taxable persons not required for obtaining registration.

NN 56/2018-CT Dated 23rd October, 2018: Vide this notification, exemption from obtaining registration has been granted to specific category of Casual Taxable Persons who:

(a) are making inter-State taxable supplies of handicraft goods as defined in the "Explanation" in notification No.21/2018 -Central Tax, OR

(b) are making inter-State taxable supplies of the products and their respective HSN as provided in NN 56/2018 - CT Dated 23rd October, 2018 itself.

Details of such products is given in Annexure 2 at the end of this article.

(iii) NN 65/2017-CT Dated 15th November, 2017: Vide this notification, exemption from obtaining registration has been granted to persons supplying services through e-commerce platforms, provided:

(a) The AATO of such person does not exceed ₹ 20 Lakh,

(b) The supply is of services other than those specified u/s 9(5) of the CGST Act, 2017 and the ECO is liable to collect taxes on the same.

NN 34/2023-CT Dated 31st July, 2023: Vide a subsequent notification, exemption from obtaining GST registration has been granted to persons supplying services through e-commerce platforms, subject to the following conditions:

(a)The AATO of such person does not exceed ₹ 20 Lakh,

(b) The supply is of services other than those specified u/s 9(5) of the CGST Act, 2017 and the ECO is liable to collect taxes on the same,

(c) such persons shall not make any inter-State supply of goods,

(d) such persons shall not make supply of goods through Electronic commerce operator in more than one State or Union territory,

(e) such persons shall be required to have a Permanent Account Number issued under the Income Tax Act, 1961 (43 of 1961),

(f) such persons shall, before making any supply of goods through Electronic commerce operator, declare on the Common portal their Permanent Account Number issued under the Income Tax Act, 1961,

(g) such persons have been granted an enrolment number on the Common portal on successful validation of the Permanent Account Number

(h) such persons shall not be granted more than one enrolment number in a State or Union territory,

(i) no supply of goods shall be made by such persons through Electronic commerce operator unless such persons have been granted an enrolment number on the Common portal,

(j) where such persons are subsequently granted registration under section 25 of the said Act, the enrolment number shall cease to be valid from the effective date of registration.

It prima facie appears that NN 34/2023-CT Dated 31st July, 2023 is an extension of the exemption as provided in NN 65/2017-CT Dated 15th November, 2017. Therefore, in order to claim the exemption from GST registration in case if supplies are being made through e-commerce operators, all the above elucidated conditions to be satisfied.

(iv) NN 10/2019-CT Dated 07th March, 2019: Vide this notification, exemption from obtaining registration has been granted to any person exclusively engaged in supply of goods and whose AATO does not exceed ₹ 40 Lakh w.e.f. 01.04.2019. Exceptions to this condition are:

(a) persons required to take compulsory registration under section 24 of the said Act,

(b) persons engaged in making supplies of the goods as specifically provided in NN 10/2019-CT Dated 07th March, 2019 [list of goods is provided in Annexure 3 at the end of this article],

(c) persons engaged in making intra-State supplies in the States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand; and

(d) persons exercising option of obtaining voluntary registration under GST.

Correlation between NN 01/2020-CT Dated 01.01.2020 and NN 10/2019-CT Dated 07th March, 2019

As already discussed in point (3) above, NN 01/2020-CT Dated 01.01.2020 was issued by CBIC enhancing the threshold limit from ₹ 20 Lakh to ₹ 40 Lakh for suppliers engaged exclusively in the supply of goods. The same is effective from 01.01.2020.

Further, by using the power granted u/s 23(2) of the CGST Act, 2017 a specific exemption vide NN 10/2019-CT Dated 07th March, 2019 was provided from obtaining registration under GST if the threshold does not exceed ₹ 40 Lakh subject to the exceptions as state in the said notification.

Therefore, on a joint reading of NN 01/2020-CT and NN 10/2019-CT, it can be interpreted that a relief was provided by the Government by issuance of NN 10/2019-CT and further, NN 01/2020-CT was issued to amend the act I.e. Section 22(1) of the CGST Act, 2017.

However, it is pertinent to note here that the list of goods as provided in the NN 10/2019 on which the upper threshold of ₹ 40 Lakh is not available will be applicable even in case of NN 01/2020-CT Dated 01.01.2020.

(V) NN 10/2017-IT Dated 13th October, 2017: Vide this notification, exemption from obtaining registration has been granted to persons making inter-State supplies of taxable services and having an AATO not exceeding ₹ 20 Lakh. The limit of AATO for special category states is ₹ 10 Lakh.

Let us now have a look at the summary of exemptions from GST Registration as available under the GST Law:

1. Any person engaged exclusively in supplying goods or services that are not liable to tax or wholly exempt from tax;

2. An agriculturist, to the extent of supply of produce out of cultivation of land;

3. Suppliers engaged exclusively in making supply of only those taxable goods and services which are taxable completely under RCM;

4. Specific category of Casual Taxable Persons;

5. Persons supplying services through e-commerce platforms subject to the conditions provided therein;

6. Exemption from obtaining registration has been granted to any person exclusively engaged in supply of goods and whose AATO does not exceed ₹ 40 Lakh subject to the exceptions of this condition;

7. Persons making inter-State supplies of taxable services and having an AATO not exceeding ₹ 20 Lakh. The limit of AATO for special category states is ₹ 10 Lakh.

Conclusion

While GST registration is a fundamental step toward tax compliance, the law prudently exempts certain categories of persons and businesses to ease their compliance burden and promote economic inclusion. From small suppliers and agriculturists to service providers dealing exclusively in exempt services or earning passive interest income, the scope of exemptions under Sections 22 and 23 of the CGST Act is both wide and purposeful. However, these exemptions are subject to nuanced conditions, specific thresholds, and evolving notifications. Therefore, a careful assessment of one's business activities, nature of supply, and turnover is essential before claiming exemption from registration. Misinterpretation or oversight can lead to unintended non-compliance or missed opportunities. A sound understanding of the legal framework, combined with professional guidance where necessary, ensures businesses remain both compliant and efficient in their GST journey.

Annexure 1

Special Category State for the purpose of Registration provisions under GST

Annexure 2

Annexure 3