Definition
Exempt Supply (GST)
An exempt supply under GST attracts no tax, but unlike a zero-rated supply, the supplier cannot claim input tax credit on related inputs.
An exempt supply is a good or service on which GST is not levied — such as certain essential items and specified services. While the customer pays no tax, the supplier loses the right to input tax credit on inputs used to make that supply, so the embedded input tax becomes a cost.
This is the crucial difference from a zero-rated supply, where ITC is preserved. Businesses making a mix of taxable and exempt supplies must apportion and reverse credit attributable to the exempt portion, a common area of GST complexity.
Related terms
- Input Tax Credit (ITC)Input Tax Credit lets a GST-registered business offset the tax it has already paid on purchases against the GST it collects on sales, so tax is levied only on value added.
- Zero-Rated Supply (GST)A zero-rated supply under GST is one taxed at a nil rate while still allowing the supplier to claim input tax credit, applied mainly to exports and SEZ supplies.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.