PhyntaraTutorial · GST · The law in practice
07 · Exempt, nil-rated, zero-rated, and “not a supply”
Four different ideas people collapse into “no GST.” Mixing them is how refunds die and notices begin. About 10 min. As of August 2026.
This tutorial explains GST the way a new founder or accounts clerk needs it, and how the same work is done in Phyntara. It is teaching, not a legal opinion. Thresholds, due dates, and late fees change when the GST Council notifies them. Your CA files. Confirm the live rule on gst.gov.in before you act on a rupee.
“We don’t charge GST” can mean four different legal things. Only one of them is “this sale is outside GST entirely.”
| Word | Plain meaning | Can the buyer take ITC on your bill? | Can you take ITC on what you bought to make it? |
|---|---|---|---|
| Taxable (5–28%) | Normal GST sale | Yes, if they are eligible and you filed | Yes, if eligible |
| Nil-rated | Rate is 0% but it is still a GST supply | No tax on the bill | Often restricted — ask CA |
| Exempt | Notified as exempt (Notification 12/2017 services, 2/2017 goods, etc.) | No | Generally no (blocked credit) |
| Zero-rated | Exports and notified SEZ supplies — tax is 0 with refund machinery | Foreign buyer is not taking Indian ITC | Usually yes, with LUT or IGST-refund route |
| Non-GST / Schedule III | Alcohol for human consumption, petroleum (for now), employee services, some land-related items — not GST supplies | No | No credit for that activity |
Examples founders actually hit
- Healthcare and education: many core services are exempt — add-on coaching, hospital room “hotel” style supplies, and edtech can be taxable. Do not copy a hospital’s bill onto an edtech invoice.
- Unbranded unpacked food grains vs branded packaged food: packaging and brand flip the rate. Read the HSN, not the website slogan.
- Rent of residential dwelling for residence can be exempt; renting your 2BHK to a company as guest house is a different story.
- Interest on loans/deposits is generally exempt. Your product subscription is not “interest.”
- Sale of a going-concern business as a whole can be treated as neither supply of goods nor services in specified cases (Schedule II / notifications). That is a CA memo, not a 18% invoice.
Exports (startups care)
Export of goods and export of services can be zero-rated. Export of services has a five-limb test (supplier in India, recipient outside India, place of supply outside India, payment in convertible forex or notified INR, and the supplier and recipient are not merely establishments of the same person in a way the law treats as domestic). A US credit-card payout is not automatically an export if the recipient is still in India.
LUT (Form RFD-11 / LUT on portal): bond/LUT so you export without paying IGST, then refund unutilised credit. Alternative: pay IGST on the export invoice and refund that. Missing LUT is a common first-year mess.
Reverse charge (RCM)
Sometimes the buyer pays GST instead of the seller — GTA (in many cases), legal services from an advocate to a business, sponsorship, import of services, and a notified list. You still need a self-invoice in specified cases, pay in cash (credit cannot discharge RCM in the usual way), and then take ITC if eligible. On the CA tax worksheet, Phyntara can record RCM lines. Owners should not invent RCM to “save 18%.”