GST

Items not covered under GST

The Goods and Services Tax went into implementation in India on July 1, 2017. But the process of putting in place the new tax system started a long time ago. A committee was formed in 2000 by Atal Bihari Vajpayee, who was India’s prime minister at that point in time, to come up with the GST law. A task group determined in 2004 that the current tax system should be improved by implementing a new tax structure. GST is a multi-stage, all-inclusive tax system that is used to tax the sale of both goods and services. This taxation scheme, which is used across India, is primarily intended to reduce the cascading consequences of other indirect taxes.

The majority of products and services sold for domestic purposes are subject to the goods and services tax (GST), which is a value-added tax (VAT). Consumers pay the GST, but companies that sell the products and services are responsible for remitting it to the government. It is a destination-based tax that is assessed at every point where value is added. The country’s numerous indirect taxes have been replaced, and this has enabled the Indian government to carry out its ‘One Nation One Tax’ objective. The tax, which has been adopted by the majority of countries globally with appropriate adjustments, has been successful in streamlining India’s indirect tax system.

Schedule III of GST

The list of exempted items and services was included in the GST Council’s announcement of the GST rates for goods and services. On the contrary, there are also some activities that are not considered supplies under the GST. They are beyond the purview of the GST, i.e., GST will not be applicable to them because they aren’t essentially an element of goods or services. These practices are comparable to those on the “negative list” under the previous Service Tax system. The transactions are listed as “Neither goods nor services” in Schedule III of the GST Act.

• Employee services are given to the employer while working for or in connection with the employer.
• Services provided by any tribunal or court formed under current legislation.
• The obligations carried out by any person who holds any post in accordance with the provisions of the Constitution in that capacity or the functions and duties performed by any person who serves as the chairperson, a member, or a director in a body established by the Central Government, a State Government, or a local authority and who is a member of any of the aforementioned bodies.
• Funeral, burial, cremation, or mortuary services, including transporting the corpse,
• Sale of the land as well as the building, subject to clause (b) of Schedule II’s paragraph 5.
• Other than the lottery, betting, and gambling, actionable claims

Some important concepts of GST and the difference between them and items not covered under GST

There are many important concepts in the Goods and Services Tax which are very vital to be understood by the taxpayers for the compliance of GST. With the implementation of the GST, there were many schemes and exemptions provided along with it to make the economy grow and increase trade. Some of the concepts are Exempt supply, zero-rated supply, non-GST supply, NIL-rated supply and items covered under Schedule 3. All these concepts need to be comprehended by the taxpayers so they can know in which category their goods and services belong and utilize the perks given in these categories.

Exempt Supply

It is the supply of goods and services that is exempt from GST and does not allow for an ITC claim. A supply that is exempt is one that is made of any products or services that are completely or partially exempt from taxation under Sections 11 or 6 of the Integrated Products and Services Tax Act (IGST). The nontaxable supply is also included.

Zero Rated Supply

GST zero-rated supplies are exports or shipments to SEZ which do not incur any GST. They benefit the economy by increasing exports and generating foreign cash. The supplies listed in the IGST Act under this definition are zero-rated if both the sales and the inputs or input services utilized in those sales are GST-free.

Nil Rated Supply

The provision of goods or services, or both, nil or 0% GST rate, is referred to as a zero-rated supply. The goods that are nil-rated supply are listed in Schedule I of the GST Act¹. Cereals, fresh fruits and milk, vegetables, salt, natural honey, human blood, etc.

Non-GST Supply

A non-GST supply, also known as a nontaxable supply, is a form of GST supply that does not incur any GST. This indicates that the supplier is not required to impose GST on their sales and is not eligible for the input tax credit.

What all is included in the list of items not covered under GST in Schedule III

Below is the list of items which are not covered under the Goods and Services Tax, which are mentioned in Schedule III of the GST Act of 2017:

• Legal/Court Services
• Employment Services
• Services which are related to a deceased
• Duties which are performed by officials/MPs, etc.
• Land and Building sale services
• Actionable Claims except for gambling, lottery and betting
• Related to high sea sales
• Merchant Trade supply

Sale of Land and Building

GST is not applied on earnings from the sale of finished buildings of any type or of land in any form or for any use, subject to paragraph 5(b) of Schedule II. In other words, because they are considered works contracts, the construction services for a new building are liable to GST. This means that the full selling amount is subject to GST as a service under Schedule II if a sale agreement is signed prior to the issuance of the completion certificate. Any developed land, however, may continue to be regarded as a source for the development charges gathered.

Actionable Claims

Claims that can only be upheld through litigation are referred to as actionable claims. For instance, a book debt-even one that is unsecured, a bill of exchange, a promissory note, a beneficial interest in real estate that the claimant does not own, etc. Because it can be transferred in accordance with the Transfer of Property Act but not sold, a book debt (the debtor) is not good. Under the Negotiable Instruments Act, a bill of exchange or promissory note may be delivered or endorsed but not sold. With the exception of money, actionable claims are included in the GST definition of “Goods.”

However, because of this exclusion, as stated in Schedule III, neither the delivery of products nor the provision of services is an actionable claim. They might be thought of as a substitute for cash. So, these operations will not be subject to GST. Lottery, betting, and gaming, however, are exceptions in actionable claims and are subject to a higher GST rate. While gaming and betting are a supply of services, the lottery is considered good.

Legal Services (Court services)

When legal services are provided by a tribunal or court created by current in-force regulations, GST does not apply to those services. This indicates that the costs levied by courts or tribunals are exempt from the GST. The following are included in the term “COURT”: Supreme Court, High Court, and District Court.

Employment Services

Employees who perform employment services as part of their regular work are not covered by the GST Act. Remuneration for independent or non-executive directors who are not employees, however, is taxed under the reverse charge system, according to a new circular that was issued in 2020. Apart from gifts up to Rs. 50,000, services supplied by employers to workers are subject to GST charges. This makes it clear that the GST law does not apply to employment services.

Duties performed by officials

The following individuals are not covered by the GST while receiving compensation for executing their respective responsibilities or functions.

• Members of the State Legislature, the Parliament, Panchayats, Municipalities, and other local bodies;
• Anyone holding a position under the Constitution in whatever capacity;
• A member, director, or chairperson of a body created by the federal government, a state government, or a municipal authority that is not or is not considered an employee.

Nontaxable territories sale

The supply of commodities from nontaxable territories to nontaxable territories, often known as exports to third nations, is exempt from GST if they do not enter India. This indicates that the GST only takes effect if the criteria for goods “entering India” are met. High seas trades, outright supplies (merchant dealing), and sales of goods in customs-bonded warehouses are not regarded as supplies within the GST Act & are thus not subject to tax. Therefore, items from nontaxable regions are exempt from GST.

Services in relation to a deceased

GST is not applied to the costs associated with funeral, burial, cremation, or mortuary services or with the transportation of the deceased. No religion’s funeral services are subject to taxes.

High Sea

Supply in high sea sales is a sort of supply when goods are sold while they are travelling, i.e., after they have left their point of origin but before they enter Indian Territory or have their home clearance through customs. Since they are protected by Schedule III, the GST does not consider them to be a supply, and they are thus not taxed.

Conclusion

In conclusion, there are some commodities and services that are not subject to the GST. Activities that do not qualify as supplies under GST are included in Schedule III of the GST Act. If these transactions had not been maintained in Schedule III, they would have been considered as a supply and subject to GST.

Frequently Asked Questions

1. https://cbic-gst.gov.in/gst-acts.html