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Why GST Exemption on Goods is a Bad Idea?

by | Aug 26, 2020

Why GST Exemption on Goods is a Bad Idea?Is GST exemption on goods a good idea? The ongoing economic crisis due to the COVID-19 pandemic has been extremely devastating. The government has announced various relief measures and relaxations to fight the Impact of GST on the Indian economy due to Coronavirus. The Government of India (GOI) and Reserve Bank of India (RBI) are providing cash dole, incentives, and monetary policy support to needy citizens.

Industrialists in India are praying for the crisis to come to an end. Various business sectors have been demanding the GST council to provide exemption on goods and service tax (GST) rates. Especially on products that are in high demand amid advancing situations. Examples include Personal Protection Equipment (PPE), ventilators, COVID-19 text kits, sanitizers, etc.

GST Exemption on the finished goods is never a good idea. It deforms the value chain. Although it may not reduce the costs, it can hurt domestic businesses. In this article, you will learn why the GST exemption on goods is a bad idea.

GST Exemption on Goods: What Does it Mean?

Not all goods are taxable under GST law. Several products that are not taxable are eligible for GST exemption. However, exemption rules are liable to reform periodically.

There is a wide range of reasons for exemption on goods under GST rules. For instance, GST exemption on goods is appliable if businesses are zero rates, GST exempt, non-GST supply, or nil rated.

GST rates do not imply on unfinished goods like raw silk, unprocessed groceries, etc. In contrast to the same, finished products such as processed groceries or readymade silk apparels are taxable under the GST rule. Although the government has announced a GST exemption on goods, it is monitored and followed according to the GST council’s recommendations.

Reasons Why GST Exemption on Goods Is a Bad Idea

The government of India has implemented a GST exemption on goods through official notifications. It is deemed to be issued in the public interest.

Pros of GST Exemption

The government took a sensible call on initially fighting COVID-19 by providing GST exemption on Basic Customs Duty (BCD) and health tax till 30th September. The exemption offers security to the domestic manufacturers of goods such as PPE, test kits, and other necessary products.

Cons of GST Exemption

The claims for the GST exemption should be examined concerning domestically manufactured products. The duty structure on these items range from 5% – 12% on ventilators, masks, and PPE depending on the product’s value. And the GST rate for sanitizers ranges up to 18%.

The GST rates seek value-added charges at every stage of production, with the tax credit paid earlier in the chain to offset the tax at a later stage.

Usually, when an exemption is requested on the final product, the tax paid at various earlier stages of the manufacturing chain is linked to the product. The exemption avoids the possibility of compensating these taxes. It subsequently adds costs to the final products.

By trying not to apply GST to the final product, the manufactures will have to bear the unused credit burden. The absence of any cost reduction or input GST rates has left manufacturers with no options to reduce the cost of the inputs of the final product.

Besides, the burden of compliance, separate accounts should be kept for the inputs used in the manufacture of exempt goods. If not, it would be necessary to reverse the tax credit on the inputs used in manufacturing the exempt products. Any such exemption would make imports cheaper.

Domestic manufacturers’ protection in the form of the Integrated Goods and Services Tax (IGST) is applied on imports at a consistent GST rate. Since the BCD is equal to zero, it has been effectively eliminated, making the imports cheaper. The results of the same hurt domestic manufacturers. Neither the public interest nor the manufacturers will benefit from this exemption.


In a nutshell, the general axiom, simultaneous exemption of BCD, and GST should not be allowed, except for exceptional cases. Currently, the economic situation in the country is picking up. The Central Board of Indirect Taxes and Customs (CBIC) should ensure that all monies owed to manufacturers and importers are recovered.

Many businesses in India have been struggling with GST returns filing. GST Tax calculations have changed amidst COVID-19. Follow Imprezz accounting software to keep your business up-to-date amid uncertain tax situations—login to Imprezz.in to ease your GST compliance hassles.

We offer a 14 days free trial software program for small businesses in India. Focus on getting your business back on track while you rely on us for all your accounting needs.

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