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2018-08-09 00:10:12Finance and Accounting: TaxesEnglishMost economic activities in India are now covered by a relatively easy-to-understand sales tax that affects everyone. However, some items... Exemption: What Doesn’t the GST Cover?

GST Exemption: What Doesn’t the GST Cover?

3 min read

India’s adoption of GST was one of the most dramatic overhauls to a nation’s tax code in history. The previous hodgepodge of taxes and duties were bundled together into a single, unified system. Most economic activities in India are now covered by a relatively easy-to-understand sales tax that affects everyone. However, some items still aren’t covered by GST despite the scope of reforms. Goods and services not covered by the GST may be covered by the pre-GST retail tax structure. This is the case for most kinds of alcohol . While others are treated as entirely outside of the new tax scheme. The GST exemption list consists of products and services which broadly fall into four categories.

Income From Wages

Income was never intended to fall under the GST’s taxation authority. The money you earn from wages, in the public or private sector, is not treated as goods you’ve received. But as income for services rendered. India passed new income tax regulations that cover this area of the economy by itself.

Wage labour is not to be confused with :

– income from small business activity,

– sales in a one-person operation, or

– dividends from manufacturing or sales.

If you’re self-employed or run a flow-through corporation (one where your wages are taxed like corporate income), you may be responsible for your share of the GST on the money you make. If that seems a bit complicated, it’s probably a good idea to track income in a GST- compliant cloud accounting software like QuickBooks.

Land and Building Sales

Land has a special place in GST regulations. Although, certain land uses are taxable under the Goods and Services Tax Act, the land you buy to live on is generally not. Likewise, the home you build on the land is also not covered by the GST, though the materials (lumber, pipes, wires, and other building materials) may be.

If this is confusing, picture this: You need a place to live, so you buy land. That purchase is exempt from the GST. The services you pay the building contractor are also not taxable under the GST regime.

Though the materials used in building your house are almost certainly taxed as they leave the building supply store or the wholesale warehouse. In a sense, then, you are paying GST on at least some of your house. But the bite isn’t nearly as big as it would be if you were paying taxes for land and labour.

Legal Actions

Money paid as a result of legal action, such as a settlement for damages or court-ordered support, is not subject to GST. If you, for example, suffered losses due to a truck running over your bicycle, the cash amount the court later ordered the truck driver to pay would not be treated as either income or a service done for you. Rather, this windfall is treated as restoration, in effect, of goods that were “stolen” from you by negligence or malice.

Religious Services

Religion has always had a special place in India’s public life, and that special consideration has carried over into the GST era. Religious services of all faiths are exempt from all forms of taxation, as they have traditionally been. This means that Catholic marriages, which usually require some payment for services and the venue, are tax-exempt. As are burial services at Hindu shrines and temples, various Islamic services centered on the mosque, and so on.

When the GST was first rolled out, it wasn’t entirely clear what, if anything, would be exempt from taxation under the new plan. Now that the system has had time to work out many of the bugs, some large areas of Indian life are still tax-free.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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