All you need to know about zero rated supply in GST

Know about zero rated supplies in GST and how you can claim GST refund for export and SEZ supplies.
Business Loan
4 min read
26 March 2023

Zero rated supply is a term used in the Goods and Services Tax (GST) regime to describe a supply of goods or services that are subject to zero percent GST. This means that the supplier does not have to charge any GST on the supply. They can also claim a refund of the input tax credit (ITC) paid on the inputs used to make the supply. Zero rated supply is different from exempt supply, which is also not taxable, but does not allow the supplier to claim any ITC.

What is zero rated supply?

According to section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017, zero rated supply means any of the following supplies of goods or services or both:

  • Export of goods or services or both; or
  • Supply of goods or services or both to a special Economic zone (SEZ) developer or an SEZ unit.

The objective of zero rated supplies is to make Indian exports more competitive in the global market, and to encourage the development of SEZ as hubs of economic activity.

GST refund for zero rated supply

A supplier of zero-rated supply can claim a refund of the ITC paid on the inputs used to make the supply, subject to certain conditions and processes. The supplier has two options to claim the refund:

  • Option 1: The supplier can export or supply to SEZ without paying any IGST, and claim a refund of the accumulated ITC.
  • Option 2: The supplier can export or supply to SEZ by paying IGST, and claim a refund of the IGST paid.

The supplier can choose either option depending on the availability of ITC and cash flow. However, once the option is chosen, it cannot be changed for the same financial year, unless there is a change in the constitution or ownership of the business.

Zero rated vs. exempt supply vs. nil rated vs. non-GST

Nil rated, exempt, zero rated and non-GST supplies are different categories of supplies that are not taxable under GST. The main difference between them is whether they are eligible for input tax credit (ITC) or not. The following table summarises their characteristics:

Supply GST applicable Type of supply Eligibility for ITC Examples
Nil rated 0% Intra-state or inter-state Not available Fresh fruits, vegetables, milk, etc.
Exempted - Intra-state or inter-state Not available Education, health, public transport, etc.
Zero rated 0% Export or SEZ supply available Software, handicrafts, jewellery, etc.
Non-GST 0% Outside the purview of GST Not available Alcohol, petroleum, electricity, etc.


As can be seen from the table, zero rated supplies are the most beneficial for the suppliers. Against them, they can claim ITC and GST refund, whereas the other supplies do not.

Refund process for export of goods

The refund process for export of goods under GST are as follows:

  • Step 1: The exporter files an application for refund in form GST RFD-01 within two years from the date of export.
  • Step 2: Furnish a statement containing the number and date of shipping bills or bills of export. Also provide the number and date of relevant export invoices, in form GST RFD-01A.
  • Step 3: Submit a copy of the shipping bill or bill of export containing details of IGST paid (if any), along with proof of export general manifest or export report.
  • Step 4: Self-certify that there is no prosecution pending against him for any offence under GST or under any other law.

The refund will be processed within 60 days from the date of receipt of application. It will be credited directly to the bank account of the exporter.

Refund process for export of services and supplies to SEZ

The refund procedures for export of services and supplies to SEZ under GST are as follows:

  • Step 1: File an application for refund in form GST RFD-01 within two years from the end of the quarter in which such supply was made.
  • Step 2: Furnish a statement containing details of invoices along with proof of receipt of payment in convertible foreign exchange (for export of services). Also provide the proof of endorsement by specified officer (for supplies to SEZ), in form GST RFD-01A.
  • Step 3: Self-certify that there is no prosecution pending against them for any offence under GST or under any other law.

The refund will be processed within 60 days from the date of receipt of application and credited directly to the bank account of the exporter or SEZ supplier.

Zero rated supplies in GST are those exports or supplies to SEZ that do not attract any GST. They are beneficial for the economy as they boost exports and generate foreign exchange. They are also advantageous for the exporters as they can claim refund of the input tax credit they paid.

Additional read: GST Calculator

Additional read: What is the E-Way bill?

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.