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
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