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Difference between Zero Rated, Nil Rated, Non-GST and Exempt Supplies

Under GST, there are various types of supplies which creates confusion for the end user. While the end result of all these supplies is the same, i.e. GST is not applicable on the supply, but it is important to know the difference especially for the purpose of filing correct GST returns and accurate claim of ITC.

Zero Rated supply

As per Section 16 of Integrated Goods and Service Tax Act, zero-rated supplies mean: –

  • Export of goods or services or both; or
  • Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

For example, export of mobile phones to Australia, providing bookkeeping services to a company located in New York.

By zero rating it is meant that the entire supply chain of a particular zero-rated supply is tax-free i.e. there is no burden of tax either on the input tax side or on the output side. This is in contrast with exempted supplies, where only output is exempted from tax but tax is levied on the input side. The essence of zero rating is to make Indian goods and services competitive in the international market by ensuring that taxes do not get added to the cost of exports.

No list of goods and/or services supplied is prescribed under zero-rated supply as these are goods and/or services which are generally taxed when sold within the country.

As per sub section (3) of Section 16 of Integrated Goods and Service Tax Act, a registered person making zero-rated supply shall be eligible to claim a refund under either of the following option, namely: –

  • he may supply goods or services or both under bond or Letter of Undertaking (LOU), subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax (IGST) and claim refund of unutilised input tax credit of Central tax (CGST), State tax (SGST) / Union territory tax (UTGST) and integrated tax (IGST); or
  • he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim a refund of such tax paid on goods or services or both supplied.

GST law allows the flexibility to the exporter (which will include the supplier making supplies to SEZ) to claim refund upfront as integrated tax (by making supplies on payment of tax using ITC) or export without payment of tax by executing a Bond/LUT and claim refund of related ITC of taxes paid on inputs and input services used in making zero-rated supplies.

Note: – As per sub section (2) of Section 16 of Integrated Goods and Service Tax Act, a registered person shall be eligible to claim a refund for zero-rated supplies even such supply is non-taxable or even exempt supply.

Also Read – Refund of Unutilised Input Tax Credit for Zero-Rated Supplies

Nil-Rated supply

Supply of goods or services or both on which nil or 0% GST rate is applicable are called NIL rated supply. Schedules I of the GST act contains the goods which are nil-rated supply. For example, cereals, fresh fruits, and vegetables, salt, natural honey, milk, human blood etc.

No input tax credit of inputs and/or input services used in providing nil rated supply is available. In other words, if any GST is paid on the goods or services or both used in providing nil rated supply then such GST credit is not available to the registered dealer.

Non-GST supply or Non-Taxable Supply

Supply of goods or services or both which are outside the purview of GST Act. In other words, they are not taxable under the GST Act and may be chargeable to tax under any local sales tax law or any other act.

Currently, the only goods falling under this category include petroleum products and alcohol for human consumption.

Exempted Supply

Exempted supply means the supply of goods or services or both which attracts nil rate of tax or which are specifically exempt from GST through government notification and includes non-taxable supply. Thus, it is the supply of goods or services or both that do not attract GST. For example, live animals (except horses), cereals, puja samagri etc.

No input tax credit can be claimed with respect to inputs and/or input services used for making exempt supplies.

Comparative Table

Particulars Zero-Rated Supplies Nil-Rated Supply Non-GST Supply Exempt Supply
Meaning Supply which is meant for  Export or

to Special Economic Zone developer or a Special Economic Zone unit.

 

 

Supply which attracts 0% GST rate. Supply which is outside the purview of GST Act. Supply which attracts nil rate of tax or which are specifically exempt from GST through government notification and includes non-taxable supply
GST Applicability (i) Supply good or services without payment of GST using LOU and claim a refund of unutilised GST.

(ii) Supply good or services by paying IGST and claim a refund of such IGST paid.

 

GST is not applicable on supply. GST is not applicable on supply. GST is not applicable on supply.
Input Tax Credit Availability Input tax credit can be claimed. No input tax credit is available. No input tax credit is available. No input tax credit is available.
Cover under GST Ambit Yes Yes No Yes (for nil rated and exempt supply)

No (for non-taxable supply)

About Rohit Pithisaria

Rohit Pithisaria is a Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He is actively writing from very beginning of his professional career and is author of various tax articles and blogs.

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