As per section 2(47) of the CGST Act, 2017, a supply is said to be exempt, when it attracts nil rate of duty or is specifically exempted by a notification or kept out of the purview of tax (i.e. a non-GST supply).
But when a supply is exempted from payment of tax, it doesn’t mean that GST is not included in the price. The input goods and input services which are used for providing such goods or services have already suffered tax and therefore such GST is a cost to the supplier and included in final price. Tax law does not allow utilization of credit on the input goods and input services used for the supply of such exempted goods/service.
Therefore a separate concept of zero-rated supply has been introduced. Which also allows utilization of input of all goods or services used for such zero-rated supply.
The relevant provisions are contained in Section 16(1) of the IGST Act, 2017, which states that “zero-rated supply” means any of the following supplies of goods or services or both, namely: –
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
The difference between zero-rated supplies and exempted supplies is tabulated as below:
|EXEMPTED SUPPLIES||ZERO RATED SUPPLIES|
|“exempt supply” means a supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11 of CGST Act or under section 6 of the IGST Act, and includes non-taxable supply||“zero-rated supply” shall have the meaning assigned to it in section 16|
|No tax on the outward exempted supplies, however, the input supplies used for making exempt supplies to be taxed||No tax on the outward supplies; Input supplies also to be tax-free|
|Credit of input tax needs to be reversed if taken; No ITC on the exempted supplies||Credit of input tax may be availed for making zero-rated supplies, even if such supply is an exempt supply ITC allowed on zero-rated supplies|
|Value of exempt supplies, for apportionment of ITC, shall include supplies on which the recipient is liable to pay tax on the reverse charge basis, transactions in securities, the sale of land and, subject to clause (b) of paragraph 5 of Schedule II, a sale of the building.||Value of zero-rated supplies shall be added along with the taxable supplies for apportionment of ITC|
|Any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under the CGST or IGST Act shall not be liable to registration||A person exclusively making zero-rated supplies may have to register as refunds of unutilised ITC or integrated tax paid shall have to be claimed|
|A registered person supplying exempted goods or services or both shall issue, instead of a tax invoice, a bill of supply||Normal tax invoice shall be issued|
Ninety percent of the total amount of refund claimed, on account of zero-rated supply of goods or services or both made by registered persons, may be sanctioned on a provisional basis. The remaining ten percent can be refunded later after due verification of documents furnished by the applicant.