What is Zero Rated Supply in GST?
Zero Rating Supply:
As per Section 16(1) of the IGST Act, 2017, “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.
Input Tax Credit available for Zero rated supplies:
Input tax credit is available on inputs and input services to make Zero rated supplies subject to the provisions of sub-section (5) of section 17 of CGST Act.
Claim Refund for Zero rated supplies:
The registered person making zero rated supply can claim refund under either of the following options, in accordance with the provisions of section 54 of CGST Act, 2017:
- Supplies without payment of IGSTund er Bond/Letter of Undertaking– claim refund of unutilised input tax credit
- Supplies with payment of IGST – claim refund of IGST paid
The provisions for the refund of unutilised input credit are contained in the explanation to Section 54 of the CGST Act, 2017, which defines refund as below:
“Refund” includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided under sub-section (3).
Provisional refund:
As per section 54(6) of the CGST Act, 2017,
- 90% 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 10% can be refunded later after due verification of documents furnished by the applicant.
Non-applicability of Principle of Unjust Enrichment:
- The principle of unjust enrichment shall not be applicable in case of refund of taxes paid wherever such refund is on accounts of zero rated supplies.
- As per section 54 (8) of the CGST Act, 2017, the refundable amount, if such amount is relatable to refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, shall instead of being credited to the Fund, be paid to the applicant.
The difference between zero rated supplies and exempted supplies is tabulated as below:
| Exempted Supplies | Zero rated Supplies |
|---|---|
| “exempt supply” means 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 supplyITC 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 reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of 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 |