What is Zero Rated Supply in GST?


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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 SuppliesZero 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

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