Zero-rated supply
Also called: Exempt supply, Nil-rated supply · Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Beyond NCERT
Meaning
A zero-rated supply carries no GST, yet the supplier can still claim input tax credit (ITC), i.e. credit for GST already paid on inputs. Exports and supplies to SEZs (special economic zones) are zero-rated. The supplier claims the credit as a refund or exports under a Letter of Undertaking (LUT). An exempt supply or a nil-rated supply also carries no GST, but the supplier gets no ITC. So the GST paid on inputs becomes a cost for the supplier.
Example
An exporter in Tiruppur ships garments abroad without charging GST. It gets back the GST it paid on yarn and dyes. A seller of an exempt staple food charges no GST either, but cannot claim back the tax paid on its inputs.
Don't confuse with
- Exempt / nil-rated supply: also no GST at sale, but the input credit is lost. Zero-rating removes the whole tax burden, while exemption removes only the tax at the last stage.
Related concepts
- Goods and Services Tax
- Destination-based taxation
- CGST, SGST and IGST
- Input tax credit
- Reverse charge mechanism
- Composition scheme
- E-way bill
- E-invoicing
- Revenue neutral rate