Zero Rated Supplies in GST

Updated on: Jan 12th, 2022 - 7:41:18 AM

6 min read

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In any economy, the government tries to increase its exports as much as possible. This helps the government in maintaining the country’s economic growth, employment and balance of payments. To boost exports, the government provides certain reliefs and benefits to business houses. One such relief provided under the GST regime is called Zero Rated Supplies in GST.

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Any supplies made by a registered dealer as an export (both goods or services) or supply to an SEZ qualifies for Zero Rated Supplies in GST. The rate of tax on such supplies is ‘Zero’ or we can say the supplies are tax-free. The supplies to a developer of an SEZ is also covered under Zero-Rated Supplies in GST as no tax is levied on these supplies as well. There are certain supplies on which there is no incidence of GST. It is important to understand the underlying difference among all such supply criterions :


NIL Rated SuppliesNon-Taxable SuppliesExempt Supplies

Zero-Rated Supplies

MeaningGoods and services on which 0% GST is applicableGoods and services on which GST is not levied at allSupplies which are exempt from payment of GSTGoods or services which are exported or supplied to SEZ
Input credit availabilityNot available Not availableNot availableAvailable
GST applicabilityFalls within GST ambitDoesn’t fall within GST ambitFalls within GST ambitFalls within GST ambit
ExampleHotel accommodation with tariff below Rs. 1,000Supply of alcohol for human consumptionInward supplies from unregistered dealersExport of shoes to South Africa

Refund of Zero Rated Supplies in GST

The suppliers making Zero-rated supplies are entitled to claim refunds. The refunds are for the input tax paid on the goods and services which are used for such Zero-rated supplies (including non-taxable and exempt supplies). For example:- An exporter supplies shoes to Dubai and uses soles in the production of such shoes. The exporter has an option of claiming Input tax credit of GST paid on the purchase of soles.   There are two options available with a dealer to claim refunds:

I. The dealer can export under Bond or LUT (Letter of Undertaking) and claim a refund of the accumulated Input credit of tax; or

II. The dealer can pay IGST while making the supplies and claim refund of the same.

Therefore, the dealers are provided with a flexibility to choose between any two options as per their convenience.

Refund procedures for Export of goods

Under GST laws, the process of claiming refund has been made easy for the export dealers. For Zero-Rated Supplies, there is no need to file refund application (GST RFD-01) separately. The shipping bill filed by the exporter is a refund claim in itself. The law specifies that shipping bill is to be considered as a refund claim on satisfying following two conditions:

I. A person carrying the export goods should file an export manifest; and

II. Applicant should have filed the returns GSTR-3 or GSTR-3B appropriately.

Once the above two documents are filed appropriately, the refund is processed by the department.

Refund procedures for Export of Services and Supplies to SEZ

The option to pay IGST and claim a refund is always available. In this case, the refund claim has to be filed in Form GST RFD-01. For exporters of services, the following are also required to be filed along with the refund claim:

I. A Statement containing Number and Date of Invoices; and

II. Bank Realisation Certificates / Foreign Inward Remittance Certificates

The supplier of goods or services to an SEZ are required to file the following along with the refund claim:

I. A Statement containing Number and Date of Invoices; and

II. Proof of Receipt of goods or services which is authorised by the specified officer of SEZ

III. Details of payment made

IV. The declaration that the SEZ or developer of SEZ has not claimed the input tax credit of the taxes paid by the supplier

Provisional Refund

The exporters and suppliers of SEZ are entitled to a 90% refund on a provisional basis. Provisional refund is granted within seven (7) days of the refund claim. The amount of provisional refund is credited directly to the claimant’s bank account. There is a condition attached to provisional refunds. The provisional refund is not granted if the applicant has been prosecuted for any offense under the GST law or earlier law within past five (5) years. The amount of tax evaded in such prosecution shall be more than Rupees Two Hundred and Fifty Lakhs (Rs. 2.5 Crores).

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