Zero Rated, NIL, Exempted and Non-GST Supply

The terms zero rated, nil rated, exempted and non-taxable supply under GST have always been misused and misinterpreted. There has always been confusion regarding the said terms and the said confusion still prevails even after introduction of GST. In this article, we analyse each of these terms and its implications.

Zero Rated Supply

The relevant provisions of zero rated supplies are contained in section 16 (1) of the IGST Act, 2017 which states as under : Zero rated supply means any of the following supplies of goods or services or both, namely –

export of goods or services or both; or
supply of goods or services or both to a Special Economic Zone developer or
a Special Economic Zone unit.

Under zero rated supply, the output supplies as well as the inputs or input services used in supplying the supplies would be free from GST. Following are the important points under zero rated supply:

The taxes paid on the supplies which are zero rated are refunded;
The credit of inputs and input services are allowed;
Wherever the supplies are exempted, or the supplies are made without payment of tax, the taxes paid on the inputs and / or input services will be refunded (i.e. unutilized input tax credit would be refunded).

Further, the provisions for the

refund of unutilized 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 unutilized input tax credit as provided under sub-section (3).

Nil Rated

Goods or services on which GST rate of 0 % is applicable are called NIL rated goods or services. Such goods or services, on which GST rate of 0% is applicable, are listed in schedule 1 under GST rate schedule. Example of Nil rated supplies are salt, jaggery, cereals etc. Input tax credit of inputs and / or input services used in providing supply attracting Nil rate is not available i.e. no input tax credit on Nil rated supplies. 1

Exempted Supply

Exempted 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. Following points are to be noted for exempted supply:

There is no GST applicable on outward exempted supplies;
Input tax credit of inputs and / or input services used in providing exempted supply is not available i.e. no input tax credit on exempted supplies;
A registered person supplying exempted goods or services or both shall issue ‘bill of supply’ instead of tax invoice.

Non GST Supply

Goods or services on which GST is not leviable are called Non GST supply. Input tax credit of inputs and / or input services used in providing non GST supply is not available i.e. no input tax credit on non GST supplies. Examples of Non-GST supplies are alcohol for human consumption, petroleum products, electricity etc.

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Frequently Asked Questions

Common questions about Zero Rated, Nil, Exempted & Non.

Zero-rated supply refers to exports of goods or services or supplies to a Special Economic Zone where the taxes paid on such supplies are refunded, and input tax credit is allowed. In contrast, nil-rated supply refers to goods or services on which GST rate is 0%, but input tax credit is not available.

No, input tax credit is not available for exempted supplies under GST. When goods or services are exempted from GST, the taxes paid on inputs or input services used for providing such exempted supplies are not eligible for input tax credit.

Exempted supply refers to goods or services that are exempt from GST under the CGST or IGST Act, but GST is applicable on the inputs or input services used for providing such supplies. On the other hand, non-GST supply refers to goods or services on which GST is not leviable at all, and input tax credit is not available for such supplies.

The term "refund" in the context of zero-rated supplies refers to the refund of taxes paid on inputs or input services used in making such zero-rated supplies. It also includes the refund of unutilized input tax credit as per Section 54 of the CGST Act.

For exempted supplies under GST, a registered person is required to issue a 'bill of supply' instead of a tax invoice, as no GST is applicable on such supplies.

No, input tax credit is not available for non-GST supplies. Since GST is not leviable on such supplies, the taxes paid on inputs or input services used for providing these supplies cannot be claimed as input tax credit.

Some examples of non-GST supplies include alcohol for human consumption, petroleum products, and electricity. These goods or services are not subject to GST, and input tax credit is not available for inputs or input services used in providing these supplies.

The refund of taxes paid on zero-rated supplies can be claimed by the supplier as per the provisions of Section 54 of the CGST Act. The supplier needs to file a refund application along with the required documents to claim the refund of taxes paid on such zero-rated supplies.

Goods or services that are listed as nil-rated under GST are subject to a GST rate of 0%. This means that while no GST is charged on the supply of these goods or services, the supplier is not eligible to claim input tax credit on the inputs or input services used for providing such supplies.

Yes, a supplier can issue a tax invoice for nil-rated supplies under GST. Even though the GST rate is 0% for such supplies, the supplier is still required to issue a tax invoice and comply with the invoicing requirements under GST regulations.