Meaning of zero rated supply under GST

The concept of zero rated supply is introduced in Goods and Services Tax Act (GST) to make the export of goods or services competitive in the global market by not charging any tax on output supplies and allowing of input tax credit and refunds of tax paid on procurement of input supplies.

The term zero rated supply is defined under section 16 of the Integrated Goods and Services Tax Act 2017, as per the above section:-

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.

So from the above definition, it can be fairly concluded that only export supplies and supplies made to SEZ unit or SEZ developer are classified as zero rated supplies. Domestic supplies do not come under the definition of zero rated supply.

Further, subject to the provisions related to block credit under GST, input tax credit (ITC) is available for making zero rated supplies even if such supplies are exempt supplies under GST.

Furthermore, a registered person making zero rated supplies is also eligible to take refund of GST paid, by either of the following ways:-

a. by making supply under bond or letter of undertaking, without payment of taxes and claim refund of the unutilised input tax credit; or

b. by making supply on payment of integrated tax and claim refund of such tax paid.

So in nutshell, we can conclude that zero rated supplies means export supplies and supplies made to SEZ units or SEZ developers. Further on zero rated supplies, input tax credit and refund is available even if supplies are exempt supplies.

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