Understanding Zero Rated Supply in GST
Updated on : Feb. 10, 2023 - 1 p.m. 17 min read.
What are zero-rated supplies under GST?
GST zero-rated supply refers to a supply of goods or services that are exempt from payment of GST, but the supplier is eligible to claim an input tax credit (ITC) for the taxes paid on inputs and input services used in making such supplies.
In other words, zero-rated supplies are not taxed at the point of sale, but the supplier can claim credit for the taxes paid on the inputs used in making such supplies. This allows the supplier to reduce the cost of their inputs and increase their competitiveness in the market.
Examples of zero-rated supplies under GST include exports of goods or services, supplies to SEZ (Special Economic Zone) units, and supplies made under the Advance Authorization or Export Promotion Capital Goods schemes.
Why zero rating is required?
Zero rating under the GST is implemented to promote exports and encourage foreign trade. The following are the main reasons for the need for zero rating under the GST:
- To make exports more competitive: By allowing the suppliers to claim an input tax credit (ITC) for the taxes paid on inputs and input services, a zero rating makes exports more competitive in the international market. This helps to increase the exports of goods and services and boosts the country's economy.
- To reduce the cost of inputs: Zero rating allows the supplier to reduce the cost of inputs and input services used in making exports, as they can claim ITC for the taxes paid on such inputs. This results in lower prices for the final products and makes them more competitive in the international market.
- To promote SEZ units: Zero rating is also applicable to supplies made to SEZ units, which helps to promote the development of such units and boost economic growth.
- To simplify compliance: Zero rating simplifies the compliance requirements for suppliers making zero-rated supplies, as they are not required to pay taxes on such supplies but can still claim ITC for the taxes paid on inputs and input services.
Note: The zero rating of supplies is subject to certain conditions and requirements as specified under the GST laws, and the suppliers must comply with such conditions to avail themselves of the benefits of zero rating.
Refund of Zero Rated Supplies in GST
Under the Goods and Services Tax (GST) regime, a supplier making zero-rated supplies (exports of goods or services, supplies to SEZ units, etc.) is eligible to claim a refund of the taxes paid on the inputs and input services used in making such supplies. The process for claiming a refund under a zero rating in GST is as follows:
- Filing of returns: The supplier must regularly file their returns, including GSTR-1, GSTR-3B, and GSTR-5, and ensure that all their tax liabilities are paid in full.
- Application for a refund: The supplier must apply for a refund on the GST portal by submitting a Form GST RFD-01 along with the required supporting documents, such as invoices, shipping bills, and bank details.
- Processing of refund: The tax authorities will process the refund application and, if approved, the refund amount will be credited to the bank account of the supplier.
Note: The supplier must comply with all the conditions and requirements specified under the GST laws for claiming a refund, including timely filing of returns, payment of tax liabilities, and submission of required supporting documents. The supplier must also avoid claiming any ineligible credits or making any false or misleading statements while applying for a refund, as this may result in interest, penalty, or other consequences under the GST laws.
For exporting goods, the general procedure for obtaining a refund is as follows:
- Check eligibility: Verify that the goods meet the criteria for a refund, such as being exported within a specified time frame and not being used prior to export.
- Documentation: Gather required documentation, such as invoices, shipping manifests, and proof of export.
- Submit claim: Submit the refund claim to the relevant authorities, such as the customs office or the tax authority.
- Review process: Wait for the review process to be completed, which can take several weeks or months.
- Payment: Receive the refund payment, if the claim is approved.
- Appeal: If the claim is denied, you may have the option to appeal the decision.
Note: Refund procedures vary by country and may be subject to specific regulations, so it's advisable to consult a specialist or check the relevant authorities' websites for specific instructions.