[PDF] Difference Between Zero Rated, Nil Rated, And Non-GST And Exempt Supplies

Non-GST Supply: For the ultimate user, there are numerous types of supplies under GST which create confusion. Although the result of all these supplies is the same (GST is not applicable on the supply or non-GST supply), it is crucial to know the difference particularly for filing the correct GST returns and accurate claims of ITC.

Zero Rated Supply

Zero-rated supplies, according to Section 16 of Integrated Goods and Service Tax Act means:-

Export of goods or services or both; or
Supply of goods or services or both to a special economic zone unit.

Zero-rating tells us that the entire supply chain of a particular zero-rated supply is tax-free both ways. In the International market, the nature of zero-rated goods is to make Indian goods and services competitive by ensuring that there are no taxes added to the cost of export.

These goods and/or services are generally sold within the country as they are not prescribed under any list.

Subsection(3) of Section 16 of the Integrated Goods and Service Tax Act states that a registered individual making a zero-rated supply is eligible to claim a refund under the following options:-

The dealer can export under bond or LUT(Letter of Undertaking) and claim a refund; or
IGST can be paid by the dealer while making supplies and claiming a refund.

Therefore, the dealers are provided the flexibility to choose between the two options at their convenience.

Note: According to Subsection(2) of Section 16 of the Integrated Goods and Services Tax Act, when a registered individual is eligible to claim a refund for zero-rated supplies, that supply is non-taxable and even exempt supply.

Nil-Rated Supply

Nil-rated supply is the supply of goods or services or both on which 0% GST rate is applicable. Nil-rated supply goods are listed under Schedules I of the GST act. Cereals, vegetables, and fruits, salt, milk, etc are examples of Nil-rated supply goods.

No input tax credit of inputs and/or input services used in providing Nil-rated supply is applicable. In layman’s terms, if any GST is paid on the goods or services or both used in providing Nil-rated supply then such GST is not available to the registered dealer.

Non-GST Supply

Non-GST supply is the supply of goods or services or both which are outside the extent of the GST act. In layman’s terms, they are not taxable under the GST act and may be chargeable to tax under any local state tax law.

Petroleum products and Alcohol(for human consumption) are the only products falling under this category.

Exempted Supply

The supply of goods or services or both which engage nil rate of tax are Exempted supply. These are exempted from government notification and include non-GST supply. Hence, it is the supply of goods or services or both which does not allure GST. Cereals, live animals(except horses), religious products, etc fall under this category.

No input tax credit can be claimed concerning inputs and/or input services used for making exempted supplies.

Comparative Table

Particulars	Zero-Rated Supply	Nil-Rated Supply	Non-GST Supply	Exempt Supply
Meaning	It is the Export of goods or services or both or the Supply of goods or services or both to a special economic zone unit.	Supply which attracts 0% GST rate.	Supply is outside the extent of the GST act.	Supply which engages nil rate of tax, exempt from government notification and includes the non-taxable supply.
GST Applicability	(i) The dealer can export under bond or LUT(Letter of Undertaking) and claim a refund; or (ii) The dealer can pay IGST while making supplies and claim for a refund for the same.	GST is not applicable on supply.	GST is not applicable on supply.	GST is not applicable on supply.
Input Tax Credit Availability	The input tax credit can be claimed.	No input tax credit is available.	No input tax credit is available.	No input tax credit is available.
Cost Under GST Ambit	Yes	Yes	No	Yes (for nil-rated and exempt supply) No (for non-GST supply)

Section 11(1) of the GST Act

According to Section 11(1) of the GST Act, the Central/State government has been granted the power to reduce the GST rates. The notification can only be approved and recommended on the decision of the GST council. A general exemption notification is issued and it should be in the public interest. The exemption can be absolute or subject to conditions. The exemption can be in respect to goods or services or both of any specified description.

Export of Goods or Services

Export of Goods: Export of goods is the process of taking goods out of India to a place outside India.

Export of Services: Export of services is the process of supply of any service when

The supplier of service is located in India,
The recipient of service is located outside India,
The place of supply of service is abroad or outside of India,
The payment for the service received by the supplier in relatable foreign exchange, and
The supplier of service and recipient of service are not merely establishments of a distinct person per explanation of 1 of Section 5.

As per explanation of 1 of Section 5

An establishment of an individual in India and any of his establishments outside India, or

An establishment of an individual in a state and any of his other establishments outside that state,

Shall be treated as establishments of a distinct person.