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Zero Rated Supply in GST

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Last Updated on June 15, 2023 by Kanakkupillai

In any country, one of the primary aims of the government is to encourage exports and provide benefits to businesses involved in exports. Under the GST regime, one such benefit provided to exporters is the zero-rated supply of goods.

 Zero Rated Supply in GST

Zero-rated supply refers to the export of goods and services without imposing taxes. In other words, the tax rate is considered zero. Companies engaged in exports can claim the input tax credit, which means they can get a refund of the GST spent on purchasing goods and services.

There are two methods to claim input tax credit:

a) When exports are done under a bond or letter of undertaking, it is easier to claim tax refunds.

b) A refund can be claimed When Integrated Goods and Services Tax (IGST) is paid during the supply.

Key Takeaways

  • Zero-rated supply in GST provides benefits to exporters by exempting them from taxes.
  • Exporters can claim input tax credits and get refunds on GST paid for goods and services.
  • There are two methods to claim input tax credit: under a bond/letter of undertaking or by paying Integrated GST (IGST).
  • The refund procedure for the export of goods involves filing a shipping bill as a refund application.
  • IGST payment is necessary to claim a refund for supplies made to SEZ or export supplies.
  • Different documents and the refund application for exports and supplies to SEZ need to be submitted.
  • Zero-rated supply differs from the exempt supply, where the tax rate is nil or exempted.
  • Exempt supply does not attract GST and does not allow input tax credit.
  • Provisional refunds are available for exporters and supplies made to SEZ.
  • Refunds are processed within seven days, but eligibility depends on compliance with GST laws.

Refund Procedure for Export of Goods:

The refund procedure for the export of goods is simplified under the GST Act. Exporters do not need to file a separate application to claim a refund. The shipping bill filed by the exporter serves as the necessary application for claiming a refund.

However, the application should be attached with the following documents:

a) The person carrying export goods should file an export manifest.

b) The applicant should have filed GSTR-3 or GSTR-3B, respectively.

These two documents and the application to claim a refund should be attached.

Refund Procedure for Export Supplies or Supplies Made to SEZ

To claim a refund on supplies made for export or supplies made to Special Economic Zones (SEZ), the payment of IGST is necessary. The refund application should be submitted in the form of GST RFD-01.

The following documents should be submitted along with the application for a refund:

a) The document specifies the number and date mentioned on the invoice.

b) Copies of bank documents and foreign remittance certificates.

Regarding supplies made to SEZ, the following documents should be submitted along with the application form:

a) The number and date mentioned on the invoice.

b) Proof of receipt of goods and services authorized by a specific officer of SEZ.

c) Details of payment made.

d) A form declaring that SEZ or its members do not possess input tax credit from the tax paid by the supplier.

The Difference Between Zero Rated and Exempt Supply:

Zero-rated supply refers to the taxation of supplies made for export or to SEZ, where the tax rate is considered zero. On the other hand, exempt supply refers to supplies of goods and services where the tax rate is nil or exempted.

Points to be remembered in exempt supply:

a) GST does not apply to the outward exempted supply.

b) Input tax credit is not applicable to exempt supply.

c) A registered person supplying exempted goods and services shall issue a bill of supply instead of a tax invoice.

d) Exempted supply means the supply of goods or services that attracts a nil tax rate or is completely exempted from tax under Section 6 of the GST Act and Section 11 of the IGST Act.

Provisional Refund:

Exporters and supplies made to SEZ can get a provisional refund. The refund amount will be processed within seven days of claiming the refund and will be directly issued to the claimant’s account. However, there is a condition for issuing a provisional refund. The claimant should not be charged under GST or any other prevailing law. If the claimant is charged for an offence committed under the act, they will not be eligible to receive the refund amount. The amount of tax evaded in such prosecution should be more than two hundred and fifty lakhs.

Conclusion:

Zero-rated supply is crucial for exporters dealing with foreign countries and SEZ. The benefits derived from the provisions of zero-rated supply are significant. Exporters can derive these benefits by attaching the necessary documents along with the refund application.

Related Services

GST Registration Online

GST Return Filing Online

FAQs

1. What is zero-rated supply in GST?

Zero-rated supply refers to the export of goods and services without imposing taxes, where the tax rate is considered zero.

2. Who can benefit from zero-rated supply?

Exporters engaged in the export of goods and services can benefit from zero-rated supply.

3. What is the input tax credit in zero-rated supply?

The input tax credit allows exporters to claim a refund of the GST amount paid on purchasing goods and services used in the export process.

4. How can input tax credits be claimed?

The input tax credit can be claimed through two methods: by exporting under a bond or letter of undertaking or by paying Integrated Goods and Services Tax (IGST) during the supply.

5. What documents are required to claim a refund for the export of goods?

The shipping bill filed by the exporter serves as the necessary application for claiming a refund. It should be attached with an export manifest and filed GSTR-3 or GSTR-3B.

6. What is the refund procedure for export supplies or supplies made to SEZ?

For export supplies or supplies made to Special Economic Zones (SEZ), the payment of IGST is necessary. The refund application should be submitted in GST RFD-01, along with specified documents.

7. What is the difference between zero-rated supply and exempt supply?

Zero-rated supply refers to the taxation of supplies made for export or to SEZ, where the tax rate is considered zero. Exempt supply refers to supplies where the tax rate is nil or exempted.

8. Can input tax credit be claimed on exempt supply?

No, the input tax credit cannot be claimed on exempt supply. It is applicable only for taxable supplies.

9. What is a provisional refund in zero-rated supply?

Provisional refund allows exporters and supplies made to SEZ to receive a refund within seven days of claiming, directly to their account, provided they meet certain conditions.

10. What are the benefits of zero-rated supply?

Zero-rated supply benefits exporters by facilitating tax-free exports, enabling input tax credit refunds, and promoting international trade and competitiveness.

 

G.Durghasree B.A.B.L (Hons)

G Durghasree B.A.B.L (Hons) is a registered trademark attorney with extensive experience as an Advocate for a period of 8 years. She possesses expertise in trademark law, including trademark filing and trademark hearings. Additionally, she is skilled in contract drafting and reviewing, providing legal advice and opinions, particularly in the areas of Company Law, Insolvency and Bankruptcy Code (IBC), and Goods and Service Tax Law (GST). Her experience encompasses both litigation and non-litigation aspects of these laws.