by Zero-rated supply is a concept under GST that refers to supplies of goods and services that are taxable under GST, but are taxed at a rate of 0%. This means that no tax is collected on such supplies, but the supplier is eligible to claim input tax credit (ITC) for the taxes paid on inputs used in making such supplies.
Zero-rated supplies are mainly of two types: exports and supplies to Special Economic Zones (SEZs).
Exports refer to the supply of goods and/or services from India to a place outside India. In such cases, the supplier can choose to either pay tax on the supplies and claim a refund of the taxes paid, or supply the goods and/or services at a zero rate of tax. If the supplier chooses to supply at a zero rate of tax, then he will not be required to pay any tax on the exports, but will be eligible to claim ITC on inputs used in making such supplies.
Supplies to SEZs refer to supplies of goods and/or services made by a registered supplier to a unit or developer located in an SEZ. In such cases, the supplier can choose to either pay tax on the supplies and claim a refund of the taxes paid, or supply the goods and/or services at a zero rate of tax. If the supplier chooses to supply at a zero rate of tax, then he will not be required to pay any tax on the supplies to the SEZ, but will be eligible to claim ITC on inputs used in making such supplies.
In addition to exports and supplies to SEZs, certain other supplies may also be classified as zero-rated supplies under GST. For example, supplies made to a person who is located in a notified area (such as a United Nations organization, a foreign diplomatic mission, etc.) may be treated as zero-rated supplies.
It is important to note that zero-rated supplies are distinct from exempt supplies, which are not subject to GST at all. In the case of zero-rated supplies, the supplies are taxable under GST, but are taxed at a rate of 0%.
Advantages of Zero-rated Supplies under GST:
- Boosts exports: Zero-rated supplies encourage exports by making Indian goods and services competitive in the international market, as they are not subject to any tax.
- Benefits to SEZs: Supplies to SEZs are essential for the growth of these zones, as they provide a favorable environment for businesses to thrive, and zero-rated supplies enable suppliers to provide goods and services to SEZs at a lower cost.
- ITC Benefit: Suppliers of zero-rated supplies can claim Input Tax Credit (ITC) for taxes paid on inputs used in making such supplies, which reduces the overall cost of production.
- Encourages Investments: Zero-rated supplies provide an incentive for businesses to invest in their production capacity, thereby increasing employment and economic growth.
Goods list under Zero-rated Supplies:
- Goods meant for export, such as machinery, tools, equipment, and raw materials.
- Services provided to clients located outside India, such as IT services, consulting services, etc.
- Supplies made to SEZs, such as machinery, equipment, raw materials, etc.
- Supplies made to United Nations organizations, foreign embassies, etc. located in India.
- Supplies made to international tourists, such as hotel accommodation, food, and beverages, transportation services, etc.
- Supplies made to specified duty-free shops at international airports.
