What are zero-rated supplies under GST?

Zero-rated supplies is an important concept under the Goods and Services Tax (GST) in India. Under GST, the general rule is that the supply of goods or services is taxable, meaning GST must be charged. However, certain types of supplies that are taxed at 0% are  known as zero-rated supplies. This means that while no GST is levied on these supplies, the supplier is still entitled to claim input tax credit (ITC) on goods and services used in making these supplies.

Types of Zero-Rated Supplies:

As per the GST Act, the following will be considered zero-rated supplies.

• Export of Goods or Services: 

Supplies of goods or services from any part of India to a place outside India are considered as exports and hence would be zero-rated. The exporters shall be eligible for a refund of the unutilised input tax credit of GST on inputs pertaining to such zero-rated supplies.

• Supplies to Special Economic Zones: 

Supplies made to units or developers in Special Economic Zones also fall under zero rating. SEZs are specifically designated areas for boosting economic activity with certain tax exemptions, and supplies to such areas attract zero GST. Similar to exports, the supplier is allowed to claim a refund of input tax credit.

Options to Claim Refund for Zero-Rated Supplies

Suppliers of zero-rated goods or services can take up two options while claiming their refund:

• With Payment of IGST: The supplier, in this option, charges Integrated GST, thereafter claiming the refund on the IGST so paid. This is, thus, a faster option since it involves fewer procedural requirements.
• Without Payment of IGST-Under Bond or LUT: Here, the supplier can export goods or services without payment of IGST by furnishing a Letter of Undertaking or bond. He can claim a refund of the ITC used in the production of those goods or services.

Benefits of Zero Rated Supply

• No tax burden on the exporter: Zero-rating will keep Indian exporters competitive in the global market. If it is not zero-rated, then exporters would need to add the GST. on such goods or services again; this will make them expensive and not competitive internationally.
• Input Tax Credit Refund: Provision of refund of input tax credit against goods and services utilized for supplying zero-rated goods or services enhances liquidity and reduces tax costs.
• Boost to SEZ: Zero rating of supplies to SEZ gives a boost to the investment therein, which is an integral part of the government's scheme for promoting industries and exports.

Documents Required for Zero-Rated Supply Refund

Certain documents are required to be given for the claims of refund of zero-rated supply, like proof of export-shipping bill, bill of lading, copy of invoice, LUT or bond in case of export without payment of IGST, and bank realisation certificate-BRC in case of goods and FIRCs in case of services.

Challenges in Claiming Refunds

Although the GST system is designed in a way such that ITC refunds on zero-rated supplies are allowed smoothly without much difficulties , the supplier faces challenges while claiming refunds like delayed refunds, issues on the GST portal, technical glitches, and incorrect documentation.

 An industry leader in GST refund matters, MyGST Refund provides expert solutions to help you through these complexities. We ensure that your claims for refund under GST are filed precisely on time. With expert knowledge in the entire refund process of GST, we help the trade to avoid common pitfalls and ensure that all legal compliances are met and the refunds are facilitated in the shortest possible time for better cash flows and operational efficiencies.

Conclusion

Zero-rated supplies under GST have given much-needed respite to the exporters and the businesses supplying goods and services to SEZs. Zero-rating would, therefore, allow a complete refund of input taxes, which would help Indian goods and services remain competitive in the international market. However, to reap the full benefits, these provisions will be crucial to understand various options and ensure compliance with requirements of documentation.

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