Definition
Zero-Rated Supply (GST)
A zero-rated supply under GST is one taxed at a nil rate while still allowing the supplier to claim input tax credit, applied mainly to exports and SEZ supplies.
Zero-rated supply is distinct from an exempt supply. In both, no GST is charged on the outward sale, but only zero-rating preserves the supplier's right to input tax credit on inputs — making exports genuinely tax-free along the chain. It covers exports of goods and services and supplies to Special Economic Zones.
Exporters can either pay IGST and claim a refund, or export under a bond or letter of undertaking without paying tax and claim a refund of unused ITC. This mechanism ensures Indian exports are not burdened with domestic taxes, keeping them competitive.
Related terms
- Input Tax Credit (ITC)Input Tax Credit lets a GST-registered business offset the tax it has already paid on purchases against the GST it collects on sales, so tax is levied only on value added.
- Exempt Supply (GST)An exempt supply under GST attracts no tax, but unlike a zero-rated supply, the supplier cannot claim input tax credit on related inputs.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.