Zero Rated supplies in GST – Meaning, Refund and differences
Zero Rated Supplies under GST
What is Zero Rated Supply?
A zero rating refers to the tax exemption for the entire value chain of the supply chain. In the case of zero rating, not only is the output tax-free but tax credits can also be taken/claimed for input taxes paid to make/provide the output supply. By going for such an approach, the goods or services would go zero-rated.
Every supply need not be zero-rated. According to the GST law, all exports and supplies to special economic zones are zero-rated.
According to Section 16(1) of the IGST Act, 2017, a “zero rated supply” refers to any of the following supplies of goods or services or both:
a) export of goods or services or both; or
b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
What is the need for a Zero Rating?
According to section 2(47) of the CGST Act, 2017, a supply is exempt if it is maintained out of the reach of tax, attracts no duty, is specifically exempted by a notification, or is kept out of the tax net (i.e. non-GST supply).
A good or service that is exempt from tax cannot be considered zero-rated. As a result, the inputs and input services that go into the making of goods or provision of service have already been taxed, so only the final product is exempt.
Also, exempt outputs cannot be credited for inputs used to supply the outputs.
Although the output is not taxed, the inputs and input services are taxed and since the supplier is not allowed to claim tax credits on the input side, it becomes a cost.
Also, the idea behind introducing zero-rating supply was to resolve this issue.
How to claim zero-rated supply in GST refund?
Refund Procedures For Export Of Goods
In this case, the standard refund application (GFST RFD-01) is not applicable. In the case of exporting goods, there is no need to file separate refund claims since the shipping bill filed by the exporter is considered to be an application for a refund of integrated tax.
As per law, if the following two requirements are met, the shipping charge will be treated as a refund claim:
- Transporter of the export products must provide an export manifest; and
- Applicants should have filed GSTR-3 or GSTR-3B returns.
The refund is processed by the department once the above two documents are properly filed
Refund Procedures For Supplies To SEZ
In order to claim a refund for taxes paid on supplies made to SEZ, suppliers must submit GST RFD-01 on the common portal. However, For service providers, along with the claim form, these documents must also be attached:
- a statement including the number and date of invoices and
- Foreign Inward Remittance Certificates or Bank Realisation Certificates.
For refunds related to supplies made to SEZ, the DTA supplier must file the claim. If supplies were given to a developer or SEZ unit, a claim for a refund may be made by the:
- Provider of goods after all goods are admitted to the Special Economic Zone for authorised operations, as approved by the designated officer;
- A supplier of services along with evidence that authorised operations were received as endorsed by the zone officer.
The papers that need to be submitted along with the claim form are :
- a statement with the number and date of the invoices and evidence of the endorsement,
- Information about the payment that recipient made to the supplier, along with payment documentation.
Provisional Refund
Taxpayers who make Zero-Rated supplies are entitled to a provisional 90% refund on the claim. After the refund claim after Seven (7) days after the refund claim, a provisional refund is given and the amount will be digitally credited to the claimant’s bank account.
Provisional refunds have an additional requirement. If the applicant has been charged with a crime in the last five (5) years under the GST legislation or an earlier law, the provisional refund will not be given. In such a prosecution, the total amount of tax evaded must exceed Rs. 250,000,000. (Rs. 2.5 Crores).
Difference between Zero Rated and Exempt Supply in GST
Supplies that are exported or provided to SEZ units or developers are considered zero-rated supplies. On the other side, 0% GST-rate supplies are referred to as exempt or nil-rate supplies.
Exempted supply refers to any supply of goods or services, or both, that is subject to a zero per cent tax rate or that may be completely exempt from taxation under section 6 of the IGST Act or section 11 of the CGST Act. This includes non-taxable supplies.
The exempt supply is shown in the following details:
- GST does not apply on the outward exempted supplies;
- Input tax credit of inputs and/or input services used in providing exempt supply is not available, i.e. no input tax credit on exempt supplies;
- A registered person must issue a “bill of supply” rather than a tax invoice when supplying exempt items, services, or both.
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