Difference between, Exempted, Nil Rated, Zero Rated and Non-GST supplies

Exmepted supplies

 

Difference between, Exempted, Nil Rated, Zero Rated and Non-GST supplies

Since the launch of GST on 1st July 2017, the confusion between Exempted and Non-taxable supply are far from over, to add on to the confusion GST act provides for Nil rated and Zero rates supplies as well. It is important to understand these terms as their treatment is different under GST. Their disclosure requirements are also different in the Act. To get a better understanding, Let us first go through the definition of each of these supplies given under the act.

Exempt supply is defined in section 2(47) of GST Act.

“Exempt supply” means the supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11of the CGST act, or under section 6 of the IGST Act, and includes non-taxable supply.

It can be construed that an Exempted supply includes three types of supply

  1. Exempt Under Schedule III: The Government under section 7(2)(b) of the CGST Act and under Schedule III has defines the transactions or activities which are neither considered as a supply of goods nor supply of service.
  1. Supply attracting Nil Tax rate: These are the supplies which are taxable under GST but at a NIL Rate. 
  1. Wholly Exempt under Section 11 of the CGST Act or section 6 of the IGST act : The Government has power under section 11 upon recommendation from GST council to specify by notification products which are exempt either absolutely or subject to conditions the goods or services from the whole or part of tax leviable thereon.

Input tax credit is not available in case you have an Exempt outward Supply.

Examples: Bread, fresh fruits, fresh milk and curd etc.

Non-Taxable Supplies is defined under section 2(78) of the CGST Act

“Non Taxable Supply” means a supply of goods or services or both which is not leviable to tax under GST ;

This basically includes the supply of goods and services that do not come under the purview of GST while other taxes may be applicable and recovered.

Input tax credit is not available in case of a Non Taxable Supply.

Example: Petrol, alcohol for human consumption.

Zero Rated Supply is defined in Section 16 IGST Act

Sub Section (1) “zero-rated supply” means any of the following taxable supply of goods and/or services, namely –

(a) export of goods and/or services; or

(b) supply of goods and/or services to SEZ developer or SEZ unit.

Sub Section (2) Subject to provisions of sub-section (3) of section 17 of the CGST Act, 2016, the credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply;

Having read both the section it can be interpreted that the Zero rated supply is not actually a supply with nil rate, but since the entire amount paid as tax can be claimed as Input tax it makes the supply zero-rated. Had the same supply were made in India rather than export, it would have been taxable.

Input tax credit is available in case of a Zero Rated Supply.

Examples: Sale of goods from a supplier in India to a person in Germany.

Nil Rate Supplies: 

Nil rated supplies are the Goods or services on which 0% GST rate is applicable (listed in Schedule 1 in the GST rate schedule). Supply of any of these goods or services is a nil rated supply under GST Act.

Input tax credit is not available in case of a Nil Rated Supply.

Example: Grains, salt, jaggery etc.


Hope the information will assist you in your Business & Professional Endeavors. In case of any query/ information, please do not hesitate to write back to us.


Thanks & Best Regards,                                                    

Tax Team, Get Set Business Solutions

305, Nipun Plaza, Sector-4, Vaishali, Ghaziabad, UP, New Delhi-NCR area, India, 201010.

|Tel: – +91 120 402 6320, | Mail : – info@getsetbusiness.com | Website: – www.getsetbusiness.com | 


Disclaimer: The contents of this document are solely for informational purpose. It does not constitute any professional advice or recommendation of the firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damages. Also for Losses or damages arising out of any information or for any actions taken in reliance thereon. Readers are advised to consult the professional for understanding applicability of this article in the respective scenarios. While due care has been taken in preparing this document. The existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4 thoughts on “Difference between, Exempted, Nil Rated, Zero Rated and Non-GST supplies

  • Detail explanation of different supply but I am still confused in nil rated supply, non taxable supply, exempted supply. Please solve my query as soon as possible.
    My another question is that why are we allowed to take benefit of input tax credit only for zero rated supply.

    I am waiting for my answer.

    • Hi Asha,

      Zero-rated supply does not mean no tax is applicable. This concept has been introduced in GST to provide the required thrust to export. Under GST Zero rated supply is defined only under section 16 under which there can be two scenarios

      With LUT/BOND:
      In this case, you don’t have to deposit any tax on outward supply amount and you can take refund of Input of tax paid on Inward supplies. For example, you have purchased an article for 118( 100 +18% tax) and exporting it. You can add your margin say INR 20 and export it in INR 120 no GST is required to be charged). Later on, you can claim the refund of INR 18 paid at the time of purchase.

      Without LUT/BOND:
      In this case, you have to deposit tax on outward supply amount and you can take an input credit of tax paid on Inward supplies and a refund of output tax deposited. For example, you have purchased an article for 118( 100 +18% tax) and exporting it. You can add your margin say INR 20 and export it in INR 141.6 ( 120+ 18% tax). While depositing INR 21.6 of tax you can take the input of INR 18 paid as tax on inward supplies and deposit only INR 3.6. Later on, you will get INR 21.6 as a refund.

      Please also read https://www.getsetbusiness.com/faq/faqs-on-exports-under-gst
      https://www.getsetbusiness.com/gst-articles/furnishing-lut-simplified

      Hope this clarifies

      Regards
      Tax team
      getsetbusiness.com

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