ZERO rated & NIL Rated Supplies under GST : Difference

ZERO rated & NIL Rated Supplies under GST : Difference

There is confusion as to what is ZERO rated & NIL Rated Supplies under GST Act

NIL Rated Supplies under GST

GST Act does not define ” Nil Rated Supply”  but it defines “Exempt Supply”

Section 2(47) of CGST Act 2017 “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11 of CGST Act 2017 , or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;

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

Refer Notification No 1/2017 Central Tax (Rate) [CGST Rate Schedule for Goods] Dated  28th June, 2017  and Notification No 11/2017 Central Tax (Rate) Dated 28th June 2017 [Rates for supply of services ] under CGST Act ;

Comment :  No Input Tax Credit available in case NIL rate supplies are made.

ZERO rated Supplies under GST

In GST Zero rated supplies are the ones which are explained under Section 16 of the IGST Act. It includes:

• Export of goods or services or both
• Supply of goods or services or both to a SEZ developer or SEZ Unit

Input Tax Credit is available in ZERO rated supplies, Refund can be taken for unutilized Input Tax Credit

What is the need for Zero Rating?

As per Section 2(47) of CGST Act 2017  a supply is  said to be exempt, when it attracts nil rate of duty or is specifically exempted by a notification or kept out of the  purview of tax (i.e. a non-GST supply).

But if a good or  service is exempted from payment of tax, it cannot be said  that it is zero rated. The inputs and input services which go into the making of the  good or provision of service has already suffered tax and only  the final product is exempted.

Moreover, when the output is exempted, tax laws do not allow availment/utilisation of
credit on the inputs and input services used for supply of the  exempted output. Thus, in a true sense the entire supply is not zero rated. Though the output suffers no tax, the inputs
and input services have suffered tax and since availment of  tax credit on input side is not permitted, it becomes a cost  for the supplier. The concept of zero rating of supplies aims
to correct this anomaly.

By zero rating it is meant that the entire value chain of the  supply is exempt from tax. This means that in case of zero rating, not only is the output exempt from payment of tax,  there is no bar on taking/availing credit of taxes paid on the input side for making/providing the output supply. Such  an approach would in true sense make the goods or services  zero rated.

As already seen, the concept of zero rating of supplies  requires the supplies as well as the inputs or input services  used in supplying the supplies to be free of GST. This is  done by employing the following means:

a) The taxes paid on the supplies which are zero rated are  refunded;
b) The credit of inputs/ input services is allowed;
c) Wherever the supplies are exempted, or the supplies are made without payment of tax, the taxes paid on  the inputs or input services i.e. the unutilised input tax credit is refunded.

If  GST Return filed wrong treating ZERO rated & NIL Rated Supplies or Vice Versa

In case of discrepancies between  data furnished by taxpayer in GSTR 3B & GSTR 1 and Shipping Bill/Bill of export the lower of the two will be allowed as refund.

For discrepancies data furnished in GSTR-3B and GSTR-1 Refund can be on hold.

If Refund is on hold due to mismatch in GSTR-3B and GSTR-1 data “Table 9 of GSTR 1 of subsequent periods needs to be filled i.e Amendments table” Refund will be processed after considering amendments in Table 9.

Read Topic wise GST Commentary

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