The introduction of the Goods and Services Tax (GST) in India brought significant changes to the taxation landscape. Among the various provisions and concepts within GST, zero-rated supplies stand out as a crucial element, especially for businesses engaged in international trade and exports. In this comprehensive guide, we’ll delve into zero-rated supplies in GST, covering their definition, implications, and refund procedures.
What is a Zero-Rated Supply?
Zero-rated supplies refer to specific goods or services on which GST is applicable at a rate of 0%. In other words, while these supplies fall within the ambit of GST, they do not attract any tax liability for the supplier. This is different from exempt supplies, where GST is not applicable at all. In essence, it means there’s still GST involved, but it’s nil – a big fat zero.
Zero-Rated Supply in GST
Zero-rated supplies find their application in several areas, making them a vital component of GST. Here’s where they come into play:
- Export of Goods and Services: One of the primary applications of zero-rated supplies is in the export of goods and services. When a registered person supplies goods or services to a foreign country or a Special Economic Zone (SEZ), the transaction qualifies as a zero-rated supply. For example, you’re making T-shirts and selling them to a foreign land. That’s an export. You’re not paying full GST on those T-shirts; it’s zero-rated. The same goes for services you provide globally.
- Supplies to SEZ: Supplies made to a Special Economic Zone (SEZ) developer or SEZ units are also considered zero-rated. This provision encourages investments and economic activities in SEZs. For example, If you’re supplying goods or services to a Special Economic Zone, you guessed it, zero-rated again!
Differentiating Non-GST, Nil-Rated, Zero-Rated, and Exempt Supplies
- Non-GST Supplies: These supplies are not subject to GST, and no GST is applicable on them. For example, alcohol for human consumption is non-GST.
- Nil-Rated Supplies: Nil-rated supplies are those on which the GST rate is set at 0%. However, they are considered taxable under GST. Examples include fresh fruits and vegetables.
- Exempt Supplies: Exempt supplies are those on which GST is not applicable at all and you can’t claim GST credits on inputs used for these supplies. This means that these supplies are outside the purview of GST. Education services provided by an educational institution are an example of exempt supplies.
- Zero-Rated Supplies: As discussed, zero-rated supplies are those on which GST is levied at a rate of 0%. GST applies, but there is no tax liability for the supplier. Export of services is an example of zero-rated supplies.
Refunds and Zero-Rated Supplies in GST
When you’re dealing with zero-rated supplies, you’ve already paid GST on your inputs and services. But since your final product or service is zero-rated, you can claim a refund on that GST you paid earlier. It’s like getting your money back.
Refund Procedures for Export of Goods
Businesses involved in the export of goods can claim a refund under GST. Here are the key steps for claiming a refund:
- Export Documentation: Ensure proper export documentation, including the shipping bill and bill of lading.
- File GSTR-1: Furnish export details in your GSTR-1 return.
- File GSTR-3B: Calculate your input tax credit and finalize your tax liability.
- Request Refund: Submit a refund application along with the necessary documents to the GST authorities.
- Verification: The GST authorities will review your application and documents.
- Refund Processed: Once verified, the refund amount will be credited to your bank account.
Refund Procedures for Export of Services and Supplies to SEZ
The refund procedures for exports of services and supplies to SEZ units are similar to those for the export of goods. Businesses need to maintain proper documentation and file relevant GST returns. The refund application process, verification, and processing remain consistent.
Sometimes, you can’t wait too long for your refund. So, GST authorities may give you a provisional refund first, like an advance. Later, they’ll do a thorough check and adjust it if needed.
In certain cases, businesses can claim a provisional refund of 90% of the claimed refund amount. This provision is beneficial for exporters, as it provides timely relief while the refund application undergoes verification.
How can LogiTax help?
- Simplify the reconciliation of your sales register by verifying the E-invoices generated pertaining to the SEZ are correctly reflected in Sales Register.
- Streamline the process of handling export-related invoices by enabling bulk data upload directly into the GST Portal, eliminating the need for manual, one-by-one entries.
In conclusion, zero-rated supplies in GST are a critical aspect of the tax system, promoting exports and economic growth. They offer various benefits to businesses engaged in international trade. However, navigating the complexities of refund procedures and compliance requirements is crucial. Staying informed about changes in GST regulations and seeking expert guidance with LogiTax can help businesses maximize the advantages of zero-rated supplies while ensuring compliance with the law.
The information provided in this presentation does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This presentation is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi-judicial authorities may not take a position contrary to the views mentioned herein.