Nil Rated, Zero Rated, Non-Taxable and Exempted Supply

GST was introduced to simplify the tax collection in India. But the situation doesn’t seem to be so as there are many confusions and questions related to some topics.

Like what are NIL, ZERO rates in GST and what’s the difference between both the rates. Moreover, what do you mean by taxable, non-taxable and exempted supply?

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Let us study all these supply in details.

Nil Rated Supply

The name itself suggests that in this case of supply NIL that is 0 % tax is charged. This means in any case either of providing service or of supplying goods NIL rate of tax will be charged.

It may seem beneficial that indirectly 0% tax is charged for the supply of both goods and services. But there’s a major drawback that is Input Tax Credit can’t be taken in NIL rated supplies.

Some of the examples of NIL rated supplies are-

  1. Salt
  2. Jaggery
  3. Cereals and many more.

Analysis of Time of Supply of Goods and Services under GST

Zero Rated Supply

Like in Nil rated supply, the rate of tax will be 0% in case of Zero rate supply also. But the supply of both goods and services will be eligible to claim Input Tax Credit (ITC) in this case. That means in case of Zero rated supply both outward and inward supply of goods or services will be free from GST i.e. by claiming the refund .

Following are the cases in which Zero rate is attracted-

  • Export of goods or services or both; or
  • Supply of goods or services or both to a Special Economic Zone developer or
  • A Special Economic Zone unit.

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NIL rated VS Zero rated

In the following table the summarized comparison between NIL and Zero rated supply is given-

NIL Rated Supply Zero Rated Supply
Tax rate is 0%. Tax rate is 0%.
ITC is not available. ITC is available.
Supply of daily essentials is some examples of NIL rated supply. Overseas supplies, Supply to Special Economic Zones (SEZ) or SEZ Developers.

 Non –Taxable Supply

“Non-taxable Supply means a supply of goods or services or both which is not leviable to tax under GST Act. Firstly, an activity or transaction should be a supply. If an activity or transaction falls outside the scope of supply then it can be said as a non -taxable supply. Therefore, the definition of supply has been given in the Act and it is an inclusive definition which almost covers every transaction of goods and services unless specially excluded. So the activities and transactions specified are not supply. As it is not supply so it can be said as non-taxable supply.

Non-Taxable Supply is supply defined under the act which is not chargeable to tax due to exclusion by the section, concerned with charging GST i.e. by section 9 of the CGST Act,2017. Hence supply of alcoholic liquor for human consumption, motor spirit, natural gases and aviation turbine fuel are non-taxable supply.

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Exempted Supply

Supply of goods or services or both which does not attract GST at all are considered as exempted goods. It includes daily essential items.

Following points are to be noted for exempted supply:

  • There is no GST applicable on outward exempted supplies;
  • Input tax credit of inputs and / or input services used in providing exempted supply is not available i.e. no input tax credit on exempted supplies;
  • A registered person supplying exempted goods or services or both shall issue ‘bill of supply’ instead of tax invoice.

Business in different states Require different GST Registration

NIL rate supply Vs Exemption supply

Exempt Supply means supply of any good or service or both which is wholly exempt under the Goods and Services Tax Act.

Nil rated supply is not defined in GST Law. The basic difference between nil rated and exempt supply is that in case of exempt supply the rate can be higher than 0%. But due to exemption notification no tax is payable in these supplies. Whereas in case of NIL rated supply, the tariff is at NIL rate so there is no tax to be paid and exemption notification is also not required.

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The author of above article is Sneha Bhalotia

Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon.  It is prepared based on understanding of provisions as stood applicable as on date.
Also, and its members do not accept any liability, obligation or responsibility for author’s article and understanding of user.
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