Navigating Zero-Rated Supplies Under GST: A Comprehensive Guide

Zero-rated supplies are a vital component of the Goods and Services Tax (GST) framework, designed to encourage exports and tax-neutral supplies within specific sectors. By understanding zero-rated supplies, businesses can effectively manage their GST liabilities, claim appropriate refunds, and enhance their competitiveness both domestically and globally.

Significance of Zero-Rated Supplies:

Zero-rated supplies allow businesses to not charge GST on their outward supplies and claim refunds on the GST paid on their inputs, which helps in maintaining liquidity and reducing the overall cost of operations.

Definition of Zero-Rated Supply

Legal Definition

Under the GST law in India, zero-rated supply refers to the export of goods or services or the supply of goods or services to Special Economic Zones (SEZs) where the GST rate applied is 0%. This provision is intended to promote exports and growth in SEZs by relieving the tax burden on exporters and SEZ units.

Context and Examples

• Exports: Any goods or services exported from India are considered zero-rated. For example, an Indian company exporting textiles to another country will charge GST at 0% on these supplies.
• Supplies to SEZs: Goods supplied to an SEZ developer or an SEZ unit for authorized operations are treated as zero-rated supplies. For instance, software services provided to an IT company located in an SEZ qualify under this category.

Eligibility Criteria for Zero-Rated Supplies

Qualifying Conditions

To qualify for zero-rated status, the supplier must ensure that:

• The goods are exported out of India or supplied to an SEZ.
• Proper shipping bills in case of exports or relevant documentation for SEZ supplies are duly filed and approved.
• The supplier should either supply under a bond or Letter of Undertaking (LUT) without payment of GST or pay the GST and claim a refund later.

Sector-Specific Eligibility

• Agriculture: Export of agricultural products without any processing that changes their essential characteristics.
• Manufacturing: Export of manufactured goods that are primarily made in India.

List of Zero-Rated Goods and Services

Comprehensive List

Here is an example of some categories and specific items that are considered zero-rated under GST:

• Food products such as grains, pulses, and milk when exported.
• Handicraft items like hand-made carpets or other handmade textile floor coverings.
• IT services exported outside India.

Sectorial Breakdown

• Agriculture: All unprocessed agricultural produce exported outside India.
• Technology: Software and IT service exports from India.

Documentation for Zero-Rated Supplies

Required Documents

To manage zero-rated supplies under GST, the following documents are generally required:

• Export Invoice: Clearly stating that the supply is intended for export.
• Shipping Bill/Bill of Export: Mandatory for exports out of India.
• LUT/Bond: Required if the supply is under bond/LUT without payment of GST.

Documentation Best Practices

• Accurate and Timely Filing: Ensure timely filing of all export-related documents with the customs authorities.
• Record Keeping: Maintain detailed records of all transactions, including contracts, invoices, and shipping documents, for at least six years for audit purposes.

Refund Claims for Zero-Rated Supplies

Refund Process Overview

GST paid on inputs used to make zero-rated supplies is eligible for a refund. The refund process includes:

• Filing a Refund Application: Submit Form GST RFD-01 on the GST portal.
• Providing Necessary Documentation: Attach documents such as invoices, LUT, and proof of export or SEZ supplies.

Documentation for Refunds

Key documents needed for refund claims include:

• Proof of Export: Shipping bills along with proof that the goods have left India.
• Input Tax Credit Documentation: Invoices and receipts showcasing the GST paid on inputs.

Conclusion

Zero-rated supplies are a crucial aspect of the GST system, offering significant benefits to exporters and suppliers to SEZs. By adhering to the eligibility criteria, maintaining necessary documentation, and efficiently managing refund claims, businesses can maximize their benefits under this provision. Continuous awareness and compliance with the evolving GST laws are essential for leveraging zero-rated supplies effectively.