FinTech Glossary

Meaning

Zero-rated supply under GST refers to supplies on which the output tax rate is effectively zero while input tax credit can still be available, subject to conditions. In India, zero-rated supplies mainly include exports and supplies to Special Economic Zone developers or units, as defined under GST law. It is different from exempt supply because exempt supplies typically restrict input tax credit.

Business Context

Zero-rated supply is highly relevant for exporters, SEZ vendors, international service providers, logistics businesses, and companies selling goods or services outside India. The policy intent is to make exports tax-neutral so that domestic taxes do not get embedded in exported goods or services. Businesses may supply under bond/LUT without payment of IGST or pay IGST and claim refund, depending on permitted routes and rules.

How It Works

A business dealing with zero-rated supplies must track:

• Correct classification as export or SEZ supply.

• Place of supply and recipient details.

• LUT or bond documentation, where applicable.

• Shipping bills, invoices, FIRCs/BRCs, and SEZ endorsements.

• Input tax credit used or refund claimed.

• GST return reporting and reconciliation.

Documentation quality is critical because refund delays often arise from mismatches or missing evidence.

Why It Matters for Businesses

Zero-rated supply improves export competitiveness by allowing businesses to claim credit or refund of input taxes. However, mistakes in classification, documentation, place-of-supply analysis, or return filing can block refunds and strain working capital. Export-oriented businesses should build GST checks into invoicing, shipping, accounting, and reconciliation workflows so tax benefits are not lost due to process gaps.