It can be difficult to navigate the complexities of the Goods and Services Tax (GST), if you don’t know the basic difference between different kinds of GST supplies like Exempted, Nil Rated, Zero-Rated, and Non-GST Supply. It is very important as a consultant or beginner to have basic knowledge of these terms to avoid any wrong filing of returns.
That’s why I will explain these terms with examples in this article.
Exempted Supplies
Exempted supplies refer to goods and services that are not subject to GST. The supplier does not charge GST on these items, and input tax credit (ITC) cannot be claimed on the inputs and services used to produce these goods or services. Exemptions are provided under Section 11 of the CGST Act, 2017, and are listed in various notifications issued by the government.
Examples:
- Healthcare services provided by a clinical establishment.
- Educational services provided by an institution from pre-school to higher secondary.
- Agriculture-related services like cultivation, harvesting, and post-harvest operations.
Reference: Section 11 of the CGST Act, 2017 empowers the Government (through GST Council) has the power to exempt tax on goods or services or both
Nil Rated Supplies
Goods and Services having a 0% GST rate that are included in the GST rate schedules are known as nil-rated supply. Despite the fact that these supplies are GST-free, they vary from exempted items in that the government has given them a special 0% rate. Similar to exempted supplies, suppliers are not eligible to claim Input Tax Credits (ITC) on inputs utilized in the production of these goods.
Examples:
- Fresh vegetables and fruits.
- Unbranded cereals and pulses.
- Unprocessed milk.
Reference: Schedule I of the GST rate schedule.
Zero-Rated Supplies
Zero-rated supplies pertain primarily to exports and supplies to Special Economic Zones (SEZ). These supplies attract a 0% GST rate, but the key difference is that suppliers can claim a refund of the input tax credit on the inputs used in making these supplies. This feature encourages exports by relieving them of the tax burden and ensuring competitiveness in the global market.
You have the option to pay taxes or not on exports and claim a refund. You need to file LUT or Bond to make supplies of export with zero-rated supply. When it is supplied with zero-rated (no GST paid), it is called as zero-rated supply only.
In GSTR-3B returns, whether you do export with zero-rated or payment of tax, you have to declare the values in row 3.1(b) only.
Examples:
- Goods exported to foreign countries.
- Services provided to clients outside India.
- Supplies made to SEZ units or developers.
Reference: Section 16 of the IGST Act, 2017 and Refund under Section 54 of the CGST and SGST Act 2017.
Non-GST Supplies
Non-GST supplies are those that are entirely outside the scope of GST. These supplies are not governed by GST laws and typically fall under other forms of taxation. This category includes items like alcohol for human consumption and petroleum products, which are taxed under different regulations.
Actually these goods and services are never bought under GST purview and needs amendment to bring these products or services under the provisions of Goods and Services Tax.
Examples:
- Alcoholic beverages for human consumption.
- Petroleum crude, motor spirit (petrol), high-speed diesel, natural gas, and aviation turbine fuel.
Reference: Article 366(12A) of the Constitution of India.
Summary of Differences
| Type of Supply | GST Rate | ITC Availability | Examples |
| Exempted Supplies | 0% | No | Healthcare services, educational services, agricultural services |
| Nil Rated Supplies | 0% | No | Fresh vegetables, unbranded cereals, unprocessed milk |
| Zero Rated Supplies | 0% | Yes | Exported goods, services to clients outside India, supplies to SEZ |
| Non-GST Supplies | Not under GST | Yes | Alcoholic beverages, petroleum products |
Conclusion
Businesses must be aware of these differences in order to maximize their tax obligation and assure compliance with GST requirements. Despite being comparable, the way exempted and nil-rated supplies are treated under the legislation varies. By enabling ITC claims, zero-rated supplies significantly help the export industry. Non-GST supplies are not included in the GST framework at all since they are subject to other rules.
You may better navigate the tax environment and make wise decisions for your organization by becoming familiar with these categories and consulting the relevant parts of the GST Act.
