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

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

GST has been implemented to simplify the collection of taxes in India. The scenario does not seem to be so, however, as there are many confusions and issues linked to certain subjects.Like what the NIL is, the ZERO rated in the GST and the difference between the two rates. Moreover, what do you mean by taxable, non-taxable and exempt supplies?

Nil Rated Supply

The name itself indicates that in this situation the NIL supply is taxed at 0 percent. This means, in any case, that either the provision of service or the supply of goods NIL tax rate will be charged.

It may seem useful that, indirectly, 0 per cent of the tax is levied on the supply of products and services. But there is a major drawback that the Input Tax Credit can not be carried out of NIL’s rated goods.

Some of the examples of NIL rated supplies are-

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

Zero Rated Supply

As with the Nil rated supply, the tax rate will also be 0 per cent in the event of zero rate supply. However, the supply of both goods and services will be eligible for the Input Tax Credit (ITC) in this case. This means that, in the case of zero rated supply, both the outward and inward supply of goods or services will be free of GST, i.e. by claiming a 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.

NIL rated VS Zero rated

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

NIL Rated SupplyZero 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.

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.

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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