With the various kinds of supplies, there is a confusion under GST for the process and payment of the same. There are relatable differences between Nil-rated and zero-rated supplies. Even non-taxable and exempt supplies have differences. However, the end result for all of the above – Nil-rated, Zero-rated, non- taxable and exempt – is the same, i.e. no GST is charged for any of these supplies.

In this article, we’ll look at the difference between all these terms, which will help you to correctly file GST for the same and get an accurate ITC claim (if applicable).

Further reading: How Tally’s latest version can help with GST Billing and GST Return Filing

Difference Between Nil-Rated, Zero-Rated, Non-Taxable and Exempt Supplies

1. Nil-Rated Supply

Supply of goods and/or services (or both) which attract 0% GST rate is known as nil-rated supply. This comes under the Schedule I of the GST Act and includes goods like select food items or human blood.

  • Availability of Input Tax Credit: There is no tax credit input available for nil-rated supplies for inputs and/or input services provided by nil-rated supply. In simpler terms, GST credit is not available to the registered dealer.
  • GST Applicability: GST on nil-rated supplies is not applicable, therefore cannot be claimed.
  • Examples: Salt, jaggery, grains are some examples of goods included in the nil-rated supply.

Further reading: GST Rate for all goods and services

2. Zero Rated Supply

Any supplies of goods or services (or both) meant for Export or Special Economic Zone (SEZ) Developer or Special Economic Zone (SEZ) Unit comes under Zero-rated supply. The zero-rated supplies tax makes Indian goods and services available in international markets at a competitive price, thus ensuring no additional taxes are included in the cost of exports.

  • Availability of Input Tax Credit: ITC can be claimed in zero-rated supply.
  • GST Applicability: There are two ways that GST is applicable in zero-rated supplies;

i.The use of LOU (Letter of undertaking) and claiming a refund of unutilised GST for goods and services without any payment of GST.

ii.Paying IGST for supply of goods and services and then claiming a refund for the IGST paid on the supplies.

Further reading: Refund of unutilised Input Tax Credit (ITC)

3. Non-Taxable Supply (Non-GST Supply)

The supply of goods and/or services that are not included under the GST Act is known as non-taxable supply. These goods and/or services may be charged under the local sales tax or any other Act.

  • Availability of Input Tax Credit: The goods and/or services under non-taxable supplies do not have any tax input credit, and hence it can’t be claimed.
  • GST Applicability: GST for goods and/or services under non-taxable supply is not applicable.
  • Examples: Alcohol for human consumption and petroleum products are the only goods included under non-taxable supply.

4. Exempted Supply

Supply of goods and services that attract no tax rate or are specifically exempted from the GST Act due to government notification and include non-taxable supply are called exempted supply. In other words, it is the supply of goods and/or services which do not attract GST.

  • Availability of Input Tax Credit: With respect to input and/or input services that are used for making availability of exempt supplies, no input credit can be claimed.
  • GST Applicability: For goods and services under exempted supply, GST is not applicable.
  • Examples: Exempted supply include puja samagri, cereals and live animals (except horses).

Further reading: IGST Exemptions/Concessions under GST

Differences between zero-rated, nil-rated and non-GST and exempt supplies in India & US

  • Goods and services that are subject to sales tax in the US but free from the rate are known as zero-rated supply. In India, they are subject to GST but exempt from paying any GST.
  • Under the Goods and Services Tax (GST), zero-rated supplies in the US and India are exempt from paying GST. Therefore, the suppliers are not obliged to charge GST, and the recipients are not eligible to claim input tax credit. Although these supplies are not subject to sales, use or VAT in the US. They can be federally taxable according to the different tax systems in India and the US. 
  • Government services, agricultural items, petroleum products, and alcohol are examples of non-GST supplies in India. On the other hand, non-taxable supplies in the US include newspapers, medical equipment, prescription medications, and prescription pharmaceuticals.
  • There are tax exemptions for several federal government services, such as postal service and military housing, in both the US and India.

A comparative table for a comprehensive understanding of all these supplies

ParticularsZero-Rated SuppliesNil-Rated SupplyNon-GST SupplyExempt Supply
MeaningIt refers to products or services that have no VAT or GST. This allows companies to recoup input taxes. This supply is meant for export or for units or developers within special economicGoods and services that are excluded from VAT or GST are known as nil-rated supplies. This supply attracts a 0% GST rate. These are often used for essentials to ensure affordability and accessibility while lowering tax obligations. Unlike zero-rated commodities that are tax-free, businesses can't recover input taxesThe term "non-GST supply" defines transactions or activities that are free from the tax system and not liable to the Goods and Services Tax (GST) or any other comparable consumption tax. Depending on the tax laws in a given country, this exemption could only apply to certain categories and transaction types. This supply is outside the interest of the GST Act. Goods and services that are exempted from GST or VAT are referred to as exempt supplies and allow companies to recover input taxes. Usually, vital or socially significant categories like healthcare or education services are exempted from these taxes.
GST ApplicabilityIt is subjected to GST, here is 0%. Offer products or services with no GST payable through using a Letter of Undertaking (LOU) and request a refund for any GST that is not used. It enables the recovery of GST that has not been used. GST is not applicable to supply.GST is not applicable to supply.GST is not applicable to supply
Input Tax Credit AvailabilityThe input tax credit can be claimed.No input tax credit is available.No input tax credit is available.No input tax credit is available.
Cover under GST AmbitYesYesNoYes (for nil rated and exempt supply)
No (for non-taxable supply)

Conclusion

This sums up the difference between nil-rated and zero-rated and non-taxable and exempted goods. Knowing the difference in the types of supplies is extremely important for the filing of GST returns, which will also enable you to claim accurately. TallyPrime (formerly Tally.ERP 9) has made GST filling, billing and claiming easy, which is why it is one of the most trusted software that is used by most of the GSTPs (GST Practitioners).

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