Zero Rated Supply refers to the supply of goods or services that are taxed at 0% GST, where the supplier can still claim input tax credit (ITC) on related purchases.
Zero Rated Supply is a key concept under the GST framework in India, mainly applicable to exports of goods or services and supplies made to Special Economic Zones (SEZs). Although GST is charged at a zero rate on such supplies, they are treated as taxable supplies, not exempt supplies.
The biggest benefit of zero rated supply is that businesses can claim a refund of input tax credit (ITC) paid on raw materials, services, or inputs used to make these supplies. This helps exporters remain competitive by reducing overall tax costs.
Suppliers making zero rated supplies can choose to:
Export under bond or LUT (Letter of Undertaking) without paying GST and later claim ITC refund, or
Export by paying GST and then claim a refund of the tax paid.
Zero rated supply is different from exempt supply, where no GST is charged but ITC cannot be claimed.
"An Indian company exports garments to the USA. The export is treated as a zero rated supply, meaning no GST is charged on the sale, and the exporter can claim a refund of GST paid on fabric, packaging, and other inputs."