Difference between nil rated, exempt and zero-rated supplies

CA Shravagi Jain

January 05, 2024

4 min read

Introduction

We all know that classification of different types of supply is necessary in GST laws. Because supplies are categorised in GST return.

It has been a long time when GST was implemented but still there is a lot of buzz among people that what is the difference between exempt, zero rated and nil rated supplies.

It is important to know the difference among all these as exempt supplies are considered at many places in calculation but nil rated is ignored.

So, let us discuss difference between all these in brief-

Meaning of zero-rated supply

Zero rated means that the entire chain of supply is exempt from tax. It simply means that not only outward supply is exempt from payment of tax, but we can also avail credit of input tax paid on purchases for providing that outward supply.

Why there is a need for this concept of zero rating

In exempt supply only outward supply is exempt from tax but inputs which have been used to make that supply have suffered taxes and availment of input tax credit is not permitted in that case.

So, to correct this procedure the concept of zero rated has been introduced. This can be done by following means-

Tax paid on outward supply which is zero rated is refunded
Credit of inputs are allowed used in supplying zero rated supply
Unutilized input tax credit is also refunded

A registered person making zero rated supply can claim refund under the following options-

He may supply goods or services under bond/LUT
He may supply goods or services on payment of IGST and claim refund of such tax paid on goods/services supplied.

The concept of zero-rated supply applies to compensation cess also.

Exempt Supply

Exempt supply has been defined as supply of goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax. It means that exempt supply also includes non-taxable supply (supply on which tax is not leviable).

Exemptions can be given for the whole or part of the tax. It can be granted by notification or special order. Exemptions are always given in public interest. Regular public consumption products such as milk, salt, egg, unpacked food grains are exempt from GST.

Some services like charitable activities are also exempt from tax. Benefit of input tax credit is not available in case of exempt supply.

Nil rated supply

Nil rated supply falls under the preview of GST means GST is chargeable on these supplies but these supplies attract zero rate (0%) of tax.

An exempt supply is notified through exemption notification but if a supply is under nil rate or 0% rate without notification then it is nil rated supply.

Nil rated supply is listed in schedule I of GST act. An exempt supply may have a higher rate of tax, but no tax payable on these supplies due to notification. Nil rated supply is covered under 0% tariff.

So let us see a comparative table for all these supplies-

Point of difference	Zero rated supply	Exempt supply	Nil rated supply
Meaning	Zero rated means that the entire chain of supply is exempt from tax	Exempt supply means no tax is payable on these supplies because of exemption notification	Nil rated supplies are those which attracts 0% rate of tax
Input tax credit	Available	Not available	Not available
GST applicability	Falls under GST ambit But no GST applicable	Falls under GST ambit But no GST payable	Falls under GST ambit But attracts 0% rate of tax
Example	Export of goods or services	Necessity items like foodgrain, milk, salt etc.	Jaggery, bread etc.

Conclusion

To conclude we can say that all these supplies do not generate any revenue for the government, but these are different all together. Government has power to bring amendments time to time when it is necessary in public interest like it may include or exclude products and services through exemption notification. I hope with the help of this article you have got a clear picture in your mind about all these supplies.