Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. Under GST, there are two types of supplies, zero-rated supplies, and nil rated supplies. Although both types of supplies sound similar, they have different tax implications. In this article, we will discuss the difference between zero-rated and nil rated supplies under GST.
Zero-rated supplies refer to the supplies of goods and/or services that are taxable under GST, but their tax rate is zero. Such supplies can be either exported goods and/or services or goods and/or services supplied under a bond or Letter of Undertaking without payment of IGST (Integrated Goods and Services Tax).
For instance, if a business is exporting goods from India to another country, the GST tax rate will be zero. The same applies to services offered by a business to a customer located outside India. The tax rate on such supplies will be zero.
Nil rated supplies are the supplies of goods and/or services that are exempted from GST. Such supplies do not attract any GST, and the supplier of the goods or services is not entitled to claim any input tax credit.
For instance, supplies of fresh fruits and vegetables, milk, food grains, and educational services are exempted from GST. The tax rate on such supplies will be nil.
The primary difference between zero-rated and nil rated supplies under GST is the tax rate. While the tax rate on zero-rated supplies is zero, the tax rate on nil rated supplies is nil. Zero-rated supplies are taxable supplies, while nil rated supplies are exempted supplies.
Another difference between zero-rated and nil rated supplies is that the supplier of zero-rated supplies can claim input tax credit, while the supplier of nil rated supplies cannot. Input tax credit is the credit that a supplier can claim for the GST paid on the input goods and services used to produce the final product or service.
Furthermore, the paperwork involved in zero-rated supplies is more complicated than in nil rated supplies. For instance, businesses that export goods or services outside India must provide a bond or a Letter of Undertaking to the GST authorities to claim zero-rated tax benefits.
Zero-rated supplies and nil rated supplies are two different types of supplies under GST. Zero-rated supplies are taxable supplies on which the tax rate is zero, while nil rated supplies are exempted supplies that do not attract any GST. Additionally, the supplier of zero-rated supplies can claim input tax credit, while the supplier of nil rated supplies cannot.
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