Under GST Regime, there is a lot of confusion about the difference between nil rated and zero rated supplies, as well as the difference between non-taxable and exempt supplies. While the end result of all these supplies is the same, i.e. GST is not charged on the supply, it is important to know the real difference between these supplies. This is also important from a reporting perspective, because in GST returns, a clear bifurcation of the value of each of these supplies is required to be furnished.

Let us understand the difference between these supplies which is given below:

A) Meaning :

1) Nil Rate Supplies: Goods or services on which GST rate of 0% is applicable (listed in Schedule 1 in the GST rate schedule) are called nil rated goods or services. Supply of any of these goods or services is a nil rated supply under GST.

2) Non Taxable Supplies: Goods or services on which GST is not leviable (as these goods or services are kept out of the purview of GST) are called non-taxable goods or services. Supply of any of these goods or services is a non-taxable supply under GST.

3) Exempt Supplies: By definition, exempt supply under GST is a broad term which includes nil rate supplies, non-taxable supplies and specific supplies which are notified as exempt from tax. Hence, in the GST Law and rules, reference to exempt supplies includes nil rate supplies, non-taxable supplies and the specific supplies declared as exempt by notification.

4) Zero Rate Supplies: There is a common understanding that supplies liable to 0% tax rate are the zero rated supplies which is wrong.  In GST, Zero rated supplies are the ones which are executed under Section 16 of the IGST Act. It includes :

  • Export of goods or services or both
  • Supply of goods or services or both to a SEZ developer or SEZ Unit

Note that here, tax is not charged owing to the nature of supply, regardless of the goods or services supplied.

For persons making a zero rated supply under GST, 2 options have been given:

  • Supply goods or services under bond or Letter of Undertaking, without payment of tax and claim refund of unutilised input tax credit, or
  • Supply goods or services with payment of tax and claim input tax credit

B. Availability of input tax credit :

1) Nil Rate Supplies: No Input Tax Credit is available in case Nil Rate Supplies.

2) Non Taxable Supplies: No Input Tax Credit is available in case Non Taxable Supplies.

3) Exempt Supplies: No Input Tax Credit is available in case Exempt Supplies.

4) Zero Rate Supplies: Input Tax Credit is available in case Zero Rate Supplies.

C. Example :

1) Nil Rate Supplies: Supply of jaggery, handloom, cereals, accommodation in hotel with tariff below Rs. 1,000 per day

2) Non Taxable Supplies: Supply of alcohol for human consumption, petroleum products, electricity.

3) Exempt Supplies: Transport services provided by a GTA, where the gross amount charged is less than Rs. 1,500  for a consignment in a single carriage or Rs 750 for a single consignee, inward supplies from unregistered dealers where the aggregate value does not exceed Rs. 5,000 in a day.

4) Zero Rate Supplies: Export of apparel to Germany, consultancy services provided to Company in USA.

Disclaimer: The contents of this article are solely for information and knowledge and does not constitute any professional advice or recommendation. Author does not accept any liability for any loss or damage of any kind arising out of this information set out in the article and any action taken based thereon.

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3 responses to “Difference between Nil Rated & Zero Rated, Non Taxable & Exempt Supplies”

  1. Rahul Kant says:

    Your article is factually incorrect.

    1. You have mentioned that Nil rated supplies (GST @ 0%) are listed in Schedule 1 in the GST rate schedule. This is incorrect – Schedule 1 consists of goods which are taxable @ 5%.

    2. You have mentioned Electricity as a “non-taxable supply”. This is incorrect – Electricity is an “exempt supply” under HSN 2716 00 00.

    3. There is no rate schedule which prescribes 0% tax rate. The notification for exempt goods prescribes the tax rate as “Nil”. The goods mentioned by you as “Nil rated” are actually “exempt goods”. Please clarify and provide guidance regarding which goods are to be reported under “Nil rated supply” column in the GST Return instead of “Exempt supply” column.

  2. K.S.SHAH says:

    R/SIR,
    YOU GIVE VERY USEFUL DETAILS FOR THE GST CONFUSION WORDS.
    THANKS & REGARDS

  3. Vaibhav Mago says:

    Very we’ll explained.
    Cleared lots of confusion.

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