GST (GOODS AND SERVICES TAX) – Zero Rating of supplies

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Under GST, zero-rated supply refers to goods or services that are exported out of India or supplied to a Special Economic Zone (SEZ) developer or an SEZ unit, where the goods or services are taxed at a rate of 0%. This concept is critical for promoting exports and operations in SEZs without the burden of tax.

Key Features:

Tax Rate: The tax rate for zero-rated supplies is 0%. It implies that no GST is charged on the output side.

Input Tax Credit (ITC): Despite the GST rate being zero, suppliers making zero-rated supplies are eligible to claim input tax credit for the GST paid on their inputs. This ensures that there is no tax cost embedded in the exported goods or services.

Scope of Zero-Rated Supplies:

Exports: India exports goods or services as zero-rated. This includes both physical goods and services delivered to clients outside India.

Supplies to SEZs: Supplies made to SEZ developers and units are also zero-rated under GST that has GST registration in Coimbatore. This facilitates SEZ units in operating in a tax-free environment, thereby encouraging investment and export-led growth.

Procedures and Documentation:

Export under Bond or LUT: Exporters have the option to supply goods or services under a bond or Letter of Undertaking (LUT) without paying IGST. This allows them to export without immediate cash outflow and claim input tax credits.

Export with IGST: Exporters can also choose to pay IGST at the time of export and then claim a refund of this IGST paid. This option is beneficial when the input tax credit is not sufficient to cover the IGST liability.

Section 16 of IGST Act

In India, GST that has GST registration in Bangalore does not apply to exports, making all exports zero-rated supplies. According to Section 16 of the IGST Act, zero-rated supply applies to the following goods and services:

Export of goods or services, or both

• Provision of goods or services, or both, to a Special Economic Zone (SEZ) developer
• Provision of goods or services, or both, to a Special Economic Zone (SEZ) unit

Documents for Zero-Rated Supply Refund

To claim a refund for zero-rated supplies, certain documents must be provided, including

• proof of export such as the shipping bill,
• bill of lading,
• invoice copy,
• LUT or bond for exports without IGST payment, and
• a bank realization certificate (BRC) for goods, or Foreign Inward Remittance Certificates (FIRC) for services.

Benefits:

Enhanced Competitiveness: Zero rating of exports ensures that Indian goods and services remain competitive in the global market by pricing them without including domestic taxes.

Boost to Economy: By encouraging exports, zero-rated supplies contribute to the country’s foreign exchange earnings and economic development.

Tax Neutrality: The principle of zero rating ensures that taxation does not distort business decisions, especially in choosing locations for sourcing or manufacturing.

Challenges:

Compliance and Documentation: Exporters must maintain stringent documentation, such as shipping bills, export invoices, and proof of receipt in the foreign country, to prove goods have their exports and claim zero rating.

Refund Delays: While the system allows for a refund of input taxes on zero-rated supplies, delays in processing these refunds can affect the cash flows of exporters.

Impact: Zero-rated supplies under GST that has GST registration in Chennai have a significant impact on businesses involved in exports and SEZ transactions, as they help in maintaining liquidity by allowing refunds on input taxes. It aligns with international tax norms by not taxing exports and by encouraging businesses to explore and expand in international markets.

Conclusion

Zero-rated supplies under GST have provided significant relief to exporters and businesses supplying goods and services to SEZs. This zero-rating enables a full refund of input taxes, helping Indian goods and services stay competitive in the global market. However, to fully benefit from these provisions, it is essential to understand the various options available and ensure compliance with documentation requirements.