Zero-Rated Supply

Zero-Rated Supply is a specific category under the Indian GST framework where the tax rate on the outward supply is 0%, but unlike exempt supplies, the supplier is still fully entitled to claim Input Tax Credit (ITC) on the inputs, input services, and capital goods used to make that supply. This makes zero-rating one of the most advantageous GST categories for exporters.

Zero-rated supplies are defined under Section 16 of the IGST Act, 2017.

What Qualifies as a Zero-Rated Supply?

Only two categories of supply qualify as zero-rated under Indian GST:

Export of goods or services: Any supply of goods or export of services to a recipient outside India. The payment must be received in convertible foreign exchange as required under FEMA.

Supply to a Special Economic Zone (SEZ) unit or developer: Goods or services supplied to an SEZ unit or SEZ developer within India are also treated as zero-rated, since SEZs are deemed to be outside the customs territory of India for tax purposes.

Zero-Rated vs. Exempt Supply

This is one of the most important distinctions in GST, and the two are frequently confused:

The key difference is that a zero-rated supplier can reclaim all the GST paid on their inputs, while a supplier of exempt goods or services cannot. This is why exporters benefit significantly from zero-rating — they bear no ultimate GST cost at any stage of their supply chain.

Two Routes for Making Zero-Rated Supplies

Route 1 — Under LUT Without Paying IGST

The supplier files a LUT (Letter of Undertaking) on the GST portal and then exports without charging any GST on the invoice. They can subsequently claim a refund of the accumulated ITC on inputs used for the export.

This is the preferred route for most exporters, especially service exporters, as it does not block working capital.

Route 2 — Pay IGST and Claim Refund

The supplier charges IGST on the export invoice, pays it to the government, and later applies for a GST refund of the IGST paid. This route is less common due to the cash flow impact of paying tax upfront before recovering it through a refund.

Zero-Rated Supply and the Tax Invoice

When making a zero-rated supply under the LUT route, the tax invoice must carry the declaration:

"Supply meant for export under LUT without payment of Integrated Tax"

When making a zero-rated supply with IGST payment, the invoice must state:

"Supply meant for export on payment of Integrated Tax"

The place of supply on the invoice is deemed to be outside India for exports, which is what triggers the zero-rating.

Claiming ITC Refund on Zero-Rated Supplies

A supplier who makes zero-rated supplies under the LUT route accumulates ITC (since they pay GST on inputs but charge 0% on outputs). This accumulated ITC can be claimed as a GST refund by filing Form RFD-01 on the GST portal.

Key documents required for the refund include:

• Statement of invoices (auto-populated from GSTR-1)
• FIRC (Foreign Inward Remittance Certificate) as proof of foreign exchange receipt
• LUT reference number
• Bank realisation certificates

Zero-Rated Supply and GSTR Filing

Zero-rated supplies must be reported in:

GSTR-1: Under Table 6A for exports, with invoice details, foreign currency amount, and shipping bill number (for goods).

GSTR-3B: Under the "Zero-rated supply (exports) and supply to SEZs on payment of tax" or "Zero-rated supply without payment of tax" row, depending on the route chosen.

Zero-rated supply is the foundation of India's export incentive under GST. By allowing full ITC recovery on exports, the law ensures Indian exporters can compete globally without carrying an embedded domestic tax cost.

Exporting services or goods? Use JetInvoice's free GST Invoice Generator to create export invoices with the correct zero-rated declarations and LUT reference — ready for GST filing.