What is non-GST, Nil-rated, Zero Rated & Exempt Supplies

Definition of GST

Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax levied on value addition at every stage of the supply chain. It aims to replace multiple indirect taxes and establish a uniform taxation structure across India. GST applies to both goods and services. Whether you are a businessman, accounts executive, student, or consumer, it is important to understand the different GST return categories for proper filing of GSTR-1, e-invoice applicability, and accurate accounting.

GST Rates

Earlier GST rates were 5%, 12%, 18%, and 28%. At present, the primary applicable tax slabs are 5% and 18%, while luxury and sin goods attract a higher rate of up to 40%.

Types of GST

1. CGST – Central Goods and Services Tax
2. SGST – State Goods and Services Tax
3. IGST – Integrated Goods and Services Tax
4. Cess – Compensatory tax on specific goods like luxury and sin items

Taxability of Supply

GST is levied on the supply of goods and/or services falling under the charging provisions of GST law. A supply may or may not attract tax. To determine tax liability, it is essential to check whether such supply is taxable or exempt. Supplies are categorized into:

Categories of GST Supplies

GST supplies can be broadly classified into four types:

1. Nil Rated Supplies
2. Exempted Supplies
3. Zero Rated Supplies
4. Non-GST Supplies

Non-GST Supply

Non-GST Supply refers to the supply of goods or services (or both) that fall outside the purview of the GST Act. These supplies are not taxable under GST, and may instead be subject to other tax laws such as local VAT, excise, or state taxes.

Businesses receiving such supplies must report them as inward non-GST supplies in their records. Input Tax Credit (ITC) cannot be claimed on non-GST supplies. Although GST is not applicable, these supplies may still attract taxation under other legislation.

Definition

1. Non-GST supplies refer to goods or services that are not covered under the GST regime and are taxed separately by the government through different laws.
2. These supplies are completely outside the scope of GST law and are taxable under alternative regulations.

Key Features:

1. Not under the scope of GST rules
2. GST is not applicable
3. Examples include: Petrol, Diesel, Electricity, Alcohol for human consumption

Impact on Businesses

Since these supplies operate outside the GST structure, businesses must follow other tax compliance requirements, which can be more complex and time-consuming. Proper classification is necessary to ensure correct return filing and avoid legal issues.

Examples of Non-GST Supplies

1. Electricity
2. Diesel
3. Petrol
4. Alcohol for human consumption

Nil Rated Supplies

Nil Rated Supplies refer to goods or services on which the applicable GST rate is 0%. These items are included in the GST rate schedule (Schedule I), and although they fall under the GST framework, no tax is charged at the time of supply.

Input Tax Credit (ITC) is not available on Nil Rated supplies. This means that if a business purchases inputs used to manufacture or supply Nil Rated goods or services, ITC on such inputs or input services cannot be claimed.

Definition

1. Nil Rated supplies are goods or services that are taxable under GST, but attract a 0% tax rate.
2. These items are covered under GST law, but no GST is levied on their supply.

Key Features

1. Covered under GST, but taxed at 0% rate
2. No GST charged on supply
3. Input Tax Credit not allowed
4. Mostly essential or basic items decided by CBIC (Central Board of Indirect Taxes & Customs)

Examples of Nil Rated Supplies

1. Cereals
2. Fresh fruits and vegetables
3. Milk
4. Natural honey
5. Salt
6. Human blood and blood plasma

Impact on Businesses

Businesses dealing with Nil Rated supplies cannot claim Input Tax Credit on purchases used in supplying these items. This may affect profitability and cost planning since taxes paid on inputs become part of the expense.

Exempt Supplies

Exempt Supply refers to goods or services on which no GST is charged, even though they may fall under the category of taxable supplies under the GST law. These items are exempted from GST through specific government notifications, mainly to reduce the tax burden on essential and socially important goods and services. Since GST is not levied on exempt supplies, Input Tax Credit (ITC) is not available on inputs or input services used for making such supplies.

A registered person dealing exclusively in exempt goods or services must issue a Bill of Supply instead of a tax invoice.

Definition

1. Exempt supplies are goods or services that do not attract any GST, and no tax is levied on their supply. Businesses supplying exempt items cannot claim ITC on related purchases.
2. These are goods or services that may be taxable under GST law but are exempted through government notifications for public welfare.

Key Features

1. No GST applicable on outward exempt supplies
2. No Input Tax Credit allowed
3. Covered under GST law but exempted by notification
4. Includes Nil Rated Supplies, as they also attract 0% tax
5. Supply invoice must be a Bill of Supply, not a tax invoice

Examples of Exempt Supplies

1. Live fish
2. Fresh milk and fruits
3. Fresh vegetables
4. Unpacked food grains
5. Curd
6. Bread
7. Healthcare services
8. Educational services
9. Charitable activities

Impact on Businesses

Businesses dealing in exempt supplies cannot claim input tax credit, which increases their overall production or operational costs. They must maintain proper classification and documentation to ensure compliance, especially when filing GST returns.

Zero Rated Supplies

Zero Rated Supplies refer to supplies of goods or services that are taxed at 0% GST, primarily to promote exports and supply to Special Economic Zones (SEZ). Although the applicable GST rate is 0%, these supplies are considered taxable, which means the supplier is eligible to claim Input Tax Credit (ITC) on inputs used for making such supplies.

Zero Rated Supplies include:

1. Export of goods or services or both
2. Supply of goods or services to SEZ developers
3. Supply of goods or services to SEZ units

Exports are treated as supplies outside India and therefore do not attract GST. Taxpayers engaged in zero-rated supplies can claim a refund of unutilized ITC if supplies are made without payment of tax under a Letter of Undertaking (LUT), or they may supply with payment of IGST and claim a refund later.

Definition

Zero Rated Supplies are taxable supplies that attract a 0% rate of GST, typically applying to exports and supplies made to SEZ units or developers.

Key Features

1. GST Rate: 0%
2. Covered under GST law
3. ITC is allowed
4. Refund of unutilized ITC can be claimed
5. Encourages export competitiveness and international trade

Examples of Zero-Rated Supplies

1. Export of goods and services to overseas customers
2. Supply of goods to an SEZ unit
3. Supply of services to an SEZ developer

Impact on Businesses

Businesses making zero-rated supplies benefit from the ability to:

1. Claim input tax credit on purchases related to zero-rated goods or services
2. Apply for refunds of unutilized ITC
3. Reduce overall tax burden and improve liquidity

This strengthens export competitiveness and supports foreign trade growth.

Comparison Table: GST Supply Categories

Particulars	Nil Rated Supplies	Exempt Supplies	Zero Rated Supplies	Non-GST Supplies
Meaning	Goods/services taxable under GST but taxed at 0% rate	Goods/services that are exempt through GST notification; no GST charged	Supplies taxed at 0% GST but eligible for ITC & refund	Goods/services outside the scope of GST law
GST Applicability	Covered under GST law, GST rate = 0%	Exempt from GST, no tax levied	Covered under GST law, GST rate = 0%	Not governed by GST
ITC (Input Tax Credit)	Not allowed	Not allowed	Allowed & refundable	Not allowed
Invoice Type	Tax invoice	Bill of Supply	Tax invoice / LUT / Export documents	Normal invoice / invoice / another law-based bill
Examples	Cereals, fresh fruits, natural honey, salt	Fresh milk, curd, bread, education services, healthcare	Export of goods, supply to SEZ units/developers	Petrol, diesel, alcohol for human consumption, electricity
Taxability Nature	Taxable supplies at 0%	Taxable but exempted	Taxable supplies at 0% with ITC benefit	Not taxable under GST at all
Refund Eligibility	No	No	Yes – on unutilized ITC	No
Return Reporting	GSTR-1 & GSTR-3B	GSTR-1 & GSTR-3B	GSTR-1, GSTR-3B & refund application (RFD-01)	Report as non-GST inward/outward

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