Zero-Rated Supply Under GST — Exports, SEZ & Full ITC Refund

Both are taxed at 0%, but the ITC treatment is opposite. On a zero-rated supply (exports, SEZ) you get a full refund of input tax credit. On an exempt supply (e.g. healthcare, basic education, residential rent to individuals) ITC on the related inputs is blocked under Section 17(2) — you cannot claim or refund it. So a zero-rated supply carries no tax cost at all, while an exempt supply leaves input GST stuck as a cost.

No. A nil-rated supply is a good or service that appears in the tariff at a 0% rate (fresh fruit, grains, eggs) and, like an exempt supply, does not allow ITC. A zero-rated supply is specifically exports and SEZ supplies under Section 16 of the IGST Act, and it does allow a full ITC refund. Only zero-rating lets the supplier recover input tax.

Section 16(1) of the IGST Act lists exactly two: (a) export of goods or services out of India, and (b) supply of goods or services to a Special Economic Zone (SEZ) unit or SEZ developer for authorised operations. No other supply is zero-rated.

Yes. Export of goods and export of services are zero-rated under Section 16(1)(a) of the IGST Act. You can either export under an LUT without paying IGST and claim a refund of accumulated ITC, or pay IGST on the export and claim that tax back as a cash refund.

Yes. Supply of goods or services to an SEZ unit or SEZ developer for authorised operations is zero-rated under Section 16(1)(b) of the IGST Act. It is treated as an inter-state supply, so IGST applies, but the supplier can make it under LUT without paying tax and claim an ITC refund. The SEZ must endorse that the supply was received for authorised operations.

Under Section 2(6) of the IGST Act, a service is an export only if all five conditions are met: the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in convertible foreign exchange (or in INR where permitted by RBI), and the supplier and recipient are not merely establishments of the same person. Only then is the service a zero-rated export.

No. Exports and SEZ supplies are inter-state supplies, and a composition dealer cannot make inter-state outward supplies of goods and cannot claim ITC — so the whole benefit of zero-rating is unavailable. To export, the business must first withdraw from the composition scheme (Form CMP-04) and switch to regular registration.

A Letter of Undertaking (Form RFD-11) is a declaration that lets an exporter make zero-rated supplies without paying IGST on the invoice, and instead claim a refund of accumulated input tax credit. It is filed once per financial year on the GST portal. The LUT route is preferred because it avoids locking up working capital in tax that you will later reclaim.

Under Section 16(3) of the IGST Act: (a) supply under LUT/bond without paying IGST and claim refund of unutilised ITC via Form RFD-01; or (b) pay IGST on the supply and claim a refund of that tax. For export of goods, option (b) is largely automated through ICEGATE; for services and SEZ supplies you file RFD-01 manually.

For the LUT route, refund of unutilised ITC = (turnover of zero-rated supply ÷ adjusted total turnover) × Net ITC for the period. Net ITC is the input tax credit availed on inputs and input services during the refund period. The formula ensures you only get back the ITC proportionate to your zero-rated turnover.

A refund application in Form RFD-01 must be filed within 2 years from the relevant date. The relevant date is the Let Export Order date on the shipping bill for goods, the date foreign-exchange payment is received (FIRC date) for services, and the date of SEZ endorsement for SEZ supplies.

The proper officer must pass the final refund order within 60 days of a complete RFD-01 application, and 90% may be sanctioned provisionally in Form RFD-04. If the refund is delayed beyond 60 days, interest is payable under Section 56. Automatic IGST refunds on exported goods are usually credited within days once GSTR-1 matches the shipping bill.

The most common reason is a mismatch between the shipping bill and GSTR-1 — a different invoice number, GSTIN, or IGST amount, or the shipping bill filed before GSTR-1 (SB005-type errors). Reconcile the shipping bill with your GSTR-1 export invoices; if it still fails, the refund needs manual intervention through ICEGATE.

No. The GST 2.0 rationalisation effective 22 September 2025 restructured goods and services into a two-slab system (5% and 18%, plus 40% on demerit goods) but did not change the zero-rating mechanism. Exports and SEZ supplies remain zero-rated under Section 16 of the IGST Act, with the same LUT and RFD-01 refund routes.

Exporters making zero-rated supplies still charge 0% on the supply. Under the LUT route they charge no IGST at all; under the pay-IGST route they pay tax at the applicable rate and claim it back. GST 2.0 changed domestic slab rates, not the zero-rating of exports, so the export treatment is unchanged.