Yes, Input Tax Credit (ITC) can be claimed on zero-rated supplies (exports and SEZ supplies), as they are taxable supplies subject to a 0% rate rather than being exempted. Suppliers can claim a refund of accumulated ITC on inputs used for these supplies, even without paying IGST on the output.
GST Returns: Zero-rated transactions must be included in your GST returns, while exempt transactions do not appear. Input Tax Credits: For zero-rated supplies, you can claim back the GST on related expenses. For exempt supplies, you generally cannot.
Yes, you can reclaim VAT on zero-rated supplies. This is because these supplies are taxable at a rate of 0%, meaning that the customer does not have to pay any VAT, but the supplier can reclaim the input VAT paid on associated purchases.
Again, goods exempted under GST already enjoy 0% GST. ITC cannot be claimed for inputs used in such exempted goods as it will lead to negative taxation. So, ITC on inputs for exempted goods will also have to be removed.
What is Zero Rating? By zero rating it is meant that the entire value chain of the supply is exempt from tax. This means that in case of zero rating, not only is the output exempt from payment of tax, there is no bar on taking/availing credit of taxes paid on the input side for making/providing the output supply.
Zero-rated supplies are also taxable supplies but are subject to a 0% rate of GST.
No, ITC is generally not allowed on the customs duty component. It can only be claimed on the (IGST) paid at the time of import.
What is ineligible for Input Tax Credit? Under Section 17(5) of the CGST Act, you can't claim credit for GST paid on personal vehicles, food, club fees, life/health insurance (unless required by law), building construction, or lost/damaged goods.
Any input tax credit on capital goods used for making taxable, exempt, nil-rated supplies must be allocated and reversed to the extent not used for business. Others include any other ITC which has to be reversed in the books of accounts of the taxpayer.
By zero rating it is meant that the entire supply chain of a particular zero-rated supply is tax-free i.e. there is no burden of tax either on the input tax side or on the output side. This is in contrast with exempted supplies, where only output is exempted from tax but tax is levied on the input side.
You can fully reclaim VAT on costs related to your zero rated supplies whereas you cannot reclaim VAT on costs related to your exempt supplies. You can't/aren't required to register for VAT if you only have exempt supplies. The types of goods and services qualifying for the VAT zero rate or VAT exemption differ.
Governments commonly lower the tax burden on low-income households by zero rating essential goods, such as food and utilities or prescription drugs.
In economics, zero-rated supply refers to items subject to a 0% VAT tax on their input supplies. The term is applied to items that would normally be taxed under valued-added systems such as Europe's Value Added Tax (VAT) or Canada's Goods and Services Tax (GST).
This means that the supplier does not have to charge any GST on the supply. They can also claim a refund of the input tax credit (ITC) paid on the inputs used to make the supply. Zero rated supply is different from exempt supply, which is also not taxable, but does not allow the supplier to claim any ITC.
Zero-rated supplies are supplies that are not subject to GST in certain situations. A rate of 0% applies to these supplies. For example, a New Zealand architect designs a building to be constructed on an overseas property for an overseas client.
Zero-rated supplies effected without payment of Integrated tax (under Bond/ Letter of Undertaking (LUT)) needs to be reported under “0” tax amount heading in Table 6A and 6B.
To summarise, zero-rated supply is a type of GST supply where the GST rate applicable is 0%, but the supplier can still claim the input tax credit. Nil-rated supply is a type of GST supply where the GST rate is also 0%, but the supplier cannot claim the input tax credit.
If a supplier issues an invoice with a POS different from the recipient's registered state, it can render the ITC ineligible for the recipient.
What is Rule 37 of GST? Master your IMS workflow and stay ahead of the curve. To simplify, if a registered taxpayer has availed ITC on the supply of goods and/or services but has yet to pay for the supply along with tax payable on it within 180 days of the issue of the invoice, the ITC claim will be reversed.
- 2025-TIOL-77-SC-VAT.
The Bench of Justices Manoj Misra and N.K. Singh reaffirmed a core proposition of fiscal fairness: a purchaser who has paid tax in good faith to a registered seller cannot be denied Input Tax Credit (ITC) merely because the seller fails to deposit that tax with the Government.
Exempt supplies
This means that you do not charge the GST/HST on these supplies of property and services, and you are generally not entitled to claim ITCs on property and services purchased to provide these supplies.
✔ If monthly taxable turnover > ₹50 lakh (excluding exempt and zero-rated supplies), ✔ Minimum 1% of GST liability must be paid in cash, ✔ The remaining 99% may be paid through ITC. Applicable to registered persons under GST whose monthly taxable supply exceeds ₹50 lakh.
ITC is not available for goods that are lost, stolen, destroyed, written off, or given as gifts or free samples. Businesses must account for such scenarios in their records, acknowledging the ineligibility of ITC on these items.
Input Tax Credits may only be claimed via ISD
From 1 April 2025, the Indian government has made it mandatory for businesses to use the Input Service Distributor (ISD) mechanism to claim Input Tax Credit (ITC) under the Goods and Services Tax (GST) system.
You can carry forward credits earned in tax years ending after 1997 for up to 20 years by filling in Part F of Form T2038(IND) and filing it with your paper return. You may be able to claim a refund of your unused ITCs .