Yes, businesses can claim input VAT on purchases related to zero-rated supplies. Because zero-rated goods are technically taxable (at a 0% rate), vendors can recover the VAT paid on expenses (input tax) incurred to make these sales, unlike exempt supplies. Common examples include food, books, and exports.
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.
Zero-rated supplies are supplies of property and services that are taxable at the rate of 0%. This means there is no GST/HST charged on these supplies, but GST/HST registrants may be eligible to claim ITCs for the GST/HST paid or payable on property and services acquired to provide these supplies.
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.
These are transactions that are still subject to VAT, but at a rate of 0%. While no output VAT is collected from the customer, the seller is a VAT-registered person. The significant advantage is that businesses making zero-rated sales can claim input VAT on their purchases attributable to these sales.
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.
If a product is zero-rated, it is still technically VAT-able, but the rate is 0%. This means businesses must include these sales in their VAT returns and can reclaim VAT on related expenses, but no VAT is charged to the customer. Examples include some food, children's clothing and books.
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.
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.
ITC Eligibility for Different Supply Categories
Nil Rated Supplies: No ITC can be claimed. Exempt Supplies: No ITC can be claimed. Zero Rated Supplies: ITC can be claimed and refunded. Non-GST Supplies: Not applicable for ITC.
You normally cannot recover the input tax directly attributable to exempt supplies or the exempt portion of residual input tax. However, if you incur only small amounts of exempt input tax you may be able to recover them under the de minimis rules, see section 11.
Zero-rated supplies are also taxable supplies but are subject to a 0% rate of GST.
Common purchases and expenses for which you may be eligible to claim ITCs
Claiming input tax deductions
Input tax is represented by the portion of the VAT amount paid by a vendor to another VAT vendor, that was paid for goods or services that were acquired for the purpose of consumption, use or supply in the course of making taxable supplies.
You can reclaim VAT on items you buy for use in your business if you're VAT registered. Do this in your VAT return. There are different rules if your organisation is not registered for VAT (for example, a local authority, academy, public body or eligible charity).
Total up the ESP for the VAT period. If your goods are standard rated at 20% divide the total ESP by 6. If they're zero rated, deduct the total ESP from your total sales. This will give you your sales at 20%.
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).
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.
As per sec 16(1) of IGST Act any supplies made by a registered dealer as an export (Both goods or services) or supply to an SEZ qualifies for Zero Rated Supplies in GST. The supply to a developer of an SEZ is also covered under Zero-Rated Supplies in GST as no tax is levied on these supplies as well.
Blocked input tax credits refer to purchases and expenses for which your business cannot claim a GST credit, even if GST was included in the price. According to the ATO's guidance on when you cannot claim GST credits, these claims are blocked when expenses are not genuinely business-related.
✔ 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.
- 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.
Tax exempt products and services—also called zero-rated—shouldn't have any tax added to them either, but in these cases you need to specify the 0% tax rate on your invoices. You can also register for consumption tax, even if you only sell tax exempted products and services.
Zero-rated items: These items are taxable but at a 0% rate. This means that they should be accounted for in VAT returns. Furthermore, businesses supplying zero-rated goods or services can still reclaim VAT on their expenses. VAT-exempt items: These items or services are completely outside the scope of VAT.
Zero-rated goods, in countries that use value-added tax (VAT), are products that are taxed at a 0% VAT rate, meaning no tax is charged on their sale. These goods are often essential items, such as basic food staples, books, or children's clothing, designated as zero-rated to make them more affordable for consumers.