Exempt, Nil-Rated, Zero-Rated, Non-GST & Non-Supplies: Understanding the Differences

Although it has been more than one-and-half years since the GST law came into force, many users inter-changeably fill details relating to nil-rated supplies, exempt supplies, non-taxable supplies, transactions which are not considered as supplies, and zero-rated supplies in the GST returns due to lack of clarity. This article sets out basic differences between the aforesaid types of supplies / transactions so that the GST returns can be filled appropriately.

At the outset, it is worth understanding the definition of “exempt supply” under Section 2(47) of the Central Goods and Services Tax (CGST) Act, 2017, which reads:

“exempt supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;”

 From the above definition, it is evident that exempt supply comprises:

• Nil-rated supply;
• Wholly-exempt supply;
• Non-taxable supply (also known as non-GST supply).

The term “nil-rated supplies” is not defined under the GST law. Nil-rated supplies are those which feature in the GST tariff notification(s) but carry a “Nil” rate against the respective goods or services. GST tariff notifications comprise Notification No.1/2017-Central Tax (Rate) for goods, Notification No.11/2017-Central Tax (Rate) for services and similar notifications under the Integrated Goods and Services Tax (IGST) Act, 2017.

• There are no nil-rated goods under the GST law at present.
• However, there are two nil-rated services under the Heading 9972, and one under the Heading 9986. Description of the nil-rated services has not been reproduced here with a view to not deviate from the theme of this article, but readers may refer the aforesaid notifications.

Where should nil-rated supplies be reported?

Nil-rated supplies should be reported in: (i) Column 2 of Table 8 in GSTR-1; (ii) Table 3.1(c) of GSTR-3B; (iii) Table 5E of GSTR-9; and (iv) Table 7B of GSTR-9C.

Wholly exempt supplies are those where the entire GST component is exempt by a notification under Section 11 of the CGST Act, 2017 or Section 6 of the IGST Act, 2017.

Mega exemptions notifications issued under Section 11 of the CGST Act, 2017 comprise Notification No.2/2017-Central Tax (Rate) for goods and Notification No.12/2017-Central Tax (Rate) for services. Similarly, mega exemption notifications issued under Section 6 of the IGST Act, 2017 comprise Notification No.2/2017-Integrated Tax (Rate) for goods and Notification No.9/2017-Integrated Tax (Rate) for services. All the goods and services listed in these notifications are wholly-exempt goods or services.

Apart from the above, examples of notifications issued under the above sections (wholly exempting outward supply of goods or services) include:

• Notification No.7/2017-Central Tax (Rate), exempting supply of goods by Canteen Stores Department (CSD) under the Ministry of Defence; and
• Notification No.26/2017-Central Tax (Rate), exempting supply of heavy water and nuclear fuels by the Department of Atomic Energy to the Nuclear Power Corporation of India Ltd.

Where should wholly-exempt supplies be reported?

Wholly-exempt supplies should be reported in: (i) Column 3 of Table 8 in GSTR-1; (ii) Table 3.1(c) of GSTR-3B; (iii) Table 5D of GSTR-9; and (iv) Table 7B of GSTR-9C.

Are partly exempt supplies treated as taxable or exempt supplies?

Under Section 11 of the CGST Act / Section 6 of the IGST Act, partly exempt outward supplies have also been notified. A few examples include:

• Notification No.3/2017-Central Tax (Rate), partly exempting supply of goods to specified petroleum and other explorations and production under various schemes;
• Notification No.40/2017-Central Tax (Rate), partly exempting supply of goods to a registered recipient for export;
• Notification No.45/2017-Central Tax (Rate), partly exempting supply of goods to specified institutions;
• Notification No.8/2018-Central Tax (Rate), partly exempting supply of old and used vehicles; and
• Notification No.21/2018-Central Tax (Rate), partly exempting supply of certain handicrafts.

The definition of “exempt supply” under Section 2(47) ibid expressly covers only wholly-exempt supplies apart from nil-rated and non-taxable supplies. Hence, partly-exempt supplies unambiguously would not fall within the definition of “exempt supply” but would fall within the purview of “taxable supply”. From a practical perspective too, while filling GSTR-1 and GSTR-3B, the user would fill up such partly exempt supplies (for example, sale of old / used vehicles) under ‘taxable supplies’ (to the extent GST is levied / leviable).

Section 2(78) of the CGST Act reads:

“non-taxable supply means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;”

From the above definition, non-taxable supplies are those which are not leviable under the GST law, i.e., the Government does not have power to levy GST on such supplies. These are also termed as “non-GST supplies” in Table 8 of GSTR-1 and Table 3.1(e) of GSTR-3B.

• Alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel are non-taxable goods under the GST law.
• The term “service” is defined in an all-encompassing manner under Section 2(102) ibid as “services means anything other than …”. Nevertheless, if the supplier is located outside India and the place of supply is also outside India, the GST law lacks power to tax such a transaction (which would squarely be a non-taxable supply). This can be explained by an example where A (located in London) handles goods at London port and charges B (located in India) for the transaction. Note that this transaction would not qualify as “import of service” since the place of supply would be London (and not India) as per Section 13(3)(a) of the IGST Act.

Where should non-taxable / non-GST supplies be reported?

Non-GST supplies should be reported in: (i) Column 4 of Table 8 in GSTR-1; (ii) Table 3.1(e) of GSTR-3B; (iii) Table 5F of GSTR-9; and (iv) Table 7B of GSTR-9C.

Schedule III to the CGST Act lists activities / transactions which are treated neither as supply of goods nor as supply of services. A few key examples include:

• Services by an employee to the employer in the course of, or in relation to, his employment;
• Sale of land and, sale of building where the entire consideration is received after the issuance of completion certificate or after its first occupation (whichever is earlier);
• Actionable claims (other than lottery, betting and gambling);
• Supply of goods from a place in non-taxable territory to another place in non-taxable territory, without such goods entering India;
• Supply of warehoused goods to any person before clearance for home consumption;
• Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.

What is the difference between non-supplies and non-GST supplies?

The aforesaid activities / transactions (termed as “non-supplies”) are different from non-GST supplies – wherein the former is not treated as supply itself within the GST law while the latter (viz., non-GST supply) is treated as a supply although it is not taxable.

Where should non-supplies be reported?

Non-supplies should be reported in: (i) Table 5F of GSTR-9; and (ii) Table 7B of GSTR-9C. However, there is no reference to non-supplies either in GSTR-3B or GSTR-1. Hence, it plausibly means non-supplies need not be entered in GSTR-3B or GSTR-1 but should be entered in GSTR-9 or GSTR-9C since reconciliation of turnover declared in monthly / quarterly returns with the financial statements would otherwise not be possible.

Section 16(1) of the IGST Act reads:

“Zero rated supply means any of the following supplies of goods or services or both, namely:-

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.”

From the above definition, it is evident that the zero-rated supplies comprise:

• Export of goods, as defined under Section 2(5) of the IGST Act;
• Export of services, as defined under Section 2(6) ibid; and
• Supply of goods / services to a Special Economic Zone (SEZ) developer / unit.

Zero-rated supplies are not exempt supplies, since they do not fall within the purview of “exempt supply” under Section 2(47) of the CGST Act. Rather, certain benefits have been extended for zero-rated supplies wherein:

• they can be supplied without payment of IGST, provided a Letter of Undertaking is furnished, and refund of unutilised input tax credit can be claimed; or
• they can be supplied with payment of IGST, and refund of such tax paid can be claimed.

Where should zero-rated supplies be reported?

Zero-rated supplies should be reported in: (i) Table 6A and 6B in GSTR-1; (ii) Table 3.1(b) of GSTR-3B; (iii) Table 5A (or) Table 4D of GSTR-9; and (iv) Table 7C (or) Table 5A of GSTR-9C.

In view of the foregoing, nil-rated supplies, wholly-exempt supplies, non-GST supplies, non-supplies and zero-rated supplies are not the same, as widely misconceived, and each of them should be reported appropriately in the GST returns.