Section 16 of The Integrated Goods and Services Tax Act, 2017
- (1)"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 1[for authorised operations] to a Special Economic Zone developer or a Special Economic Zone unit.
- (2)Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. 2[(3) A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed: Provided that the registered person making zero rated supply of goods shall, in case of non-realisation of sale proceeds, be liable to deposit the refund so received under this sub-section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 (42 of 1999) for receipt of foreign exchange remittances, in such manner as may be prescribed.
- (4)The Government may, on the recommendation of the Council, and subject to such conditions, safeguards and procedures, by notification, specify---
- (i)a class of persons who may make zero rated supply on payment of integrated tax and claim refund of the tax so paid 3[in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder];
- (ii)a class of goods or services 4[or both, on zero rated supply of which, the supplier may pay integrated tax and claim the refund of tax so paid, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder].] 5[(5) Notwithstanding anything contained in sub-sections (3) and (4), no refund of unutilised input tax credit on account of zero rated supply of goods or of integrated tax paid on account of zero rated supply of goods shall be allowed where such zero rated supply of goods are subjected to export duty.]
Summary
- Zero-rated supply refers to either exporting goods or services, or supplying goods or services to a Special Economic Zone (SEZ) developer or unit for authorized operations.
- A business can claim input tax credit for making zero-rated supplies, even if those supplies are otherwise exempt from tax under the law.
- Registered businesses can claim a refund of unutilized input tax credit on zero-rated supplies by exporting under a bond or Letter of Undertaking without paying integrated tax.
- If a registered person gets a refund on exported goods but fails to receive the sale proceeds from abroad, they must deposit the refund back with interest within thirty days after the FEMA time limit expires.
- No refund of unutilized input tax credit or integrated tax is allowed if the exported goods are subject to export duty.
Practical examples
FAQ
1. What does zero-rated supply mean under the Act?
It means any export of goods or services, or any supply of goods or services for authorized operations to a Special Economic Zone developer or unit.
2. What happens if a business claims a refund for exported goods but never receives the sale payment?
The business must deposit the refunded tax amount plus interest within thirty days after the expiry of the foreign exchange remittance time limit under FEMA, 1999.
3. Are there any zero-rated goods that are excluded from refunds?
Yes, no refund of unutilized input tax credit or integrated tax paid is allowed if the exported goods are subject to export duty.
Test yourself
Q1.Under Section 16 of The Integrated Goods and Services Tax Act, 2017, which of the following is defined as a zero-rated supply?
Q2.Under Section 16 of The Integrated Goods and Services Tax Act, 2017, how does the availing of input tax credit for zero-rated supplies relate to Section 17 of the Central Goods and Services Tax Act?
Q3.Under Section 16 of The Integrated Goods and Services Tax Act, 2017, if a registered person receives a tax refund on zero-rated goods but fails to realize the sale proceeds, they must deposit the refund with interest within how many days after the FEMA time limit expires?
Q4.Under Section 16 of The Integrated Goods and Services Tax Act, 2017, what is the rule regarding tax refunds for exported goods that are subject to export duty?
Q5.Under Section 16 of The Integrated Goods and Services Tax Act, 2017, what document or instrument can a registered person use to export zero-rated supplies without paying integrated tax and claim a refund of unutilized input tax credit?
Q6.Under Section 16 of The Integrated Goods and Services Tax Act, 2017, how does a supply to a Special Economic Zone unit qualify as a zero-rated supply?