Overview & Legal Framework
Zero-Rated Supply is a special category of supply under GST where the entire GST burden on the supply chain is effectively eliminated — both at the output stage (no tax on supply) and at the input stage (full ITC or IGST refund available). It is the cornerstone of India's export promotion policy under GST.
Primary Provision Sec 16 IGST
Section 16 of the IGST Act defines and governs zero-rated supply. It specifies which supplies qualify, the two alternate routes available to the supplier (IGST payment or LUT/Bond), and the right to claim refund of unutilised ITC or the IGST paid.
Refund Framework Sec 54 CGST
Section 54 of CGST Act provides the mechanism for claiming refund on account of zero-rated supplies. The detailed procedure is set out in Rules 89 to 97A of the CGST Rules — covering application form, documents, time limits, and processing timelines.
Policy Objective
The policy intent is that exports should not carry any domestic tax burden, making Indian goods and services globally competitive. Zero-rating ensures that no GST — whether paid on inputs, input services, or capital goods — is embedded in the exported product's cost.
SEZ — Special Treatment
Supplies to Special Economic Zones (SEZ units and developers) are explicitly treated as zero-rated supplies, regardless of whether the SEZ unit itself exports. This encourages investment in SEZ infrastructure and enables SEZ units to receive goods and services duty-free.
Definition & Meaning of Zero-Rated Supply
Section 16(1) of the IGST Act exhaustively defines what constitutes a zero-rated supply. Understanding this definition is critical because only supplies falling within this definition are entitled to the zero-rating benefits.
"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."
Why "Zero-Rated" and Not "Exempt"?
| Attribute | Zero-Rated Supply | Exempt Supply | Nil-Rated Supply |
|---|---|---|---|
| GST on output | 0% (effective) | 0% | 0% |
| ITC on inputs | ✓ Fully available | ✗ Blocked (Sec 17(2)) | ✗ Blocked (Sec 17(2)) |
| Refund of ITC | ✓ Available | ✗ Not available | ✗ Not available |
| Legal basis | Section 16, IGST Act | Section 2(47) CGST Act + Exemption Notifications | GST Rate Schedules (0% rate entry) |
| Included in aggregate turnover | Yes | Yes (as exempt turnover) | Yes |
| Examples | Export of software, goods to SEZ | Fresh vegetables, healthcare, education | Unpacked cereals, salt (Schedule I entries) |
Categories of Zero-Rated Supply
Section 16(1) identifies two categories of zero-rated supply. Each has its own sub-classification, conditions, and documentation requirements.
Export of Goods — Zero-Rating Sec 2(5) IGST
Export of goods means taking goods out of India to a place outside India. Section 2(5) of the IGST Act defines "export of goods." The GST law provides two routes to export goods under zero-rating.
Route 1 — Export Under Bond/LUT (Without IGST Payment)
Exporter furnishes a Letter of Undertaking (LUT) or Bond to export goods without paying IGST. Post-export, the exporter claims refund of the unutilised ITC accumulated on inputs/input services/capital goods used in making the zero-rated supply. Most preferred route.
Route 2 — Export on Payment of IGST (with Refund)
Exporter pays IGST on the export value at the applicable rate and then claims a refund of the IGST paid. Refund is processed automatically on matching of GSTR-1 data with shipping bill data on ICEGATE. No separate refund application needed (auto-refund mechanism).
Export of Goods — Conditions & Documentation
Shipping Bill / Bill of Export
Every export of goods must be accompanied by a Shipping Bill (for sea/air exports) or a Bill of Export (for land exports). The Shipping Bill is the key document that triggers the zero-rating and the export refund mechanism. The GSTIN, invoice details, and HSN codes must match exactly between GSTR-1 and the Shipping Bill on ICEGATE.
Export under IGST Zero-Rating — Declaration in Tax Invoice
The tax invoice for export must carry the declaration: "Supply Meant for Export / Supply to SEZ Unit or SEZ Developer for authorised operations on payment of IGST" OR "Supply Meant for Export / Supply to SEZ Unit or SEZ Developer for authorised operations under Bond/LUT without payment of IGST." Rule 46(s) of CGST Rules, 2017.
FIRC / Bank Realisation Certificate (BRC) for Services
For export of services, the foreign exchange must be received in India and a Foreign Inward Remittance Certificate (FIRC) or BRC from the bank is required for refund processing. SEBI-regulated receipts through NOSTRO accounts or through permitted payment aggregators for e-commerce also qualify as valid forex receipt evidence.
Time Limit for Export of Goods (After Issuance of Tax Invoice)
Goods must be exported within 3 months from the date of issuance of the tax invoice. If not exported within this period, the supplier must pay the tax (GST) with interest. Extension can be sought from the Commissioner in justified cases. Rule 96A(1) of CGST Rules — if LUT conditions not met, the LUT becomes void and tax + interest applies from invoice date.
Foreign Exchange Realisation for Services — Time Limit
For export of services, foreign exchange must be realised within one year from the date of export (or as extended by RBI). For IT/ITES exports, the RBI's liberalised framework allows realisation within the time prescribed by FEMA. CBIC Circular 14/2017-GST clarifies that upfront payment in INR from EEFC (Export Earners' Foreign Currency) accounts also qualifies.
Export of Services — Five Cumulative Conditions Sec 2(6) IGST
Section 2(6) of the IGST Act provides the definition of "export of services." Unlike goods exports (which are determined by physical movement out of India), services exports must satisfy five cumulative conditions. Failure of even one condition means the supply is NOT an export of service.
- The supplier of service is located in India
- The recipient of service is located outside India
- The place of supply of the service is outside India
- The payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian Rupees wherever permitted by the Reserve Bank of India
- The supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 of Section 8
Critical Analysis of Each Condition
The supplier must be located in India. "Located in India" for a company means the registered office or principal place of business in India. If an Indian company has a branch abroad, services supplied by the Indian branch are exports; services supplied by the foreign branch may not be exports of the Indian entity. For IT companies with offshore development centres, only the Indian entity's output qualifies.
"Location of recipient" for a business entity is the place of its establishment — registered office or principal place of business. For an individual, it is their usual place of residence. Complications arise when:
- The foreign company has a liaison office or branch in India — services to the Indian branch/establishment are NOT exports (recipient is effectively located in India for that establishment)
- An NRI who is currently in India at the time of service consumption — recipient may be treated as located in India
- Online services to consumers outside India — recipient location is determined by billing address + other indicators
The place of supply is determined under Sections 12 and 13 of the IGST Act. Section 13 governs place of supply when either the supplier or recipient is located outside India. The general rule under Section 13(2) is: "place of supply = location of recipient." However, specific overriding rules under Section 13(3) to 13(13) apply for specific service categories:
| Service Type | Place of Supply Rule | Section | Export Implication |
|---|---|---|---|
| Services in relation to immovable property in India | Location of the property | Sec 13(4) | NOT export — PoS is India |
| Performance-based services (surgery, event, etc.) — performed in India | Location where services performed | Sec 13(3) | NOT export if performed in India |
| Passenger transportation — destination in India | Place of embarkation/destination | Sec 13(9) | Depends on route |
| Online information & database access (OIDAR) to non-business | Location of recipient | Sec 13(12) | Export if recipient is outside India |
| Intermediary services | Location of supplier | Sec 13(8)(b) | NOT export — PoS = India (supplier location) |
| General business-to-business services | Location of recipient | Sec 13(2) | Export if recipient outside India |
Payment must be received in convertible foreign exchange OR in Indian Rupees (INR) where permitted by RBI. Key aspects:
Standard Forex — SWIFT/FIRC/BRC
Receipt of USD, EUR, GBP, JPY, AUD or any other freely convertible currency through SWIFT transfers. Evidenced by FIRC (Foreign Inward Remittance Certificate) or e-FIRC issued by the bank, or Bank Realisation Certificate (BRC) for older transactions.
INR from VOSTRO Accounts of Non-Resident Banks
RBI permits trade settlements in INR through special VOSTRO accounts. Payment received from the VOSTRO account of a foreign bank in India (in INR) for export of services qualifies as foreign exchange for GST purposes. Relevant for Russia, UAE, and other countries where bilateral trade in INR is permitted.
EEFC (Export Earners' Foreign Currency) Account Transfers
Foreign exchange retained in EEFC accounts by Indian exporters and subsequently used to pay for export-related services to other Indian service providers. CBIC Circular 14/2017-GST clarified that such INR payments from EEFC accounts qualify as "received in convertible foreign exchange."
Payment from Indian Branch of Foreign Company
If a foreign company's Indian branch pays in INR for services provided by an Indian supplier to the foreign HO, this does NOT automatically qualify as foreign exchange receipt. The foreign company must remit the amount from abroad in convertible forex. Payments by Indian branch in INR from Indian funds do not qualify unless specifically permitted by RBI.
Barter, Set-Off, or Netting
Set-off of receivables against payables between the Indian exporter and foreign client (without actual money transfer), barter arrangements, or internal cross-charges where no actual foreign exchange flows into India do NOT qualify as "receipt of foreign exchange." This is a common issue in group company transactions.
This condition ensures that artificially structured intra-group transactions cannot be claimed as "export of services" to avail zero-rating benefits. Section 2(6)(v) read with Explanation 1 to Section 8 of the IGST Act defines "distinct persons" as establishments of the same legal entity in different countries.
Supply to SEZ — Zero-Rating Sec 16(1)(b) IGST
Supply of goods or services or both to a Special Economic Zone unit or developer for authorised operations constitutes zero-rated supply. The SEZ framework under the SEZ Act, 2005 interfaces with the IGST Act to create a comprehensive duty-free zone for SEZ operations.
SEZ Unit vs SEZ Developer
SEZ Unit: A business entity approved to operate within the SEZ for manufacturing, trading, or service activities. Identified by a 10-digit GSTIN with state code "96" or "97" in positions 1-2.
SEZ Developer: The entity (government or private) that develops, operates, and maintains the SEZ infrastructure. Supplies to both categories are zero-rated.
Authorised Operations — Critical Requirement
Zero-rating applies ONLY for supplies made for "authorised operations" listed in the LoA issued to the SEZ unit. Supplies for other purposes (personal consumption of SEZ employees, non-authorised activities) do NOT qualify for zero-rating. The supplier must obtain an endorsement/certificate from the Specified Officer of the SEZ.
Endorsement by Specified Officer
The supplier of goods/services to an SEZ must obtain an endorsement from the Specified Officer of the SEZ unit confirming that the supply is for authorised operations. This endorsed copy of the tax invoice serves as evidence for claiming the zero-rated benefit (ITC refund or no IGST payment under LUT).
LUT or IGST Payment — Supplier's Choice
Like exports, a DTA (Domestic Tariff Area) supplier making supply to an SEZ can either: (a) furnish LUT and supply without IGST, then claim ITC refund; OR (b) pay IGST on the supply and claim IGST refund. The SEZ unit/developer cannot claim ITC on the IGST paid by the DTA supplier (since SEZ unit's supplies are also zero-rated outward).
| Scenario | Zero-Rated? | Reason |
|---|---|---|
| DTA supplier → SEZ unit (for authorised ops) | Yes | Sec 16(1)(b) IGST Act |
| DTA supplier → SEZ unit (personal use of employee) | No | Not for authorised operations |
| SEZ unit → DTA buyer (goods into domestic market) | No | Subject to customs duties + IGST; treated as import into DTA |
| SEZ unit → Foreign buyer (export) | Yes | Export under Section 16(1)(a) |
| SEZ unit → Another SEZ unit (inter-SEZ supply for authorised ops) | Yes | Treated as inter-state supply + zero-rated |
| SEZ developer → SEZ unit (supply for building SEZ infrastructure) | Case-specific | Must be for authorised operations as per LoA |
LUT & Bond — Procedure, Eligibility & Compliance Rule 96A
Section 16(3)(a) of the IGST Act permits a registered person to make zero-rated supply without payment of integrated tax by furnishing a Letter of Undertaking (LUT) or executing a Bond. Rule 96A of the CGST Rules governs the procedure in detail.
LUT vs Bond — Comparison
| Attribute | Letter of Undertaking (LUT) | Bond |
|---|---|---|
| Who can furnish | Any registered person except those prosecuted for tax evasion exceeding ₹2.5 crore | Persons ineligible for LUT + any person choosing Bond |
| Bank guarantee requirement | Not required | Surety or bank guarantee required for 15% of bond amount |
| Form | Form GST RFD-11 (online on GST portal) | Form GST RFD-11 with physical bond document |
| Validity | Financial year-wise (April to March); must be renewed annually | Covers specific consignments / period as specified |
| Processing | Self-declaration, no officer approval needed (auto-accepted) | Officer verification required |
| Practical use | Almost universal for all exporters | Very rare; only for prosecuted persons |
LUT Filing Process — Step by Step
Login to GST Portal
Login at gst.gov.in with your GSTIN credentials
Navigate to RFD-11
Services → User Services → Furnish Letter of Undertaking (LUT)
Fill & Declare
Select financial year, fill exporter/supplier details, self-certify compliance
Sign & Submit
Sign using DSC or EVC. Submit the form electronically
ARN Generated
Application Reference Number generated. LUT immediately effective. Print acknowledgment
Refund of ITC / IGST on Zero-Rated Supplies Sec 54 CGSTRule 89
Zero-rated supplies entitle the supplier to a full refund of either (a) the unutilised ITC accumulated due to zero-rated supplies, or (b) the IGST paid on such supplies. Section 54 of the CGST Act read with Rules 89–97A provides the detailed refund mechanism.
Refund Type 1 — Unutilised ITC Refund Rule 89(4)
Where supplies are made under LUT (without IGST payment), the exporter claims a refund of the net ITC accumulated on inputs, input services, and capital goods (in proportion to export turnover). Formula-based calculation applies. Filed in Form GST RFD-01 on the GST portal.
Refund Type 2 — IGST Paid on Exports Rule 96
Where goods are exported on payment of IGST, the refund is processed automatically by CBIC's ICEGATE system upon data-matching of GSTR-1 with Shipping Bill data. No separate refund application is needed — IGST refund is auto-credited to the bank account linked with GSTIN.
ITC Refund Formula Rule 89(4)
Where:
Net ITC = Total ITC availed on inputs and input services during the relevant period (excluding ITC on capital goods which is refundable separately and ITC availed under Section 16 for imports)
Adjusted Total Turnover = Aggregate Turnover of the state minus exempted turnover (excluding supplies where zero-rated supply has been made on payment of IGST)
Turnover of Zero-Rated Supply = Export turnover of goods + export turnover of services + turnover of supplies to SEZ units/developers (under LUT)
Export Turnover of Services — Special Definition Rule 89(4)
Refund Process — Timeline & Steps
File RFD-01
File Form GST RFD-01 on GST portal. Select refund category, enter refund amount, attach documents
ARN Generated
ARN generated upon filing. System validates GSTR-1, GSTR-3B data. Application forwarded to jurisdictional officer
Officer Review
Proper officer reviews. May issue deficiency memo (RFD-03) once or issue Provisional Refund Order (RFD-04) within 7 days for 90% of amount
Provisional Refund
90% refund credited within 7 days of RFD-04 for goods exports. Full refund within 60 days of RFD-01 filing
Final Refund Order
Final Refund Sanction Order in RFD-06. Balance 10% credited. Interest @ 6% p.a. if refund delayed beyond 60 days
| Refund Type | Form | Time Limit to Apply | Processing Time | Interest on Delay |
|---|---|---|---|---|
| Unutilised ITC (under LUT) | RFD-01 | 2 years from date of export | 60 days from date of filing | 6% p.a. if delayed beyond 60 days (Sec 56) |
| IGST paid on goods export | Auto-refund via ICEGATE | No separate application | Depends on ICEGATE processing | 6% p.a. if delayed |
| IGST paid on services export | RFD-01 | 2 years from relevant date | 60 days | 6% p.a. if delayed |
| ITC for SEZ supply (under LUT) | RFD-01 | 2 years from date of supply | 60 days | 6% p.a. if delayed |
| IGST on SEZ supply | RFD-01 | 2 years | 60 days | 6% p.a. if delayed |
Place of Supply Rules for Zero-Rated Supplies Sec 11–13 IGST
Correct determination of the place of supply is critical for zero-rating — if the place of supply is within India, the supply cannot be zero-rated regardless of who the recipient is. Place of supply for cross-border transactions is governed by Sections 11 and 13 of the IGST Act.
| Supply Type | Place of Supply Rule | Section | Zero-Rating Possible? |
|---|---|---|---|
| Export of goods | Location outside India (destination country) | Sec 11(1) | Yes — if goods leave India |
| B2B services (general) — foreign recipient | Location of recipient (foreign) | Sec 13(2) | Yes |
| Intermediary services — Indian supplier | Location of supplier (India) | Sec 13(8)(b) | No — PoS is India |
| Services relating to immovable property in India | Location of property (India) | Sec 13(4) | No — PoS is India |
| Banking and financial services (foreign recipient) | Location of supplier / recipient (complex) | Sec 13(8)(a) | Depends on specific transaction |
| Transportation of goods to foreign destination | Destination of goods (outside India) | Sec 13(9) | Yes |
| Supply to SEZ unit/developer | Location of SEZ (inter-state supply) | Sec 8(2) IGST | Yes — treated as inter-state zero-rated |
| Online information (OIDAR) to non-taxable online recipients (NTOR) outside India | Location of recipient | Sec 13(12) | Yes |
Zero-Rated vs Exempt vs Nil-Rated vs Non-GST — Detailed Comparison
One of the most common areas of confusion in GST practice is the distinction between these four categories. Each has fundamentally different implications for ITC, returns filing, aggregate turnover computation, and refund eligibility.
| Parameter | Zero-Rated | Exempt (Sec 11) | Nil-Rated (0% GST Schedule) | Non-GST Supply |
|---|---|---|---|---|
| GST on output | 0% (effective) | 0% | 0% | Not applicable |
| ITC on inputs | ✅ Allowed (fully) | ❌ Blocked (Sec 17(2)) | ❌ Blocked (Sec 17(2)) | ❌ Blocked (Sec 17(3)) |
| Refund of ITC | ✅ Full refund available | ❌ Not available | ❌ Not available | ❌ Not available |
| Legal basis | Sec 16, IGST Act | Sec 2(47) + Exemption Notifs | Rate notifications (0% entries) | Not within GST ambit |
| Included in GSTR-1 | Yes (Table 6A/6B for exports) | Yes (Table 8) | Yes (Table 8) | Yes (Table 8) |
| Included in GSTR-3B | Yes (Table 3.1(b)) | Yes (Table 3.1(c)/(d)) | Yes (Table 3.1(c)) | Yes (Table 3.1(e)) |
| Included in aggregate turnover | Yes | Yes | Yes | No |
| LUT/Bond required | Yes (if not paying IGST) | No | No | No |
| Examples | Software export, goods to SEZ | Healthcare, fresh fruits, education | Unpacked food grains (Schedule I) | Alcohol, petrol, diesel |
Input Tax Credit (ITC) on Zero-Rated Supplies
The most powerful feature of zero-rated supply is the unhindered availability of ITC across the entire supply chain. Unlike exempt supplies (where ITC must be reversed proportionately), zero-rated supply permits full retention and refund of ITC.
ITC on Inputs Used for Zero-Rated Supply — Fully Available
All ITC on raw materials, components, packaging, and other goods used in making zero-rated supplies is fully available. There is no need to reverse ITC under Rule 42 (for inputs) or Rule 43 (for capital goods) on the proportion attributable to zero-rated supplies. This is a crucial benefit — a 100% export-oriented company effectively pays zero GST on its entire input chain.
ITC on Input Services — Fully Available
ITC on all services procured for making zero-rated supplies (logistics, marketing, consulting, IT services, etc.) is fully available and refundable. Export-oriented units (IT companies, manufacturers) can claim refund of ITC on office rent, software subscriptions, maintenance services, and all other input services proportionate to zero-rated turnover.
ITC on Capital Goods — Available for Refund via Separate Route
ITC on capital goods (machinery, equipment, IT infrastructure) used exclusively or commonly for zero-rated supplies is available. However, refund of ITC on capital goods for zero-rated supplies follows a separate calculation under Rule 89(4) — it is included in the Net ITC formula and refundable proportionate to export turnover.
Mixed-Use ITC — Pro-Rata Treatment
Where inputs/input services are used for both taxable (including zero-rated) and exempt supplies, ITC must be proportionately reversed under Rule 42/43. The exempt supply portion's ITC must be reversed; the zero-rated + other taxable portion's ITC is retained. This is important for companies supplying both domestically (exempt goods) and exporting.
Section 17(5) Blocked Credits — Not Refundable Even for Zero-Rated Supplies
ITC blocked under Section 17(5) (motor vehicles for personal use, food & beverages, club memberships, life insurance, etc.) remains blocked even if the supply is zero-rated. These blocked credits cannot be used against tax liability and cannot be claimed as refund. Exporters must be careful not to include blocked ITC in their refund claims — this leads to rejection and potential penalty.
Non-Compliance, Penalties & Interest — Zero-Rated Supply
Claiming zero-rating without meeting all the conditions, or failing to comply with post-export conditions, triggers significant tax and penalty consequences. The GST department has become increasingly vigilant about wrongful zero-rating claims.
Key CBIC Notifications & Circulars — Zero-Rated Supply
All Central Tax (CT), Integrated Tax (IT) notifications, and CBIC circulars that directly affect zero-rated supply, export of services, refund mechanism, and LUT/Bond procedures — updated for 2025-26.
Foundational & Refund Notifications
Zero-Rated Supply — LUT/Bond Conditions (Original Notification)
The foundational notification under Section 16(3)(a) of IGST Act specifying the conditions, safeguards, and procedure for making zero-rated supplies under LUT or Bond. Prescribed Form RFD-11 and conditions including the requirement that the registered person must not have been prosecuted for tax evasion above ₹2.5 crore in the preceding 5 years. Effective from 01.07.2017.
Date: 07.07.2017 | Effective: 01.07.2017
CBIC Portal ↗CGST (4th Amendment) Rules — Refund Rules 89–97A Notified
Notified the complete refund rules including Rule 89 (application for refund), Rule 89(4) (formula for ITC refund on zero-rated supply), Rule 96 (refund of IGST on goods exported), Rule 96A (LUT/Bond procedure). These rules form the procedural backbone for all zero-rated supply refunds. Subsequently amended multiple times.
Date: 04.10.2017
Circular — Clarification on Export of Services and Forex Receipt
Clarified that: (a) receipt of payment in EEFC account by the service exporter qualifies as receipt in convertible foreign exchange; (b) in case of services exported where INR payment is received from NRI or foreign national on behalf of overseas recipient, this qualifies only if RBI permits such receipt; (c) netting of receivables/payables does not qualify. Still a key reference circular for IT/ITES exporters.
Date: 06.11.2017
Amendment to Rule 89(4) — Export Turnover of Services Redefined
Amended Rule 89(4) to redefine "turnover of zero-rated supply of services" to clarify the payment-received basis of computing export service turnover for ITC refund purposes. This notification addressed the controversy where some companies were computing export turnover based on invoices raised rather than payments received, leading to inflated refund claims. The amendment tightened the definition to include only amounts actually received in convertible forex during the refund period.
Date: 09.10.2018
Amendment — Rule 89(4) Further Revised — Filco Trade Centre Impact
Post the Supreme Court judgment in Filco Trade Centre Pvt. Ltd. vs Union of India (2022), CBIC amended Rule 89(4) to restore the computation method to "payments received during the relevant period" basis, while also issuing clarificatory Circular 174/06/2022 to address transitional issues. This amendment provides finality to the long-running dispute on how to compute "turnover of zero-rated supply of services."
Date: 26.12.2022
Intermediary Services & Place of Supply Clarifications
Circular — Scope of Intermediary Services under Section 13(8)(b)
Issued in the context of high-pitched disputes about intermediary services. Clarified that an entity performing the main supply (not acting as an agent arranging between two other parties) is NOT an intermediary. An Indian company that directly provides IT services, consulting, legal, or other services to a foreign client is NOT an intermediary — it is the principal supplier. Only agents/brokers earning commission for facilitating transactions between third parties are intermediaries. This circular significantly helped reduce wrongful demand notices on IT exporters.
Date: 20.05.2021
View Circular ↗Amendment — Section 13(8)(b) Retained Despite Industry Objections
The Finance Act, 2023 made Section 13(8)(b) (intermediary — place of supply at supplier location) a permanent feature with retrospective effect from 01.07.2017, overriding certain High Court decisions that had struck it down. This means intermediary services by Indian entities to foreign clients continue to have their place of supply in India, making zero-rating impossible for genuine intermediaries. The Supreme Court challenge to this amendment is pending as of 2025-26.
Finance Act, 2023 — effective retrospectively from 01.07.2017
Recent Notifications (2024-25 & 2025-26)
Amendments to Zero-Rated Supply Provisions — Finance Act 2024
The Finance Act, 2024 amended Section 16 of the IGST Act to address the issue of certain supplies to SEZ for non-authorised operations being incorrectly claimed as zero-rated. The amendment clarifies that zero-rating is strictly limited to supplies for authorised operations. Additionally, notification expanded the list of documents acceptable as evidence for endorsement by SEZ Specified Officer, simplifying compliance for large volume suppliers to SEZ units.
Date: 2024 | Effective: As notified
Circular — IGST Refund on Exports — Resolving ICEGATE Data Mismatch Issues
CBIC issued a circular in 2025 addressing the persistent problem of IGST refund being stuck due to mismatches between GSTR-1 data and Shipping Bill data on ICEGATE. The circular provides a mechanism for exporters to approach the jurisdictional GST officer to get manual intervention for data correction, along with a time limit of 90 days for officers to resolve such cases. Critical for exporters who have pending IGST refunds due to data errors.
Date: 2025 | Refer to CBIC portal for exact notification
CBIC Portal ↗Data & Charts — Zero-Rated Supply & Export Refunds
Key statistics on India's GST export refund trends, zero-rated supply composition, and refund processing timelines to understand the scale and importance of zero-rated supply in India's GST ecosystem.
IGST Refunds on Exports (₹ Lakh Crore)
Annual IGST refund disbursals to exporters — FY18 to FY25*
Zero-Rated Supply — Refund Category Breakdown
Share of different refund categories in total export refunds
Sector-wise Export Refund Claims (% of Total)
Top sectors claiming IGST/ITC refunds on zero-rated supplies — FY25
Export of Services vs Goods — Zero-Rated Turnover (₹ Lakh Crore)
Growth in goods and services zero-rated turnover — FY19 to FY25*
Compliance Checklist — Zero-Rated Supply
A comprehensive, actionable checklist for exporters and SEZ suppliers to ensure all conditions are met for valid zero-rating, correct refund claims, and clean compliance records.
- LUT Filing: File Form RFD-11 (LUT) on the GST portal at the start of each financial year (before 1 April). Ensure the LUT mentions both exports and SEZ supplies if applicable. Keep a copy of the ARN for each financial year.
- Tax Invoice — Mandatory Declaration: Every export invoice must carry the legally required declaration — either "without payment of IGST" (under LUT) or "on payment of IGST" (Route 2). The invoice must show GSTIN, IGST rate, HSN/SAC code, shipping details, and currency of payment.
- Export of Goods — 3-Month Condition: Track export shipment dates against invoice dates. Ensure all goods invoiced under LUT are shipped within 3 months. Set up internal alerts for invoices approaching the 3-month deadline.
- Export of Services — Foreign Exchange Realisation: Monitor forex receipt against each export invoice. Ensure FIRC/e-FIRC/BRC is obtained from the bank within 1 year. Maintain a reconciliation of invoices vs. forex received for each refund period.
- GSTR-1 Filing — Export Tables: Report all export invoices in GSTR-1 Table 6A (exports with IGST) or Table 6B (exports without IGST / under LUT). Ensure GSTIN, invoice number, date, HSN, and value match exactly with the Shipping Bill / Bill of Export filed with Customs (ICEGATE).
- GSTR-3B — Zero-Rated Reporting: Report zero-rated supply (without tax) in GSTR-3B Table 3.1(b). Do NOT net the zero-rated turnover with ITC — report gross turnover and claim ITC separately. Incorrect reporting in 3B is the most common cause of refund mismatch.
- SEZ Supplies — Endorsement: For every supply to an SEZ unit/developer, obtain the endorsement from the Specified Officer confirming the supply is for authorised operations. File the endorsed copy with the GST refund application. Maintain the endorsement records for at least 5 years.
- ITC Reconciliation — No Blocked Credits in Refund: Before filing RFD-01, reconcile the ITC claimed in the refund with the electronic credit ledger. Ensure no blocked credits under Section 17(5) are included. Ensure RCM ITC (which is eligible for refund only in limited cases) is correctly treated.
- RFD-01 Filing — Refund Application: File Form RFD-01 on the GST portal within 2 years from the relevant date. Attach all required documents: GSTR-2A printout, statement of invoices, FIRC/BRC for services, shipping bills, self-certified statement, CA certificate (where required).
- Annual Return (GSTR-9) Reconciliation: Reconcile zero-rated supply turnover in GSTR-9 (Annual Return) with GSTR-1 and GSTR-3B. Export turnover discrepancies in GSTR-9 trigger scrutiny and can cause refund delays for subsequent years.
- Deemed Export — Separate Treatment: Do NOT club deemed exports (supplies against EPCG/Advance Authorisation under Section 147) with zero-rated supplies in refund applications. Deemed export refunds follow a separate procedure (Rule 89(4B)) and must be filed separately.
- Foreign Exchange Realisation — 1-Year Monitoring: Maintain a monthly tracker of outstanding forex realisations against export service invoices. Issue proforma invoices to foreign clients where needed to facilitate faster forex remittance. Seek FEMA extension from AD Bank for delay beyond 1 year where genuine delays occur.
Advanced FAQ — Zero-Rated Supply Under GST
Frequently asked questions covering advanced scenarios, edge cases, and common compliance challenges faced by exporters, SEZ suppliers, and GST professionals in 2025-26.