Guides · GST
Nil-rated, exempt and zero-rated supplies
Nil-rated, exempt, and zero-rated are three GST terms that sound alike and are often mixed up. The difference that matters most is what each does to input tax credit.
What each term means
A nil-rated supply is taxable but at a zero rate in the tariff. An exempt supply is one the law has exempted from tax, and this bucket is often used loosely to include nil-rated and non-taxable supplies. A zero-rated supply is a specific category — exports and supplies to a SEZ — where the whole supply is relieved of tax.
The words overlap in everyday use, which is exactly why the credit consequence is the clearer way to tell them apart.
Why the difference matters
The key split is input tax credit. On exempt supplies, the related input tax credit is generally not available. On zero-rated supplies, the credit is preserved — that is the whole point of zero-rating, and it is what lets exporters recover the tax on their inputs.
So calling an export supply merely exempt would understate the exporter's position: zero-rating gives more relief than an exemption does.
How Lekha records each
Lekha records what your documents say and tracks the money on both sides, keeping taxable, exempt, and zero-rated supplies in the same two-sided ledger, each with the detail its bill carries.
Lekha records what your documents say and tracks the money on both sides — what you owe and what you are owed. It records and tracks; it does not replace your accountant.
Questions
- What is the difference between exempt and zero-rated?
- Exempt supplies remove the tax but generally do not allow the related input tax credit. Zero-rated supplies — exports and SEZ supplies — relieve the whole supply and preserve the credit.
- What is a nil-rated supply?
- A supply that is taxable but at a zero rate in the tariff. It is different from an exempt supply, though the terms are often used loosely.
- Why does the distinction matter?
- Mainly because of input tax credit. Whether the related credit survives depends on which category a supply falls in, which affects what a business can recover.
This guide is general information, not legal or tax advice. Confirm the current rules and your own circumstances for any specific case.