Nil rated, exempt, zero rated and non-GST supply under GST: meaning, difference and examples

A zero rated supply is an export, or a supply to a SEZ unit or developer for its authorised operations. No GST is collected on it, but you can still claim input tax credit (ITC). Nil rated and exempt supplies also carry no GST, but you cannot claim ITC for them. Non-GST supplies, like petrol and liquor for drinking, are outside GST.

In GST law, nil rated and non-GST supplies are both part of "exempt supply". So the big difference is between zero rated (credit allowed) and everything else (no credit). This guide explains each type with examples, gives a short checked list of goods and services that pay no GST, and shows how ITC, registration, invoices, GSTR-1 and GSTR-3B work for each.

The difference at a glance

The sections below explain each column.

What is a zero rated supply?

Section 16(1) of the IGST Act says a zero rated supply is any of these:

• export of goods or services or both;
• supply of goods or services or both "for authorised operations" to a Special Economic Zone (SEZ) developer or SEZ unit.

The words "for authorised operations" were added from 1 October 2023. So a supply to a SEZ unit is zero rated only when it is for the unit's approved business, not for anything else.

You can claim ITC for zero rated supplies. Section 16(2) says "credit of input tax may be availed for making zero-rated supplies", even if the item itself is exempt. So an exporter of an exempt item can still claim the GST paid on packing, freight and other inputs. This is the main reason exports are "zero rated" and not "exempt".

Exports under GST are considered as zero rated supplies, and also as inter-State supplies. Section 7(5) of the IGST Act treats a supply where "the supplier is located in India and the place of supply is outside India", and a supply to or by a SEZ developer or unit, as inter-State. That is why IGST (not CGST and SGST) applies when tax is paid on an export.

What counts as an export of services. All five conditions in section 2(6) of the IGST Act must be met:

1. the supplier is in India;
2. the client is outside India;
3. the place of supply is outside India;
4. you are paid in foreign currency, or in Indian rupees where the Reserve Bank of India allows it;
5. you and the client are not just two branches of the same business (CBIC Circular 161/17/2021-GST explains this).

If any condition fails, the service is not an export, and normal GST applies.

Examples of zero rated supplies:

• A Pune software firm bills a client in the USA and is paid in dollars.
• A Surat textile trader ships sarees to a buyer in Dubai.
• A Noida supplier sells office chairs to a SEZ unit for its authorised operations.

"Zero GST items" are not zero rated. Many people call milk, eggs or books "zero GST" or "0% GST" items. In GST law, these are not zero rated supplies. They are exempt supplies, because their seller cannot claim ITC. Only exports and SEZ supplies are zero rated.

GSTR-1 also has a row for deemed exports (Table 6C). Deemed exports are a separate topic: the goods do not leave India. They are not covered on this page.

Two ways to make a zero rated supply

1. Under a Letter of Undertaking (LUT) or bond, without paying IGST. You do not pay any tax on the export. Section 16(3) says a registered person making zero rated supply "shall be" "eligible to claim refund of unutilised input tax credit", "without payment of integrated tax, under bond or Letter of Undertaking". So the GST you paid on your purchases comes back to you as a refund.

How the LUT works:

• You file the LUT online in Form GST RFD-11 before you export.
• One LUT is valid "for the whole financial year in which it is tendered" (CBIC Circular 8/8/2017-GST). File a new one every year.
• Any registered person can use an LUT, except someone prosecuted under the CGST Act for tax evasion of more than ₹250 lakh. They must use a bond.
• Goods must leave India within 3 months of the invoice date. For services, you must be paid within 1 year of the invoice date, in foreign currency (or in rupees where the RBI allows). If not, you pay the tax with interest within 15 days after that time (rule 96A).
• If an exporter of goods gets a refund but the sale money never comes in, the refund must be paid back with interest within 30 days after the time allowed under FEMA (proviso to section 16(3)).

Our step by step guide on how to file an LUT shows the RFD-11 steps on the GST portal.

2. Pay IGST, then claim it back as a refund. You charge and pay IGST on the export, and the government refunds it. For goods, the shipping bill you file with customs is treated as your refund application, once the export details reach customs and your GSTR-3B is filed (rule 96). For services, you apply in Form GST RFD-01.

Who can use the "pay IGST" route. From 1 October 2023, only the classes the government notifies can pay IGST on exports and claim it back (section 16(4)). Notification 01/2023-Integrated Tax allows all goods and services except pan masala, many tobacco goods (such as chewing tobacco, jarda, snuff and gutkha) and certain mint oils (peppermint and other mentha oils). Exporters of those items must export under LUT or bond.

Which way to choose? Our reading: the LUT route suits most small exporters, because no tax is paid upfront and only unused credit is claimed back. Paying IGST can suit an exporter of goods who already has a large ITC balance to pay it with, because the IGST refund on goods moves with the shipping bill. Ask your CA before you switch. Our guide to GST on exports covers export of services, merchant exports, SEZ supplies and refunds in detail.

What is a nil rated supply?

A nil rated supply is a supply on which the GST rate is nil (0%). The GST Act has no separate definition for "nil rated". Instead, section 2(47) counts any supply that "attracts nil rate of tax" as an exempt supply.

So, for GST, a nil rated supply works exactly like an exempt one:

• you charge no GST;
• you cannot claim ITC on the purchases you use for it;
• you issue a bill of supply, not a tax invoice;
• you report it in GSTR-1 Table 8 and GSTR-3B row 3.1(c).

Examples of nil rated supply: fresh vegetables, fresh milk, eggs, salt and printed books are commonly called "nil rated" goods.

But in law, most of them are exempt. The goods most people call nil rated are listed in the GST exemption notification for goods (Notification 10/2025-Central Tax (Rate)). That notification "exempts" them "from the whole of the central tax". It does not give them a rate. So, strictly, they are exempt supplies. The tax result is the same.

What is an exempt supply?

Section 2(47) of the CGST Act says an exempt supply is a supply of 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".

In simple words, exempt supply has three parts:

1. Nil rate supplies: GST rate is nil.
2. Wholly exempt supplies: the government frees them from GST by a notification under section 11 of the CGST Act (or section 6 of the IGST Act).
3. Non-taxable supplies: supplies GST does not tax at all, such as petrol and liquor for drinking.

Where exemptions come from. For goods, the list is Notification 10/2025-Central Tax (Rate), in force from 22 September 2025. It replaced the old 2017 list (Notification 02/2017-Central Tax (Rate)) and has 172 entries. For services, the main list is Notification 12/2017-Central Tax (Rate), changed many times since 2017.

Examples of exempt supply:

• Fresh fruits and vegetables, fresh milk, eggs and salt.
• Health care services by a hospital, clinic or doctor.
• Education by a school or recognised college to its students.
• Individual life and health insurance policies (from 22 September 2025).

Exempt sales and exempt purchases. Your own exempt sales go in GSTR-1 Table 8 and GSTR-3B row 3.1(c). Exempt or nil rated items you buy go in GSTR-3B Table 5 ("Values of exempt, nil-rated and non-GST inward supplies").

What is a non-GST supply?

A non-GST supply (the law calls it a "non-taxable supply") is a supply "which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act" (section 2(78)). GST simply does not apply to it.

For ITC, a non-GST supply counts as an exempt supply, because section 2(47) says exempt supply "includes non-taxable supply". So you cannot claim ITC for it.

Non-GST items list

As of 20 October 2026, no date has been notified for the five petroleum products, so they are still outside GST. Our reading: these items are taxed under the older State and central laws instead (such as State VAT on petrol and liquor).

Electricity is not a non-GST item. Many lists put electricity under non-GST. In law, "Electrical energy" (heading 2716) is entry 111 in the goods exemption list, so selling electricity is an exempt supply.

What is "no supply" under GST?

Some activities are not a supply at all. Schedule III of the CGST Act lists "activities or transactions which shall be treated neither as a supply of goods nor a supply of services". For example:

• "Services by an employee to the employer in the course of or in relation to his employment" (your salary job is not a GST supply);
• "Services by any court or Tribunal established under any law";
• "Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building" (selling a ready building is outside GST; selling one under construction can be taxable).

Is there a negative list in GST? No list in GST has that name. Our reading: people use "negative list" for Schedule III and the non-GST items above. The term comes from the old service tax law.

Sale of land and buildings still matters for ITC: section 17(3) counts it as an exempt supply when you split your credit (see the ITC section).

Nil rated vs exempt vs zero rated vs non-GST: the key differences

Nil rated vs exempt. In practice there is almost no difference. Both are "exempt supply" under section 2(47), both mean no GST, and neither allows ITC. The words are used loosely: goods with a "Nil" rate in GST rate charts are called nil rated, and supplies freed by an exemption notification are called exempt. The only place the split matters is GSTR-1 Table 8, which has separate "Nil Rated" and "Exempted" columns.

Our reading: no official rule says which goods go in which column, and the tax is nil either way. Choose one method for your items and use it every month.

Zero rated vs exempt. Both carry no GST on the sale. But a zero rated supplier can claim ITC and get unused credit refunded; an exempt supplier cannot. A zero rated supplier issues a tax invoice; an exempt supplier issues a bill of supply.

Zero rated vs nil rated. Same as above: zero rated keeps the credit, nil rated loses it. "Zero rated" is only for exports and SEZ supplies. A 0% rate on goods sold in India is nil rated (exempt), not zero rated.

Exempt vs non-GST. An exempt item is inside GST law but freed from tax. A non-GST item is outside GST law (petrol, diesel, liquor for drinking). For your ITC, both are treated the same way. In your returns they go in different places: exempt in GSTR-3B row 3.1(c), non-GST in row 3.1(e).

Short list of goods and services with no GST

Checked on 20 October 2026 against the notification texts. The goods list has 172 entries, and many have conditions (for example, "other than pre-packaged and labelled"). Always check the exact words for your item.

Goods (Notification 10/2025-Central Tax (Rate), in force from 22 September 2025)

Services

Exercise books and pencils moved from 12% to nil from 22 September 2025, and individual health and life insurance became exempt from the same date, after the 56th GST Council meeting.

How to check any other item. First find its HSN code with our HSN code finder. Then look for that code and the exact description in Notification 10/2025-Central Tax (Rate) for goods, or Notification 12/2017-Central Tax (Rate) for services. If your item is not in the list, it is taxable. See our full GST exemption list for every entry.

Input tax credit on nil rated, exempt and zero rated supplies

Zero rated: ITC allowed. You can claim the GST on everything you use for exports and SEZ supplies (section 16(2), IGST Act).

Nil rated, exempt and non-GST: no ITC. You cannot claim the GST on what you use only for these sales.

If you sell both taxable and exempt items, section 17(2) of the CGST Act lets you claim only the part of the credit that belongs to your taxable sales (zero rated sales count as taxable here). The rest is reversed. Two rules set the method:

• Rule 42 for inputs and input services (raw material, rent, phone, professional fees). You work out the reversal every month in GSTR-3B, and do a final calculation for the whole year by the due date of the September return after the year ends.
• Rule 43 for capital goods (machines, computers). Their credit is spread over a useful life of 5 years (60 months).

Report these reversals in GSTR-3B Table 4(B)(1), the row for credit that cannot be claimed back later (CBIC Circular 170/02/2022-GST).

Simplified example. In a month, a shop sells ₹6 lakh of taxable goods and ₹4 lakh of exempt goods. It paid ₹10,000 GST on shop rent, which it uses for both. Exempt sales are 40% of total sales, so it reverses ₹4,000 and claims ₹6,000. Rule 42 has a more detailed formula, but this is the idea.

What counts as exempt for this split. Section 17(3) adds a few things to the value of exempt supply: purchases on which you paid tax under reverse charge, transactions in securities, and sale of land and (most) buildings.

Unused ITC refund. Section 54(3) allows a refund of unused ITC in only two cases: zero rated supplies made without paying tax, and an "inverted duty" case where your inputs are taxed at a higher rate than your sales. The inverted duty refund does not apply to nil rated or fully exempt sales. So an exporter can get unused credit back; a seller of exempt goods cannot. Our GST refund guide explains how to claim it.

Read more about the general credit rules in our input tax credit guide.

Do you need GST registration if you sell only exempt goods?

No. Section 23(1)(a) of the CGST Act says "any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax" is not liable to register. So a shop that sells only fresh vegetables, or a person who sells only petrol, does not need GST registration, however big the sales.

If you sell both taxable and exempt items, registration depends on your total sales. Your "aggregate turnover" counts taxable sales, exempt sales, exports and inter-State sales together (section 2(6), CGST Act). See our GST registration limit guide for the limits in your State.

Which invoice to issue for exempt and zero rated supplies

• Exempt or nil rated supply: issue a bill of supply, not a tax invoice (section 31(3)(c), CGST Act). You may skip it if the value is less than ₹200, subject to conditions.
• Taxable and exempt goods to the same unregistered buyer: you may issue one "invoice-cum-bill of supply" for both (GST Council flyer on tax invoices).
• Zero rated supply: issue a tax invoice, as for any taxable supply (GST Council flyer on zero rating).

How to show nil rated, exempt, zero rated and non-GST supplies in GSTR-1 and GSTR-3B

First, what outward supply means. Section 2(83) of the CGST Act says an outward supply is a supply of goods or services "whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode", "made or agreed to be made by such person in the course or furtherance of business". In simple words, everything you sell or supply in your business. Your nil rated, exempt, zero rated and non-GST sales are all outward supplies.

GSTR-1 (your sales return):

Table 8 has four rows: 8A inter-State sales to registered persons, 8B intra-State sales to registered persons, 8C inter-State sales to unregistered persons and 8D intra-State sales to unregistered persons. Put each sale in the right row by buyer and place.

GSTR-3B (your monthly or quarterly summary):

Row (d) is for purchases on which you pay tax under reverse charge. Your exempt, nil rated and non-GST purchases go in GSTR-3B Table 5.

GSTN fills these GSTR-3B rows from your GSTR-1: row 3.1(b) from Tables 6A and 6B, and rows 3.1(c) and 3.1(e) from Table 8. Check the figures before you file.

Can you file a nil return if you only sold exempt goods? No. Exempt, nil rated and non-GST sales are still sales, and both returns have rows for them. See our nil return guide.

Composition dealers and exempt goods

• No exports. A composition dealer cannot make inter-State sales of goods (section 10(2)(c)), and exports are inter-State supplies. So composition dealers cannot make zero rated supplies of goods.
• No non-GST goods. A person who supplies goods or services that GST does not tax (such as liquor or petrol) cannot opt for composition (section 10(2)(b)).
• Exempt goods are fine. A composition dealer can sell exempt goods. Traders pay composition tax only on their taxable sales. Every composition dealer issues a bill of supply, and reports all sales, "including exempt supplies", in CMP-08.

Read more in our GST composition scheme guide.

Frequently asked questions