Difference Between Zero Rated, Nil Rated, Non-GST And Exempt Supplies
Under GST, there are various types of supplies which creates confusion for the end user. While the end result of all these supplies is the same, i.e. GST is not applicable on the supply, but it is important to know the difference especially for the purpose of filing correct GST returns and accurate claim of ITC.
Zero Rated supply
As per Section 16 of Integrated Goods and Service Tax Act, zero-rated supplies mean: –
- Export of goods or services or both; or
- Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
For example, export of mobile phones to Australia, providing bookkeeping services to a company located in New York.
By zero rating it is meant that the entire supply chain of a particular zero-rated supply is tax-free i.e. there is no burden of tax either on the input tax side or on the output side. This is in contrast with exempted supplies, where only output is exempted from tax but tax is levied on the input side. The essence of zero rating is to make Indian goods and services competitive in the international market by ensuring that taxes do not get added to the cost of exports.
No list of goods and/or services supplied is prescribed under zero-rated supply as these are goods and/or services which are generally taxed when sold within the country.
As per sub section (3) of Section 16 of Integrated Goods and Service Tax Act, a registered person making zero-rated supply shall be eligible to claim a refund under either of the following option, namely: –
- he may supply goods or services or both under bond or Letter of Undertaking (LOU), subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax (IGST) and claim refund of unutilised input tax credit of Central tax (CGST), State tax (SGST) / Union territory tax (UTGST) and integrated tax (IGST); or
- he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim a refund of such tax paid on goods or services or both supplied.
GST law allows the flexibility to the exporter (which will include the supplier making supplies to SEZ) to claim refund upfront as integrated tax (by making supplies on payment of tax using ITC) or export without payment of tax by executing a Bond/LUT and claim refund of related ITC of taxes paid on inputs and input services used in making zero-rated supplies.
Note: – As per sub section (2) of Section 16 of Integrated Goods and Service Tax Act, a registered person shall be eligible to claim a refund for zero-rated supplies even such supply is non-taxable or even exempt supply.
Supply of goods or services or both on which nil or 0% GST rate is applicable are called NIL rated supply. Schedules I of the GST act contains the goods which are nil-rated supply. For example, cereals, fresh fruits, and vegetables, salt, natural honey, milk, human blood etc.
No input tax credit of inputs and/or input services used in providing nil rated supply is available. In other words, if any GST is paid on the goods or services or both used in providing nil rated supply then such GST credit is not available to the registered dealer.
Non-GST supply or Non-Taxable Supply
Supply of goods or services or both which are outside the purview of GST Act. In other words, they are not taxable under the GST Act and may be chargeable to tax under any local sales tax law or any other act.
Currently, the only goods falling under this category include petroleum products and alcohol for human consumption.
Exempted supply means the supply of goods or services or both which attracts nil rate of tax or which are specifically exempt from GST through government notification and includes non-taxable supply. Thus, it is the supply of goods or services or both that do not attract GST. For example, live animals (except horses), cereals, puja samagri etc.
No input tax credit can be claimed with respect to inputs and/or input services used for making exempt supplies.
|Particulars||Zero-Rated Supplies||Nil-Rated Supply||Non-GST Supply||Exempt Supply|
Supply which is meant for Export or
to Special Economic Zone developer or a Special Economic Zone unit.
|Supply which attracts 0% GST rate.||Supply which is outside the purview of GST Act.||Supply which attracts nil rate of tax or which are specifically exempt from GST through government notification and includes non-taxable supply|
(i) Supply good or services without payment of GST using LOU and claim a refund of unutilised GST.
(ii) Supply good or services by paying IGST and claim a refund of such IGST paid.
|GST is not applicable on supply.||GST is not applicable on supply.||GST is not applicable on supply.|
|Input Tax Credit Availability||Input tax credit can be claimed.||No input tax credit is available.||No input tax credit is available.||No input tax credit is available.|
|Cover under GST Ambit||Yes||Yes||No|
Yes (for nil rated and exempt supply)
No (for non-taxable supply)
Restrictions on Cash Transactions under Income Tax Act:-
For limiting the number and amount of cash dealings, Income Tax (IT) department has laid down certain rules under various sections of the Income Tax Act.
Cash limits and penalties under various Sections of Income Tax Act:
There is now a limit on cash transaction for expenses relating to a person’s business or profession under the IT Act. Any payment over Rs.10,000 made in cash in a single day as expense, is not considered as expenditure.
For instance, if an individual makes a payment of Rs 10,000 in a day, he can claim it as an expense in his IT returns. But if he makes cash payment for more than Rs 10,000 in a day for any expense, then that amount is not allowed as deduction. But if he is not claiming this transaction as an expense then said IT section will not apply.
In short, a tax payer’s cash transaction is now restricted to Rs 10,000 per day. For amounts more than Rs.10,000 he should pay through banking channels only.
Another section under the IT Act now forbids buying fixed assets in cash above Rs 10,000. For instance, if an individual acquires any fixed asset by paying in cash of more than Rs 10,000 it will not be treated as fixed assets in the books of accounts. For any such purchase of fixed asset in cash, the depreciation benefit will not be available to him. In such cases, it is in the taxpayer’s interest to make payment to the seller through banking channels only.
There is a section under the IT Act that pertains to limit on cash receipts. It restricts accepting or repaying any loan or deposit or advance of more than Rs 19,999 in cash by an individual during a financial year.
This means an individual cannot receive cash of more than Rs.19,999 as loan or deposit or advance from any person. If a taxpayer does so he will be liable to a penalty. The penalty amount would be equal to the cash loan/deposit/ advance he had accepted. The said IT section provisions will not apply in a case, where both the persons, i.e. the one who gives the loan or deposit and the other who accepts the loan or deposit have only agricultural income and both of them do not have any income chargeable under the IT Act.
In case of immovable property too, the same criterion applies. An individual can buy immovable property in cash up to Rs 19,999. Beyond this amount he will face penalty. Thus, it is best to carry all dealings in such amounts above Rs 19,999 through banking channels only.
Then there is a section under IT Act that imposes certain limits on cash transactions per day. Under this section, maximum amount in cash an individual can receive from another person in a day is Rs 1,99,999. The said IT Act stipulates that no person will receive a sum of Rs 2,00,000 or more:
• From one person in total in a day or
• For a single transaction or
• For transaction related to one principle transaction
The limit on receiving cash of Rs 2,00,000 or above applies even if cash dealing is for personal or business purpose. Even if it is capital or revenue in nature, tax-free or taxable income, the said rule still applies.
But, cash transaction limit of Rs 1,99,999 will not apply in cases where:
• Cash comes through an account payee cheque or an account payee bank draft or through an electronic clearing system through a bank account.
• The cash dealing is by the Govt., any banking company, post office savings bank or co-operative bank.
• It is a transaction of the nature referred to in Section 269SS.
• It consists of people or class of people or receipts that the govt. at the Centre notifies via Official Gazette.
Under Income Tax Act, if a person receives cash of Rs 2,00,000 or above in a day, he will have to pay a hefty penalty. The rate of penalty will be a sum equal to the amount of cash received. Suppose an individual receives Rs 5,00,000 from a single person for a transaction then the former will be liable for penalty of Rs 5,00,000, which is a whopping 100% fine. The individual who pays the money is not liable for penalty; it is the receiver of cash who has to bear the brunt. But, if the individual gives a valid reason for such breach of law, the law allows withdrawal of penalty.
There is one section under IT Act under which no cash donation exceeding Rs 2,000 is permissible. If you donate more than Rs 2,000 in cash to a registered trust or a political party it will be a violation of the latest tax laws.
For claiming deductions under specific IT section, you can make cash donations up to Rs 2,000 only. For any amount above that, make the contribution through cheque or draft to claim tax benefit.
For tracking high value cash transactions and curbing black money, the Indian Govt. has laid down certain guidelines. Banks and non-banking financial bodies have to send an AIR (Annual Information Report) to the IT Dept. This report must contain details of all high-value transactions by its clients. On the basis of this statement, tax authorities collect information on certain transactions.
In the following cases service providers must send an AIR recorded by them in a Financial Year to the IT department:
1. Cash payments made to buy bank drafts or pay orders or banker’s cheque aggregating to Rs 10,00,000 or more.
2. Cash deposit of more than Rs 10,00,000 into one or more bank accounts of an individual, other than a current account and fixed deposit.
3. Fixed deposits of an individual, apart from renewals, aggregating to Rs 10,00,000 or more .
4. Cash payments of Rs 1,00,000 or more for settling credit card bills. Also same amount used in case of settling of credit card dues via cheque or wire transfer mode.
5. Investment in mutual fund exceeding Rs 2,00,000.
6. Investment in company or institution, for more than Rs 1,00,000 for buying its bonds and debentures.
7. Cash payment made exceeding Rs 1,00,000 for buying shares of a registered company.
8. Buying or selling immovable property of Rs 30,00,000 or more. Sub Registrar has to generate an AIR.
9. Cash investment of Rs 1,00,000 or more in prepaid instruments issued by RBI.
10. Cash deposit/withdrawal in a current account aggregating to Rs 50,00,000 or more.
In case of cash transaction of Rs 50,000 and above, it is mandatory to give PAN card copy to the bank. This rule applies to all kinds of banking transactions. For e.g. cash deposit or cash withdrawal, cheque transactions, for net banking etc, where the amount is Rs 50,000 or more.
In case of the following transactions made by a person, giving PAN details is compulsory:
• Buying of pay orders/bank drafts of Rs 50,000 or more in a day.
• Opening account with any of the Indian banks.
• Using prepaid payment instruments. For e.g. using gift cards, social benefit cards or remittance cards for cash transactions of more than Rs 50,000 per year.
• Opening of Demat account for buying/selling of shares, for amount more than Rs 1,00,000.
• Buying of bonds or mutual funds where the sale value exceeds Rs 50,000.
• Applying for debit or credit card at any bank or financial institution.
• Deposits in a bank or co-operative society, post office or non-banking financial institution.
• Buying or selling of a four-wheeler (not necessary for two-wheeler).
• Payment of life insurance premium of Rs 50,000 or more per year.
• Payment of hotel bills or foreign travel bills or buying of foreign currency above Rs 50,000.
• Buying of gold jewellery or bullion worth Rs 2,00,000 or more in cash or by credit card.
• Buying of immovable property worth more than Rs 10,00,000.
Wherever possible, make payments by electronic means or cheque only.
ITC Set off Rules under Gst
|The original set off rules worked this way|
|The government changed the ITC set off rules and now they work like this (effective 1st April 2019)|