What Is Zero-Rated Supply?

Zero-rated means the supply carries no GST burden in India, while the supplier keeps the right to input tax credit. Section 16(1) lists two kinds of zero-rated supply: export of goods or services or both, and supply to an SEZ developer or unit for authorised operations. Section 16(2) allows input tax credit to be availed for making zero-rated supplies. A registered exporter can supply without paying IGST under a bond or Letter of Undertaking, and then claim refund of unutilised credit under section 16(3).

For example, a registered design agency in India bills a client abroad for services and meets the conditions of export of services. It files a LUT, issues the invoice without IGST, and later applies for refund of the unutilised input tax credit on its software and office costs.

• GST: Zero-rating lets a registered exporter supply without charging IGST under Rule 96A and apply for refund of unutilised credit.
• Conditions: For services, the supply must meet the conditions of export of services in section 2(6), which includes receipt of payment in convertible foreign exchange or in Indian rupees where RBI permits.
• Bank compliance: Your AD bank records the foreign receipt, and the bank advice supports your GST file. See FIRA and e-BRC.
• Income tax: Zero-rating is a GST concept. It does not exempt export income from income tax, so ask your adviser about the income tax side.

A registered exporter either supplies without IGST under a bond or LUT, or pays IGST and claims a refund, and then applies for refund through the GST portal.

1. Check that the supply meets the definition of export under section 2 and section 16(1).
2. Furnish a LUT under Rule 96A before the export if you choose to supply without paying IGST.
3. Issue the export invoice and report it in GSTR-1.
4. Receive the payment in convertible foreign exchange or in Indian rupees where RBI permits.
5. Keep the bank advice, invoice and contract on file.
6. Apply for refund of unutilised input tax credit within the procedure under section 54 of the CGST Act and the rules.

You register under GST, choose between supplying under a LUT or paying IGST, and then apply for refund through the GST portal. Check the current conditions on the portal.

1. Confirm you hold a GST registration.
2. Decide whether to supply under a LUT, see LUT filing on the GST portal.
3. Mark the invoice as an export and report it in GSTR-1.
4. Collect the foreign payment and the bank document.
5. Prepare the refund application with the invoice and payment details.
6. Track the application on the portal and respond to any notice.

A zero-rated supply is defined in section 16 and carries a refund route for unutilised input tax credit. An exempt supply is treated differently under the GST law, so confirm the treatment with your adviser.

• Zero GST rate: Zero-rated is a defined term in section 16. It is more than a rate of 0 percent on an invoice.
• Automatic: A LUT and refund application are separate steps. Each follows the CGST Rules.
• Income tax: Zero-rated status concerns GST only.
• Any foreign client: Services must satisfy every condition of export of services in section 2(6), see export of services.

• LUT: An undertaking to export without paying IGST.
• Export of services: The GST definition of services exports.
• IGST refund: Refund of IGST paid on exports.
• GST on export of services: A fuller guide to zero-rating services.
• GST refund on exports: Process and timelines for refunds.

Every rule and definition on this page is linked to its official source, checked on the dates below.

1. IGST Act, 2017, Section 16 (Zero rated supply), Section 16(1), 16(2), 16(3) and proviso (checked 9 Oct 2026)
2. IGST Act, 2017, Section 2 (Definitions), Section 2(6), export of services (checked 9 Oct 2026)
3. CGST Rules, 2017, Rule 96A, Rule 96A(1) (checked 9 Oct 2026)