Nil-rated and zero-rated supplies in GSTR-1 return are two of the most essential parts of filing a return. A nil or zero rating implies a 0% tax rate. One might think that just applying a 0% tax rate is a simple thing. However, filing nil or zero-rated supplies in the documentation process of GSTR-1 returns is crucial, and people often need to correct their mistakes. In this blog, you will understand what actual nil and zero-rated supplies are, and you will also appreciate their application during GSTR-1 returns and ways to avoid any kind of errors or discrepancies which could lead to penalties.
Identification and reporting of nil or zero-rated supplies in GSTR-1
Section 16 of the Integrated Goods and Service Tax Act states that zero-rated supply implies the export of goods or services or both and the supply of service or goods or both to a Special Economic Zone (SEZ). For instance, exporting smartphones to New Zealand and providing digital marketing services to companies in the UK.
Zero-rated supply implies that the entire supply chain of a zero-rated supply is free of tax, which means that there is no instance where tax is paid on the input or output side. The zero-rated requirement is to ensure that goods and services manufactured in India are competitive in the foreign market, ensuring that tax expense is not added to the export expense.
There is no particular list of goods or services that is mainly prescribed under the zero-rated supply. Since the same products are being sold within the country, tax has been paid on them.
As per Section 16 subsection 3 of the Integrated Goods and Service Tax Act, a person who makes a zero-rated supply will be eligible to claim a refund under either of the two options stated here:
- Registered persons may supply the services or goods under the Letter of Undertaking (LOU) that is based on some conditions, safeguarding and procedure as it is prescribed, without any payment of the integrated tax as well as claims, being refund of the Input Tax Credit on the SGST, CGST, IGST and UTGST.
- The registered person might also supply the services of goods subject to some conditions, procedures and safeguarding, as that may be prescribed during the payment of the integrated tax and thereby claiming a refund of such tax paid on the services and good supply.
Important note: As per section 16 subsection 2 of the Goods and Service Tax Act, a taxpayer will be eligible to claim a refund for the zero supplies even though the supplies were exerted or not taxable.
Nil rated supply:
The nil-rated supply implies the supply of services or goods that includes on which there is a 0% rate of GST applied. As per Schedule 1 of the GST Act, there are quotes mentioned in the schedule that are eligible for nil-rated supply. For instance, vegetables, honey, fruits and many more. There is no such eligibility of Input Tax Credit and input services during the availability of nil-rated supply, which also means that if any kind of GST has been paid on the goods and services where nil-rated supplies are being provided, then that case the credit on GST is unavailable to the registered person.
Comparison between zero-rated supply and rated supply
|Nil rated supply
|This includes the supply of goods or services with a GST rate of 0%.
|These supplies are meant for the Special Economic Zone or the Special Economic Zone Unit.
|There is no applicability of GST on suppliers as such.
|The supplies are being made without any GST payment only by using LOU, and a refund is being claimed on the unutilised GST. Payment of IGST and refund of the IGST payment is being claimed.
|Unavailability of Input Tax Credit.
|In this case Input Tax Credit can be claimed.
Special Economic Zone
While reading through the zero-rated supply, you must have encountered the term Special Economic Zone or SEZ. So, let us discuss what that means.
The Special Economic Zone(s) can be located in a foreign land; therefore, it can be classified into import and export. Export implies the supply of goods and services from the developer in the Special Economy Zone to a developer of another Special Economic Zone. At the same time, import means to receive goods or services in a particular Special Economic Zone from another Special Economic Zone.
What are the objectives behind implementing special economic zones?
- It increases foreign business by promoting the export of goods and services.
- Improves the nations’ infrastructure facilities.
- Foreign investment of a nation increases.
- It helps the nation to create more domestic jobs, thereby increasing the rate of employment.
Compliance requirements for nil or zero-rated supplies
In the case of GSTR-1 return filing:
- The GSTR1 returns must be filed accurately and on time to avoid any kind of interest charges or penalties.
- The zero-rated supplies are reported in Table 7.
- You must ensure that the rate of tax that is applied for both cases is correct, which is 0%
- Kindly double-check all the details that have been entered in the GSTR-1 return, which includes the GSTN, invoice names, numbers, and amount of tax.
In the case of Input Tax Credit:
- You will be able to claim an Input Tax Credit or zero-rated supplies for the tax expense paid on the services and inputs used for making the supply.
- Make proper records supporting the claims of Input Tax Credit, such as credit notes and invoices.
- Abide by the compliance and specified rules of Input Tax Credit and zero-rated supplies reversal.
- You must avail of the approvals and registrations that are necessary as per the zero rated supplies, which includes the approval of a Special Economic Zone.
- A proper accounting system must be maintained in order to track and manage zero rated and nil rated supplies.
- Submit additional information on any kind of documents that are required by the taxation bodies.
- Often, there are several updates and changes in the GST rules. Therefore, the registered person must keep a check on those.
Documentation and recordkeeping for nil or zero-rated supplies
- Detailed invoices and purchase orders for every kind of transaction that involves nil or zero supplies must be recorded accurately.
- The export documents for the zero-rated suppliers, which will include the Bill of Lading invoices in export, must be kept securely. It is suggested that the businesses should keep several copies of those invoices.
- Carefully store the Approval Letters or any kind of other documents in relation to the Special Economic Zone for the zero-rated supplies.
- Reviewing and updating the documentation and showing that the details are accurate and one has added to all the complaints must be done thoroughly.
- If the registered tax payer or businesses in general is unsure about the supplies or generated supplies or any kind of information in case of specially then they must seek professional guidance such as a GST advisor.
- This GST advisor will assist the businesses to add to the compliances, thereby limiting them to optimise the tax benefits. It will also ensure that the businesses are not filing the GSTR-1 return wrongly, thereby skipping any kind of legal consequences.
Avoiding errors and discrepancies in reporting nil or zero-rated supplies
Furnishing the nil supply of zero supplies during the GSTR-1 return filing requires attention towards errors. These errors might result in any kind of interest charges, penalties, or fees. The crucial steps to file the nil or zero-rated supplies during the GSTR-1 are lay down:
Scrutinise each document before filing the GSTR-1 return: All the invoices as well as the purchase orders must be reviewed thoroughly before those details are entered in GSTR-1 file. Verification of the invoice numbers must be done. The GSTIN is crucial therefore double check it during filing the return. Assure that proper categorization has been made for the nil as well as zero rated supplies in the Table 6 and 7 respectively.
Cross checking: The purchase records and sales data must be reconciled in the GSTR-1 return to ensure consistency internally. Comparison must be made in the GSTR-1 details with the document such as invoice, Special Economic Zone, Approval Letters and many more. If there is any kind of errors rectification of those errors before filing the GSTR-1 return is essential.
Vigilance of rate of tax: Close attention must be paid to the rate of tax applied to the zero-rated supplies and the unit of supplies. One must always run with that the tax rate in both the cases is 0%. The calculations must be double checked and no amount of tax must be implemented in those transactions.
Maintain and document documentation process: To ensure that you find out all the Letters of Approval invoices or any crucial documents, one should always have a proper documentation process. Store the invoices or any kind of payment properly. Also, the supporting documents must be kept at record crucially. You must ensure that you can access those documents easily in case the tax authority wants any kind of queries. The documentation must be updated on a regular basis to meet the changes in amendments.
Seek professional help: Everyone can only learn some things. GSTR-1 return filing is complicated, and filing for nil or zero is also difficult. If the person or anyone in charge of the tax filing of the business is not sure about their ability to report the supply of zero supplies then they should be quick to seek any kind of professional help. It will reduce the error of documentation on behalf of the business.
Continuous learning: GST rules and regulations change continuously. Therefore, one must be aware of the changes taking place, thereby, being aware of the laws and regulations is essential as it helps the taxpayers to file taxes efficiently and correctly.
One might feel that these areas of GSTR-1 filing is a bit complicated. These are extremely crucial sections during filing the GSTR-1 return hence attention to details and maintaining an accuracy is extremely important which can be assisted by professionals.
What is a nil related supply?
A nil supply is the supply of goods or services when the GST rate is 0%.
What is zero supply?
Zero rated supplies is a supply of services when it is being supplied towards special economic zone.
How to report Nil or zero dated supply?
You have table 6 for nil rated supplies and table 7 zero rated supplies.
What are the requirements to comply for nil or zero rated supply?
You have to file the GSTR-1 accurately and ensure that proper records have been maintained.
How to avoid errors when one is reporting the zero or nil rated supplies?
Kindly scrutinise all the information that you have before filing the GSTR-1 return. Also cross check the data, ensuring that everything is correct.