GST Guide

Zero-Rated GST Items 2026:
Updated List & Benefits for Businesses

Updated: June 2026 9 min read Milaan ERP Team
Under India's GST framework, zero-rated supply is a specific category that is different from exempt supply. While both attract 0% GST, the key distinction is that zero-rated suppliers can still claim Input Tax Credit (ITC) and get refunds — making it crucial for exporters and businesses dealing with Special Economic Zones (SEZs) to understand this classification correctly.

What is Zero-Rated Supply Under GST?

As per Section 16 of the IGST Act, 2017, zero-rated supply means any of the following supplies of goods or services or both:

  • Export of goods — physical export out of India
  • Export of services — supply to a recipient outside India with payment received in convertible foreign exchange
  • Supply to a Special Economic Zone (SEZ) unit for authorised operations
  • Supply to an SEZ developer for authorised operations

Important Clarification

Zero-rated is NOT a tax rate — it is a classification of supply. The effective tax rate is 0% (like exemption), but the supplier retains the right to claim and refund ITC, unlike exempt supplies.

Zero-Rated vs Exempt vs Nil-Rated GST

Many businesses confuse these three categories. Here's a clear comparison:

Zero-Rated

0% GST + ITC Allowed

Exports & SEZ supplies. Supplier can claim full ITC refund on inputs used.

Exempt

0% GST – No ITC

Essential items like milk, education, health. ITC on inputs is blocked/reversed.

Nil-Rated

0% GST – No ITC

Items listed in Schedule I (e.g., salt, fresh vegetables). Similar to exempt in ITC treatment.

Updated Zero-Rated GST Items / Supplies for 2026

The following are the categories of zero-rated supplies as applicable in 2026:

CategoryDescriptionConditions
Export of GoodsPhysical export of any taxable goods out of IndiaSupported by shipping bill, bill of lading, customs clearance
Export of ServicesServices provided to a person outside IndiaPayment received in foreign currency; recipient outside India
Supply to SEZ UnitGoods/services supplied to SEZ unit for authorised operationsEndorsed copy of shipping bill / SEZ-specific documents
Supply to SEZ DeveloperGoods/services for SEZ developer's authorised operationsLetter of approval, specific SEZ documentation required

Key Update for 2026

From October 2023, the definition of "export of services" was clarified — supplies to related parties abroad or between establishments of the same entity don't automatically qualify as exports unless they meet all conditions under Place of Supply rules and involve genuine foreign exchange inflow.

How to Make Zero-Rated Supply Under GST

A registered supplier making zero-rated supplies has two options:

Option 1: Export Under Bond/LUT (Without Paying IGST)

File a Letter of Undertaking (LUT) in Form GST RFD-11 at the beginning of each financial year. Supply goods/services without paying IGST and claim refund of accumulated ITC on inputs. This is the preferred route as it avoids cash flow blockage.

Option 2: Export on Payment of IGST and Claim Refund

Pay IGST on the export at the applicable rate and later claim a refund through the GST portal. This route involves upfront payment but may be simpler for occasional exporters.

ITC Refund Process for Zero-Rated Supplies

Exporters and SEZ suppliers can claim ITC refunds for:

  • Refund of IGST paid on exports (auto-processed on filing GSTR-3B & GSTR-1)
  • Refund of accumulated ITC on exports/SEZ supplies under LUT (via Form RFD-01)

The refund application must be filed within 2 years from the relevant date. Normally, refunds are processed within 60 days of acknowledgement.

Manage Zero-Rated GST with Milaan ERP

Milaan ERP automatically identifies zero-rated transactions, ensures correct reporting in GSTR-1 (Table 6A for exports), generates e-invoices for SEZ supplies, and tracks your LUT validity — all from one unified platform designed for Indian exporters and businesses.

Common Mistakes to Avoid

  • Treating zero-rated supplies as exempt (leading to ITC reversal)
  • Missing LUT renewal at the start of the financial year
  • Incorrectly reporting exports in GSTR-1 (wrong table or without shipping bill details)
  • Not filing for ITC refunds within the 2-year limit
  • Confusing merchant exports with regular exports for GST purposes

Frequently Asked Questions

What items are included in zero-rated GST in 2026?
Zero-rated GST in 2026 applies to: exports of goods, exports of services (meeting prescribed conditions), and supplies to SEZ units/developers for authorised operations. It is not an items list — it's a classification of supply.
Can I claim ITC on zero-rated GST supplies?
Yes. This is the biggest advantage of zero-rated supplies over exempt supplies. You can claim and receive a refund of ITC used in making zero-rated supplies, either through the IGST refund route or the accumulated ITC refund route.
Are exports always zero-rated under GST?
Exports of goods are always zero-rated. Exports of services are zero-rated only if they meet all five conditions under Section 2(6) of the IGST Act, including the requirement that payment is received in convertible foreign exchange.
Do I need special documentation for zero-rated GST claims?
Yes. For goods exports: shipping bill, bill of lading, customs clearance. For service exports: payment proof in foreign exchange, FIRC/BRC. For SEZ supplies: authorisation letter, endorsed documents. Proper documentation is essential for refund claims.
How does zero rating impact pricing of goods and services?
Zero rating keeps exports competitively priced because GST doesn't add to export cost. It also improves cash flow since businesses can claim ITC refunds instead of treating them as a cost — making Indian exports more competitive globally.

Handle Zero-Rated GST Effortlessly

Milaan ERP auto-identifies zero-rated transactions, manages LUT filing reminders, and ensures correct GSTR reporting for exports and SEZ supplies.

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