Key points
- Zero-rated supply means exports and supplies to SEZ units or developers. It is defined in Section 16 of the IGST Act.
- There is no special list of zero-rated items: almost any goods or services can be zero-rated if supplied this way.
- Unlike exempt or nil-rated supplies, zero-rated supplies keep their input tax credit.
- You can export under a Letter of Undertaking (LUT) without paying IGST and claim a refund of credit, or pay IGST and claim a refund of that tax.
- Refund claims must generally be filed within two years from the relevant date.
What is a zero-rated supply?
Under Section 16 of the IGST Act, a zero-rated supply is any of the following:
- Export of goods out of India.
- Export of services to a recipient outside India, meeting the conditions below.
- Supply of goods or services to a Special Economic Zone (SEZ) unit or developer for their authorised operations.
The idea is that India should export goods and services, not taxes. So these supplies go out effectively free of GST, and the supplier can still claim, and get a refund of, the GST paid on inputs.
There is no separate “list of zero-rated items” for 2026 or any other year. A steel pipe sold in Patna is taxed at its normal rate; the same pipe exported to Dubai is a zero-rated supply.
Zero-rated, nil-rated, exempt and non-GST: the difference
| Type | GST on the sale | Input tax credit | Examples |
|---|---|---|---|
| Zero-rated | None (under LUT) or refundable | Allowed, refund possible | Exports, supplies to SEZ |
| Nil-rated | 0% rate in the schedule | Not allowed | Some fresh food items |
| Exempt | Exempted by notification | Not allowed | Healthcare services, many education services, individual health insurance |
| Non-GST | Outside GST | Not allowed | Petrol, diesel, alcohol for human consumption |
The difference matters for your credit. If you make exempt or nil-rated sales, you have to reverse credit on inputs used for them. If you make zero-rated sales, you keep it.
When does a service count as an export?
A supply of services is an export only if all of these are true:
- The supplier is in India
- The recipient is outside India
- The place of supply is outside India Decided by the place of supply rules for that kind of service.
- Payment is received in convertible foreign exchange Or in Indian rupees where the RBI allows it.
- Supplier and recipient are not just branches of the same entity Supplies between establishments of one person don’t count.
Two ways to make a zero-rated supply
Option 1: Under LUT without paying IGST
You file a Letter of Undertaking (form RFD-11) on the GST portal at the start of each financial year. You then export without charging IGST and claim a refund of the unused input tax credit that built up because of the exports. This is the most common route, as it doesn’t block your cash.
Option 2: Pay IGST and claim a refund
You charge and pay IGST on the export (usually by using your input credit) and then claim a refund of that IGST. For goods, the shipping bill itself is treated as the refund application, and refunds are processed through the customs system once your returns match. Some exporters choose this route when they have large credit balances.
Supplies to SEZ units follow the same two options. The SEZ unit’s endorsement that it received the goods or services for authorised operations is an important document for refunds.
Deemed exports are different
Some supplies inside India are treated as “deemed exports” under Section 147, such as supplies to Export Oriented Units or against Advance Authorisation. These are not zero-rated. GST is charged normally, and either the supplier or the buyer can claim a refund of that tax, subject to conditions.
Getting your refund
- Keep documents ready Invoices, shipping bills or SEZ endorsements, proof of foreign exchange received for services, and your returns.
- File the refund claim Form RFD-01 for refund of unused credit or for SEZ supplies, within two years from the relevant date.
- Provisional refund For zero-rated supplies, 90% of the claim can be paid provisionally while the rest is checked.
- Final order The balance is paid, or adjusted, after verification.
How your billing software should handle zero-rated sales
- Mark export and SEZ customers so the software treats every bill to them as inter-state and zero-rated.
- Choose LUT or IGST payment for each bill, and show the LUT reference on the invoice when you use it.
- Keep zero-rated sales separate in GSTR-1 (Table 6) and in your refund working.
- Track input credit so you know the refund you can claim.
Milaan ERP handles exports and SEZ supplies in this way. See how the tax type is decided on each bill.
This guide explains GST rules in simple words and reflects the law as we understand it on 28 October 2026. Rules, rates and dates change, so please confirm with your CA or the official notifications before acting on it.