Goods and Services Tax (GST) is an important part of a nation’s taxation policy. It is a single unified tax system that has been implemented in many countries around the world.
It is one of the biggest tax reforms that has replaced various taxes, such as value-added tax, excise duty, service tax, etc.
Above all else, it has brought in a uniform tax structure which has made taxation easier and more transparent, thereby benefiting both the consumer and the government.
If you’re just beginning to learn about GST (Goods and Services Tax) and want to gain insight into its various types of supply, you’ve come to the right place! In this article, we will be covering concise definitions of GST and its supplies like Zero-rated supply, Nil-rated supply, Non-GST supply or Non-taxable supply and exempt supply.
We will also discuss the definitions of each in the context of India, the United States, Australia and the United Arab Emirates.
GST is a comprehensive, multi-stage, and destination-based tax that is levied on every value addition. It is charged at every stage of the production process, right from the manufacturing stage up to the point of sale.
This tax is applicable to both buyers and sellers and it is essential to understand the different types of GST tax supplies to ensure compliance with the taxation system.
Before moving forward, you need to know that GST is an indirect taxation system in India, Australia and 160 other countries. In the United States, indirect tax is charged under the Sales Tax (not GST).
In the United Arab Emirates, indirect tax is UAE VAT. Taxation policies differ from nation to nation. Now that you understood this, lets dig into the information.
1. Zero-Rated Supply
A zero-rated supply is a type of GST supply in which the rate of tax is zero. This means that the supplier of the goods or services does not have to pay any GST, but they can still claim a refund of the input tax credit.
This type of supply is generally used for exports, international supplies and other supplies that are not subject to GST.
- In India, a zero-rated supply includes the export of goods or services, the supply of goods or services to an SEZ (Special Economic Zone) and the supply of goods or services to an international tourist.
- In the United States, zero-rated supply is a type of tax exemption in which certain goods and services are not subject to sales tax.
- In Australia, zero-rated supply refers to the supply of goods or services that are GST-free. It is a supply of goods or services taxed at a rate of 0%. This means that the GST amount payable on the supply is nil.
- In the UAE, zero-rated supply means a type of tax-exempt supply of goods or services. It is typically used to refer to certain types of supplies which are not subject to Value Added Tax (VAT). These supplies are still listed on the tax authoritys register but are not subject to VAT.
2. Nil-Rated Supply
A nil-rated supply is a type of GST supply in which the rate of tax is nil but the supplier of the goods or services cannot claim any input tax credit. This type of supply is generally used for certain types of goods or services that are exempt from GST.
- In India, a nil-rated supply includes the supply of goods or services to an unregistered person, the supply of goods or services to a person outside India and the supply of certain goods or services such as agricultural produce.
- In the US, Nil-Rated supply means the supply of goods or services for which no sales tax is charged. This applies in states where there is a sales tax, such as California.
- In Australia, a nil-rated supply refers to a supply of goods or services for which no GST is charged. These supplies include items such as public transport.
- In the UAE, Nil-rated supply is a term used in Value Added Tax (VAT) legislation to describe goods and services that are exempt from the 5% VAT rate.
3. Non-GST Supply or Non-Taxable Supply
Non-GST supply or non-taxable supply is a type of GST supply which does not attract any GST. This means that the supplier does not have to charge GST on their sales, and also does not get the input tax credit.
- In India, some items like alcohol, petrol, and diesel are non-GST supplies.
- In the United States, non-taxable supplies are goods or services that are not subject to sales or use tax.
- In Australia, Non-GST or non-taxable supply refers to any goods or services that are not subject to GST. Examples of non-GST or non-taxable supplies in Australia include rent, residential accommodation, some medical services, some goods exported overseas, and some educational services.
- Non-taxable supplies in the UAE are goods and services that are exempt from Value Added Tax (VAT) in accordance with the UAE VAT Law. Examples of non-taxable supplies include basic food items, educational services, healthcare services, international transport services, and certain financial services.
4. Exempt Supply
An exempt supply is a type of supply which does not attract GST at all. This type of supply is generally used for certain types of goods or services that are exempt from GST.
This means that the supplier does not have to charge GST on their sales and they cannot get input tax credit either.
- In India, an exempt supply is a supply of goods or services on which a Goods and Services Tax (GST) is not applicable. A list of exempt supplies is outlined in the Central Goods and Services Tax (CGST) Act and includes items such as essential food items, public transport services, education and health services, and agricultural produce.
- In the United States, an exempt supply is a type of supply of goods or services that is not subject to a sales tax. This can include items such as food for home consumption, prescription drugs, medical services, and many types of government services.
- In Australia, an exempt supply is a type of supply that is not liable for Goods and Services Tax (GST). This includes certain health services, certain food items, educational services and some other types of supplies. Exempt supplies also include supplies made to the Commonwealth, a state, or a local governing body.
- In the United Arab Emirates (UAE), an exempt supply is a type of taxable supply of goods or services that is exempt from Value Added Tax (VAT). This includes certain supplies of healthcare, education, financial services, real estate, international services, exports of goods and services and other supplies as outlined in the UAE VAT law.
Difference between Zero Rated, Nil Rated, Non-GST and exempt supplies (India & US)
- In India, zero-rated supplies are goods and services that are subject to GST but are exempt from paying any GST. In the United States, zero-rated supplies are goods and services that are subject to sales tax but are exempt from the sales tax rate.
- In India, Nil-rated supplies are zero-rated supplies under the Goods and Services Tax (GST). This means that the supplier is not required to charge GST on the supply of goods or services, and the recipient is not eligible to claim any input tax credit on the same. In the United States, Nil-rated supplies refer to goods or services that are exempt from any sales tax, use tax, value-added tax (VAT) or any other type of similar taxes. These items are not subject to taxation by the state or local government but may be subject to taxation at the federal level.
- In India, Non-GST supplies are services provided by the Government (such as postal services, police and defence services, etc.), the sale of agricultural produce, alcohol for human consumption, petroleum products etc. In the United States, Non-taxable supplies such as the sale of prescription drugs, medical equipment and prosthetic devices, newspapers, magazines etc are exempt from sales tax in the US.
- In India, exempt supplies include curd, milk, fresh fruits, bread, etc. In the United States, certain services provided by the federal government are exempt from taxation, including postal services and military housing.
Final Notes
To summarise, zero-rated supply is a type of GST supply where the GST rate applicable is 0%, but the supplier can still claim the input tax credit.
Nil-rated supply is a type of GST supply where the GST rate is also 0%, but the supplier cannot claim the input tax credit.
Non-GST supply or non-taxable supply is a type of GST supply which does not attract any GST, and exempt supply is a type of GST supply which is exempt from GST.
The definitions of these supplies vary from country to country, so it is important to understand the specific laws of the country you are in.
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