GST resources
Nil-Rated, Exempt and Zero-Rated Supplies: What the Difference Means
Four kinds of sale carry no GST on the bill: nil-rated, exempt, zero-rated and non-GST. They look the same to the customer, but they are treated very differently when it comes to input credit and returns.
The four types
| Type | What it is | Examples | Input credit |
|---|---|---|---|
| Nil-rated | Goods or services with a 0% rate in the rate schedule | Some food items and books listed at nil | Not allowed; reverse common credit |
| Exempt | Supplies exempted by notification under section 11 | Fresh vegetables, unbranded cereals, milk, healthcare services | Not allowed; reverse common credit |
| Zero-rated | Exports, and supplies to SEZ units and developers | Goods shipped abroad, sales to an SEZ unit | Allowed, and a refund can be claimed |
| Non-GST | Goods outside GST law | Alcoholic liquor for human consumption, petrol, diesel | Not allowed for these supplies |
In law, "exempt supply" covers nil-rated supplies, wholly exempt supplies and non-taxable supplies (section 2(47)). The split matters mainly for reporting.
Why the difference matters
For nil-rated and exempt sales, you do not charge GST and you cannot claim input credit on what you buy for them. If some purchases are used for both taxable and exempt sales, such as shop rent or a billing computer, the credit on those common purchases has to be split and the exempt share reversed under rule 42.
Zero-rated supplies are different: the supply is taxable at 0% and credit on inputs is allowed. An exporter either ships under a Letter of Undertaking (LUT) without paying IGST and claims a refund of unused credit, or pays IGST on the export and claims that back.
Worked example: common credit in a kirana
Sri Lakshmi Stores in Mysuru sells both taxable items (soap, biscuits, oil) and exempt items (loose rice, fresh vegetables). In one month, sales are ₹4,00,000 excluding GST, of which ₹1,00,000 (25%) are exempt.
Credit on stock bought for sale is easy: GST on soap and biscuits is claimed in full, and there is no GST on vegetables to claim. But the store also has ₹4,800 of GST on common costs: ₹3,600 reverse charge on shop rent and ₹1,200 on a printer service contract. The exempt share is 25%, so ₹4,800 × 25% = ₹1,200 is reversed and ₹3,600 is claimed. The rule requires a final true-up on the year's figures.
Common mistakes
- Claiming full credit on rent and services while selling exempt goods
- Issuing tax invoices with 0% lines instead of a bill of supply for purely exempt sales
- Treating exports as exempt and forgetting the refund
- Leaving exempt sales out of aggregate turnover
- Not reporting nil and exempt sales in GSTR-1 at all
How each shows up in returns
| Type | GSTR-1 | GSTR-3B |
|---|---|---|
| Nil-rated and exempt | Table 8 | Table 3.1(c) |
| Zero-rated (exports, SEZ) | Tables 6A and 6B | Table 3.1(b) |
| Non-GST | Table 8 | Table 3.1(e) |
| Exempt and nil purchases | — | Table 5 |
Examples by trade
| Business | Typical no-GST sales | Type |
|---|---|---|
| Kirana | Loose rice and pulses, fresh vegetables, eggs, milk | Exempt |
| Bakery and sweets | Fresh bread sold loose | Exempt |
| Stationery | Exercise books, pencils, erasers | Nil-rated since 22 September 2025 |
| Pharmacy | 36 notified life-saving drugs | Nil-rated |
| Exporter | Goods shipped abroad under LUT | Zero-rated |
| Bar or restaurant with a licence | Alcoholic drinks | Non-GST (state taxes apply) |
Illustrative; the exact treatment depends on the description and HSN code in the notification.
How TripleBill helps
Mark items as nil-rated or exempt in TripleBill and they print without tax and appear in the nil/exempt figures for GSTR-1 and GSTR-3B. Work out common-credit reversals with your accountant and post them as a journal.
This page is general information about GST in India, not tax advice. Rates, thresholds and rules change; confirm with the GST portal or a chartered accountant before acting.
Last reviewed and sources
Last reviewed: November 2026. Facts on this page were checked against:
- CGST Act, 2017, sections 2(47), 2(78), 11, 17(2) and 17(3)
- IGST Act, 2017, section 16 (zero-rated supply)
- CGST Rules, 2017, rules 42 and 96A
- Notification No. 2/2017-Central Tax (Rate) as amended (exempt goods)
Frequently asked questions
What is the difference between nil-rated and exempt?
Nil-rated goods have a 0% rate in the schedule; exempt goods are relieved by an exemption notification. Both carry no tax and no input credit, and both count as exempt supply.
Can I claim input credit on zero-rated supplies?
Yes. Exports and SEZ supplies are zero-rated precisely so that credit is allowed and can be refunded.
Is petrol under GST?
No. Petrol, diesel, crude, natural gas, aviation fuel and alcoholic liquor for human consumption are outside GST today and carry state and central taxes instead.
Do exempt sales count in turnover?
Yes. They are part of aggregate turnover for registration and other thresholds.
Do I issue a tax invoice for exempt goods?
No. A bill of supply is issued for exempt goods; for a mix, an invoice-cum-bill of supply.
What is a non-taxable supply?
A supply not leviable to GST at all, such as alcoholic liquor for human consumption.
Do I need GST registration if I sell only exempt goods?
No. A person making only exempt supplies is not liable to register, even above the threshold. Once you add taxable items, the threshold applies to your total turnover including the exempt sales.
Is an export always zero-rated?
Yes, an export of goods or services meeting the conditions in the IGST Act is a zero-rated supply, whether made under LUT or with payment of IGST.
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