Zero Rated Supplies and Deemed Exports: formula sheet

Key formulas

Meaning of zero rated supply

Zero rated supply = export of goods/services/both + supply for authorised operations to SEZ developer/unit

Section 16(1). Both limbs must be tested for the exact conditions.

Credit entitlement

ITC may be availed for zero rated supplies, even if the supply is otherwise exempt

Section 16(2). Subject to Section 17(5) of the CGST Act (blocked credits).

Option 1: without payment of tax

Supply under bond or LUT, no IGST; refund of unutilised ITC under Section 54 CGST Act

Section 16(3). Subject to prescribed conditions, safeguards and procedure.

Option 2: with payment of tax

Pay IGST on notified class of persons/goods/services; claim refund of IGST paid

Section 16(4). Works only for classes the Government notifies on Council's recommendation.

Non-realisation of proceeds (goods)

Refund received + interest under Section 50 CGST Act, deposited within 30 days after FEMA time limit expires

Proviso to Section 16(3). Applies to zero rated supply of goods.

Export duty bar

No refund (ITC or IGST) on zero rated supply of goods subject to export duty

Section 16(5).

Section 147 conditions

Notified supply of goods + goods do not leave India + payment in INR or convertible foreign exchange + goods manufactured in India

All the conditions in the section must be met. The section covers goods only.

Notified categories

Advance Authorisation goods | EPCG capital goods | Supply to EOU | Gold by notified bank or PSU against Advance Authorisation

The list comes from Notification 48/2017-Central Tax, not from Section 147 itself.

Who claims refund

Advance Authorisation goods and supply to EOU: supplier OR recipient (never both for the same supply) | EPCG capital goods and gold by notified bank or PSU: supplier only

The claimant rules are in Notification 47/2017-Central Tax read with Rule 89. Where the recipient claims, the supplier gives an undertaking not to claim, the recipient must not take ITC on that tax, and evidence of receipt of goods is needed.

Nature of supply

Deemed export = taxable supply with refund of tax paid

It is not a zero rated supply under Section 16 of the IGST Act.

Time limit for refund claim

Application before expiry of 2 years from the relevant date

Section 54(1). Count from the relevant date, not from the date of supply or invoice, unless that is the relevant date.

Relevant date: goods exported by sea or air

Date on which the ship or aircraft leaves India

For export by land it is the date goods pass the frontier. By post it is the date of despatch by the Post Office.

Relevant date: services exported

Date of receipt of payment in convertible foreign exchange (or INR where RBI permits); if advance received, date of invoice

Explanation (2)(c) to section 54.

Relevant date: unutilised ITC (inverted duty)

Due date for filing section 39 return for the period in which the claim arises

Explanation (2)(e). It applies only to unutilised ITC under clause (ii) of the first proviso to section 54(3), the inverted duty case. For zero rated supplies, use clause (a) for goods exported, (c) for services exported, (b) for deemed exports or (ba) for supplies to an SEZ developer or unit. Do not use the month-end of the tax period.

Relevant date: any other case

Date of payment of tax

Residual clause (h). Use it only when no specific clause applies.

Evidence threshold

Claim < ₹2,00,000 → declaration on non-passing of incidence is enough

Section 54(4) proviso. At ₹2,00,000 or more, furnish evidence.

Order timeline

Order within 60 days from receipt of application complete in all respects

Section 54(7).

Minimum refund

No refund under section 54(5) or (6) if amount < ₹1,000

Section 54(14). A refund of exactly ₹1,000 is payable.

Provisional refund

90% of the claim on a provisional basis for zero-rated supplies

Section 54(6). Applies to registered persons other than notified categories. Final order follows verification.

Refund under Rule 89(4)

Refund = (Turnover of zero-rated goods + Turnover of zero-rated services) × Net ITC ÷ Adjusted Total Turnover

This gives the maximum refund admissible. It applies to zero-rated supply without payment of tax under bond or LUT.

Net ITC

Net ITC = ITC availed on inputs and input services during the relevant period

Both inputs and input services count here. The relevant period is the period for which the claim is filed.

Turnover of zero-rated goods

Lower of (value of zero-rated goods supplied without tax under bond or LUT) and (1.5 × value of like goods supplied domestically by the same or a similarly placed supplier, as declared)

For exported goods, the value is the lower of the FOB value in the shipping bill or bill of export and the value in the invoice or bill of supply.

Turnover of zero-rated services

Payments received in the relevant period for zero-rated services + zero-rated services completed in the period for which payment was received in advance in an earlier period − advances received for zero-rated services not completed in the relevant period

This is a receipts-based measure, not an invoice-based one.

Adjusted Total Turnover

(a) Turnover in the State or UT, excluding turnover of services + (b) turnover of zero-rated services (as above) and non-zero-rated services; excluding exempt supplies other than zero-rated supplies during the relevant period

Goods turnover comes in as the State/UT turnover. Services come in only through part (b). Exempt supplies are left out, but zero-rated supplies stay in.

Refund of inverted duty (for comparison)

Maximum refund = {Turnover of inverted rated supply of goods and services × Net ITC ÷ Adjusted Total Turnover} − {tax payable on such supply × (Net ITC ÷ ITC availed on inputs and input services)}

This is Rule 89(5). Here Net ITC means ITC on inputs only. Do not mix it up with the export formula.

Ledger debit

Electronic credit ledger is debited by the amount of refund claimed

Rule 89(3). The applicant debits the ledger when the refund relates to input tax credit.

Refund amount for goods exported on payment of IGST

Refund = IGST paid in respect of each shipping bill or bill of export

Rule 96(3). Credited electronically to the bank account in your registration particulars and intimated to Customs.

Deemed application for goods

Shipping bill = refund application, deemed filed only when (a) export manifest/report/departure manifest is filed, (b) valid GSTR-3B is furnished and (c) Aadhaar authentication is done

Rule 96(1)(a), (b), (c). Condition (b) has a mismatch proviso, below.

Mismatch proviso

Mismatch between shipping bill and GSTR-1 (as amended in GSTR-1A, if any) → application deemed filed on the date the mismatch is rectified

The refund clock does not start until you correct the data.

Refund for services

Application in FORM GST RFD-01, dealt with under rule 89

Rule 96(9). No deemed application for services.

Withholding grounds

Withheld if (a) request under section 54(10) or (11), (b) Customs finds export violated the Customs Act, 1962, (c) Board-authorised risk-based verification of exporter credentials, including ITC availment

Rule 96(4). In cases (a) and (c), the claim goes to the GST officer in a system-generated RFD-01 under 96(5A). In case (b), it goes to the GST officer under 96(5B) only after Customs passes an order that the goods were exported in violation of the Customs Act, 1962.

Upward price revision

Additional IGST refund claimed in FORM GST RFD-01 under rule 89

Proviso to rule 96(1). Applies only where IGST paid at export was already refunded under sub-rule (3).

Exports to Bhutan

Refund of IGST may be paid to the Government of Bhutan for notified goods; the exporter then gets no refund

Rule 96(8).

Quick revision

• Zero rated supply means export of goods or services or both, or supply for authorised operations to an SEZ developer or SEZ unit.
• Credit of input tax may be availed for zero rated supplies even if the supply is an exempt supply.
• Route one: refund of unutilised input tax credit, supplying without payment of IGST under bond or Letter of Undertaking.
• Route two: supply on payment of IGST and claim refund of the tax paid, as notified for specified classes of persons or of goods or services.
• No refund of unutilised ITC or of IGST paid on zero rated goods if those goods are subject to export duty.
• If sale proceeds of exported goods are not realised, the refund must be deposited with interest within thirty days after the FEMA time limit ends.
• Deemed exports are goods supplied that do not leave India, notified by the Government on the Council's recommendation.
• Deemed exports need goods manufactured in India, with payment in Indian rupees or convertible foreign exchange.
• Section 147 deals with goods only, not services.
• Refund formula: Refund = (Turnover of zero rated supply of goods + services) × Net ITC ÷ Adjusted total turnover.
• Net ITC in the formula covers inputs and input services, not capital goods.
• Refund claims are made under Section 54 of the CGST Act and the rules, including Rule 89.

Common mistakes

• Treating zero rated and exempt supply as the same Fix: Remember the credit rule: zero rated supply keeps ITC and gets a refund; an exempt supply does not give a refund and credit is generally not available.
• Treating every supply to an SEZ as zero rated Fix: Add the words 'for authorised operations' to SEZ developer or unit supplies.
• Calling a deemed export a zero rated supply under Section 16 of the IGST Act. Fix: Remember that zero rated means exports and SEZ supplies. A deemed export is a taxable supply with a refund route.
• Saying Section 147 lists the categories of deemed exports. Fix: Say that Section 147 empowers the Government to notify them. The list is in Notification 48/2017-Central Tax.
• Counting two years from the invoice date or the date of supply Fix: Always find the relevant date from the Explanation to section 54. Use the date of payment of tax only when no earlier clause applies.
• Using the end of the tax period as the relevant date for unutilised ITC Fix: The relevant date is the due date for furnishing the section 39 return for that period.
• Using the invoice value of exports when the FOB value in the shipping bill is lower. Fix: For goods, always take the lower of the FOB value and the invoice value, then compare with the 1.5 times cap.
• Ignoring the 1.5 times domestic value cap on zero-rated goods. Fix: Whenever the question gives a domestic price for like goods, test the cap and use the lower value in the numerator.
• Filing RFD-01 for a normal goods export where IGST was paid. Fix: Remember that under rule 96(1) the shipping bill is the deemed application for goods. RFD-01 is only for services, upward price revision, and system-generated transfers after withholding.
• Treating the refund as available as soon as the shipping bill is filed. Fix: The application is deemed filed only when the export manifest or report is filed and a valid GSTR-3B is furnished. Aadhaar authentication is also required.

Exam tips

• Write the exact limbs of Section 16(1): export, and supply for authorised operations to an SEZ developer or unit.
• Always contrast zero rated with exempt supply in one line: refund and ITC for the first, no refund for the second.
• In case questions, name both routes (LUT and payment of IGST) and tick the Section 16(5) export duty check.
• In MCQs, watch for the words 'authorised operations' and 'notified class'; they are the usual traps.
• Cite section numbers only as in the Act: 16(2) for credit, 16(3) for LUT, 16(4) for IGST payment, 16(5) for export duty.
• In theory answers, quote the three conditions of Section 147 first, then the notified categories.
• Write that the categories come from the notification, not from the section.
• In case scenarios, check goods or services first. A service supply is never a deemed export.