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CMA Final · Indirect Tax Laws and Practice

Zero Rated Supplies and Deemed Exports for CMA Final

A zero rated supply is an export of goods or services, or a supply for authorised operations to an SEZ developer or unit, under Section 16 of the IGST Act. The supplier gets credit and a refund, either on unutilised input tax credit without paying tax, or on IGST paid. Deemed exports are notified supplies of goods that never leave India.

What this chapter covers

This chapter covers how GST treats exports and SEZ supplies. The tax is effectively zero on these supplies because the supplier can claim back the tax on inputs. Section 16 of the IGST Act defines a zero rated supply and sets the two refund routes: export under bond or Letter of Undertaking without paying IGST, or export on payment of IGST and then claim refund.

Deemed exports under Section 147 of the CGST Act are different. The goods do not leave India, yet the Government may notify them as deemed exports. The conditions are that the goods are manufactured in India and payment is received in Indian rupees or in convertible foreign exchange.

The chapter links to several other parts of Paper 19: place of supply (to decide whether a supply is an export), input tax credit and its blocked credits, the refund provisions under Section 54, and the Customs Act (export duty, and duty drawback and export promotion schemes). If these are weak, this chapter will feel harder than it is.

Exports and refunds are a favourite area for both objective and written questions in Paper 19. Section A rewards exact knowledge of conditions, such as what counts as zero rated and when refund is barred. The written section often tests the refund formula with a short set of figures and asks for a clear refund amount. The chapter is small and rule-based, so careful preparation turns into reliable marks.

Zero Rated Supplies and Deemed Exports: topics in the order to study them

  1. 1Zero Rated Supplies under Section 16 of IGST ActStart here because every later topic depends on what a zero rated supply is and the two refund routes in Section 16.
  2. 2Deemed Exports under Section 147 of CGST ActStudy this next to see how deemed exports differ from true exports, mainly that the goods stay in India.
  3. 3Refund Application under Rule 89 of CGST RulesOnce you know who can claim a refund, learn how the application is made and what it must contain.
  4. 4Refund Formula for Zero Rated Supplies without Payment of TaxThe formula is the main numerical area, so learn it after the application rules it sits within.
  5. 5Refund of IGST Paid on Exports and Supplies to SEZFinish with the second refund route, which is easier to grasp once the first route and its formula are clear.

How to prepare Zero Rated Supplies and Deemed Exports

This chapter is short, so spend your time on exact wording and on practising the refund calculation. Use these steps.

  1. Read Section 16 of the IGST Act line by line. Note the two limbs of zero rated supply, the effect of sub-section (2) on credit, the two refund routes, and the bar on refund in sub-section (5).
  2. Make a two-column note comparing refund without payment of tax (bond or LUT) and refund of IGST paid. Add the condition for each.
  3. Learn Section 147 as a checklist: notified supply, goods only, goods do not leave India, manufactured in India, and payment in rupees or convertible foreign exchange.
  4. Write out the refund formula from memory and define each term. Then solve at least five numerical questions with different figures.
  5. Revisit the connected topics: place of supply for exports, blocked credits, and the time limit and procedure for refund claims.
  6. Finish with timed MCQs on conditions and one full written question, ending each answer with the refund amount and a short conclusion.

Common mistakes in Zero Rated Supplies and Deemed Exports

  • Treating deemed exports as ordinary exports

    Fix: Remember that under Section 147 the goods do not leave India. The supply must also be notified, and the goods must be manufactured in India.

  • Applying Section 147 to services

    Fix: Read the text of Section 147, which speaks only of supplies of goods. Keep the two definitions separate in your notes.

  • Mixing up the two refund routes

    Fix: Ask one question first: was IGST paid on the supply? If not, it is a refund of unutilised ITC under bond or LUT. If yes, it is a refund of the IGST paid.

  • Missing the export duty bar

    Fix: Check every goods export question for export duty. If the goods are subject to export duty, no refund of unutilised ITC or of IGST paid is allowed.

  • Putting capital goods credit into Net ITC

    Fix: Use only ITC on inputs and input services in Net ITC. State this in your working so the examiner sees it.

  • Using the wrong turnover in the formula

    Fix: List the figures separately first, then substitute. Zero rated turnover goes in the numerator and adjusted total turnover in the denominator.

Last-day revision: Zero Rated Supplies and Deemed Exports

  • 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.

Zero Rated Supplies and Deemed Exports practice questions

Zero Rated Supplies and Deemed Exports in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Zero Rated Supplies and Deemed Exports: frequently asked questions

What are the two types of zero rated supply?

Under Section 16 of the IGST Act, a zero rated supply is either an export of goods or services or both, or a supply of goods or services or both for authorised operations to an SEZ developer or SEZ unit.

Can a supplier claim input tax credit on zero rated supplies?

Yes. Section 16(2) of the IGST Act allows credit of input tax for making zero rated supplies, even if the supply is an exempt supply. This is subject to Section 17(5) of the CGST Act, which deals with blocked credits.

What is a deemed export under GST?

It is a supply of goods that the Government notifies as a deemed export under Section 147 of the CGST Act. The goods do not leave India, they must be manufactured in India, and payment must be received in Indian rupees or convertible foreign exchange.

Is refund allowed if exported goods carry export duty?

No. Section 16(5) of the IGST Act bars refund of unutilised ITC, and of IGST paid, on zero rated supply of goods that are subject to export duty.

What happens if export proceeds are not received?

For goods, the exporter must deposit the refund received, with interest under Section 50 of the CGST Act, within thirty days after the FEMA time limit for receiving foreign exchange expires.