Exports and zero-rated supplies are the backbone of India’s $778 billion export economy (FY 2024-25). GST treats them as zero-rated, meaning exporters can claim 100% Input Tax Credit (ITC) without paying output tax — but only if you follow the rules correctly. In 2025, refund delays and ITC blockage remain top pain points. Here’s exactly how ITC works for exporters and zero-rated supplies.
What Are Zero‑Rated Supplies and How ITC Applies:
Zero‑rated supplies are outward supplies of goods or services that are taxable but charged at a 0% GST rate. In India, exports and supplies to Special Economic Zones (SEZs) fall into this category. For ITC for exporters and zero‑rated supplies in India, this means:
- Exporters don’t charge GST on their exports.
- They still claim input tax credit (ITC) on goods and services used to make those exports.
- They can reclaim unused tax credits or refund paid Integrated GST (IGST).
This allows the entire production value chain to be tax neutral, avoiding cost addition to cross‑border sales. Therefore, zero‑rating improves competitiveness in global markets. For example, a textile exporter buying fabric and dyes with GST can claim that tax back when those products are exported, even though the export invoice carries 0% GST.
How ITC Works for Exporters Under GST:
Exporters typically choose between two methods for ITC for exporters and zero‑rated supplies in India:
- Export without paying IGST by furnishing a Letter of Undertaking (LUT) or bond, then claim refund of unutilised ITC.
- Export with IGST payment, then claim a refund of the tax paid later.
LUT/Bond option is commonly used because it avoids paying tax upfront and improves cash flow. However, proper documentation and timely filings in the GST portal are essential. Refund claims require export invoices, shipping bills, and GST returns. The GST framework ensures that refunds are processed efficiently, provided compliance norms are met.
It’s also important to note the difference between zero‑rated and exempt supplies: zero‑rated supplies allow ITC claims, while exempt supplies do not allow ITC utilisation.
Common Challenges and Compliance Tips:
Despite the benefits, exporters often face challenges with ITC for exporters and zero‑rated supplies in India:
- Documentation errors (e.g., misclassification of exports) can delay refunds.
- Incorrect IGST payments or using LUT improperly may trigger interest or notices.
- Input tax apportionment between domestic and export turnover must be accurate.
For example, zero‑rated claims must exclude domestic shipments and align with customs documentation showing physical export crossing India’s borders. A compliance best practice is to maintain organised tax and customs records, and reconcile GST returns with shipping documents each month.
Compliance, Documentation & Best Practices:
Claiming ITC refunds requires solid documentation and filing discipline. Exporters must file returns accurately (e.g., GSTR‑1, GSTR‑3B) and maintain export invoices and shipping bills. Procedural compliance helps avoid delays and supports seamless refund claims. Moreover, ITC isn’t automatic — exporters must follow GST refund guidelines and deadlines. For example, application forms like RFD‑01 are used to claim refunds of unutilised ITC.
Conclusion:
For exporters and businesses dealing with zero‑rated supplies in India, understanding ITC for exporters and zero‑rated supplies in India is essential. Through zero‑rating, exporters can claim refunds on taxes paid for inputs, which prevents tax from being a cost in export pricing. With accurate compliance and documentation, this scheme significantly improves global competitiveness. Explore more GST insights Now!
– Ketaki Dandekar (Team Arthology)
Read more about ITC for Exporters and Zero-Rated Supplies here – https://cleartax.in/zero-rated-supplies-in-gst