What is a zero-rated supply?
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Short answer
Under section 16(1) of the IGST Act, 2017, an export of goods or services is a zero-rated supply.1 A supply for authorised operations to an SEZ developer or unit is also zero-rated.1 Input tax credit can be claimed for making zero-rated supplies.1 A registered person can supply under a bond or LUT without paying integrated tax.1
| Full form | Governed by | Who needs it | Where it is used | Related terms |
|---|---|---|---|---|
| Not an abbreviation; section 2(23) gives it the meaning in section 162 | IGST Act, 2017, section 161 | Exporters of services and suppliers to SEZ units or developers | GST invoicing under LUT, and refunds of unutilised input tax credit1 | Export of services, LUT, place of supply, SEZ, IGST refund |
"Zero-rated" is the GST label for exports, and the reason a freelancer, agency or software company billing a client abroad usually does not add GST to the invoice.
What does zero-rated supply mean in simple words?
A zero-rated supply means your export invoice carries no GST, while the GST you paid on business costs can still be credited or refunded.1 Section 2(23) of the Integrated Goods and Services Tax (IGST) Act says "zero-rated supply" has the meaning given in section 16, and section 16(1) lists two kinds:12
- Exports: Export of goods or services, or both.1
- SEZ supplies: Supply of goods or services, or both, for authorised operations to an SEZ developer or SEZ unit.1
The SEZ India portal also notes that supplies to SEZs are zero rated under the IGST Act, 2017.3
Why does a zero-rated supply matter for Indian exporters and freelancers?
A zero-rated supply matters because it keeps GST off your export invoice without costing you the credit on your inputs.1
- GST: A registered person can supply under a bond or Letter of Undertaking (LUT) without paying integrated tax, under section 16(3).1
- Input tax credit: Section 16(2) keeps input tax credit available for zero-rated supplies even if the supply is exempt.1
- Bank compliance: An export of services needs payment in convertible foreign exchange, or in Indian rupees wherever permitted by the Reserve Bank of India.2
That credit is the practical advantage of zero-rating for exporters.1
How does a service export become a zero-rated supply?
A service is an export, and so zero-rated, only when all five conditions in section 2(6) of the IGST Act are met:2
- Supplier: The supplier is located in India.
- Recipient: The recipient is located outside India.
- Place of supply: The place of supply is outside India.
- Payment: Payment is received in convertible foreign exchange, or in Indian rupees wherever permitted by the Reserve Bank of India.
- Distinct persons: The supplier and recipient are not merely establishments of a distinct person.
For example, a logo designer billing a Canadian startup, a lawyer advising a UK client remotely and a data analytics firm serving a US retailer can each meet these conditions. Read place of supply for export of services if your work involves the client's physical presence or goods in India.
How do you make a zero-rated supply without paying GST?
A registered person makes a zero-rated supply without paying integrated tax by supplying under a bond or LUT, and can then claim a refund of unutilised input tax credit, under section 16(3).1
| Route | What happens | Legal basis | Best for |
|---|---|---|---|
| Under LUT or bond | No IGST on the invoice; refund of unutilised input tax credit | Section 16(3) | Registered exporters who want no tax outflow on export invoices |
| On payment of IGST | Pay IGST and claim a refund, for classes the government notifies | Section 16(4) | Suppliers in a notified class who choose to pay and claim back |
The table summarises section 16 as amended with effect from 1 October 2023.1 For the LUT itself, see how to file an LUT.
What is the difference between a zero-rated export and a zero-rated supply to an SEZ?
Both are zero-rated under section 16(1) of the IGST Act, but an export goes to a recipient outside India, while an SEZ supply goes to a developer or unit inside India for authorised operations.12
| Kind | Recipient | Condition | Best for |
|---|---|---|---|
| Export of services | Located outside India | All five conditions in section 2(6)2 | Exporters billing clients abroad |
| Supply to an SEZ | SEZ developer or SEZ unit | For authorised operations1 | Suppliers in India billing SEZ units |
For the SEZ side, see what is an SEZ.
What do people get wrong about zero-rated supplies?
The common mistakes are treating zero-rating as an exemption and treating every foreign invoice as an export.12
- Exemption: Section 16(2) lets you claim input tax credit for zero-rated supplies even if the supply is exempt, and that credit is what separates zero-rating from an ordinary exemption.1
- Every foreign invoice: An invoice is zero-rated only if all five section 2(6) conditions are met.2
- Borderline cases: Intermediaries or supplies to a related company abroad are worth confirming with a chartered accountant.
For claiming back credit, see refund of ITC on zero-rated supplies.
Which terms are related to zero-rated supply?
These terms come up with zero-rated supplies:
- Export of services: the main kind of zero-rated supply for service businesses.
- LUT: the undertaking that lets you supply without paying integrated tax.
- Place of supply: one of the conditions for an export of services.
- SEZ: the zones whose units receive zero-rated supplies.
- IGST refund: the refund route for tax paid on zero-rated supplies.
For the full GST treatment, read GST on export of services.
How did we verify this?
We checked this page against the sources below on 30 October 2026. Read our methodology or report an error.
Frequently asked questions
Is a zero-rated supply the same as an exempt supply?+
No. Section 16(2) of the IGST Act lets a supplier claim input tax credit for making zero-rated supplies, notwithstanding that the supply may be exempt.1 That credit is what separates a zero-rated supply from an ordinary exemption, and it is why zero-rating suits exporters who pay GST on their business costs.
Does a supplier need GST registration to make a zero-rated supply under LUT?+
The LUT route in section 16(3) of the IGST Act is for a registered person making zero-rated supplies.1 A supplier who is not registered does not charge GST on any invoice, so the LUT question does not arise; see the separate guide on GST registration for exporters before deciding whether to register.
Can an exporter pay IGST on a zero-rated supply and claim it back instead?+
Since the amendment effective 1 October 2023, section 16(4) of the IGST Act lets the government notify the classes of persons, goods or services that may make zero-rated supplies on payment of integrated tax and claim a refund.1 Check whether your case is covered by a notification before choosing that route over an LUT.
Is every invoice to a foreign client a zero-rated supply?+
No. A service invoice to a foreign client is a zero-rated supply only if it meets all five conditions of an export of services in section 2(6) of the IGST Act, including place of supply outside India and payment in convertible foreign exchange or in rupees where RBI permits.2 Check each condition per invoice.
Where does the legal meaning of zero-rated supply come from?+
Section 2(23) of the Integrated Goods and Services Tax (IGST) Act says zero-rated supply has the meaning given in section 16.2 Section 16(1) then lists the two kinds: an export of goods or services, and a supply for authorised operations to an SEZ developer or SEZ unit.1
This page is general information for Indian service exporters, not tax or legal advice. Rules change and outcomes depend on your facts, so confirm with a chartered accountant before acting.
Keep reading
How does GST apply to export of services from India?
How GST works when you bill a foreign client from India: the five export conditions, LUT vs IGST refund, records to keep, payment deadlines and mistakes.
GSTHow is the refund of unutilised ITC calculated for export of services?
How exporters of services under an LUT calculate the refund of unutilised input tax credit under rule 89(4): each term defined, a worked example, and 2026-27 changes.
GSTHow do you file an LUT for export of services on the GST portal?
Step-by-step guide to filing a Letter of Undertaking in FORM GST RFD-11 for export of services: eligibility, validity, late filing and the ARN on invoices.
GlossaryWhat is export of services?
Export of services under section 2(6) of the IGST Act needs five conditions, including a client abroad and payment in foreign exchange. What it means in 2026.
GlossaryWhat is an LUT (Letter of Undertaking)?
An LUT is the undertaking in FORM GST RFD-11 that lets a registered exporter bill foreign clients without IGST. What it means, who files it, and how long it lasts.