These three terms all describe supplies with no GST charged, but they have different legal treatment, particularly around Input Tax Credit. A Nil Rated supply is one where the GST rate is explicitly set to 0% in the tariff (for example, certain food grains), no GST is charged, and ITC on inputs used for that supply generally cannot be claimed. An Exempt supply is one specifically notified as exempt from GST altogether (such as certain healthcare or educational services), again, no GST is charged and ITC on related inputs is typically blocked. A Zero Rated supply, by contrast, applies specifically to exports and supplies to SEZ units: GST is charged at 0%, but unlike nil-rated or exempt supplies, the exporter CAN claim ITC on inputs used to make that supply, and can even claim a refund of that accumulated ITC. This distinction matters significantly for exporters and SEZ suppliers, since correctly classifying a supply as zero-rated (rather than mistakenly treating it as merely exempt) is what preserves their right to claim input credits and refunds.
Example: A Surat exporter shipping goods abroad treats that sale as zero-rated, charges no GST on the export invoice, but still claims ITC on the raw materials and services used to produce those goods, and can apply for a refund of that credit.
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