Zero rate

A zero rate refers to a situation in Value Added Tax (VAT) systems where goods or services are taxed at 0%, meaning no VAT is charged on the sale. However, unlike exempt supplies, businesses can claim a refund or credit for the VAT paid on inputs used to produce these goods or services. Key Features No VAT on Output The sale of zero-rated goods or services does not attract VAT, so customers pay the price without added tax. Input Tax Credit Refundable Businesses can recover VAT paid on purchases or inputs used in making zero-rated supplies. This prevents cascading taxes and ensures fairness in the tax system. Difference from Exempt Goods Exempt goods do not charge VAT but usually cannot claim input VAT credits. Zero-rated goods allow full input tax recovery, making them more favorable for businesses.

Example: Exports of goods and services Certain essential items like basic food products or medicines (depending on jurisdiction) Example A company exports goods worth ₹1,00,000. VAT on inputs (raw materials) was ₹10,000. Since exports are zero-rated: No VAT is charged on the sale. The company can claim a refund of ₹10,000 paid on inputs