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GST input tax credit, zero-rated supplies and refunds

By CAShorts DeskPublished Updated Source: PIB Research explainer and FAQs, 9 October 2026

Why in news: The GST Council's 57th meeting recommended faster, system-based refunds and wider credit refunds for exporters and inverted-duty cases, the government said on 9 October 2026.

GST input tax credit, zero-rated supplies and refunds
Illustration (AI-generated)

Input tax credit lets a GST-registered business deduct tax paid on purchases from tax due on its sales, so GST falls only on value added. Exports and supplies to SEZs are zero-rated, and credit stuck under an inverted duty structure can be refunded. The GST Council's 57th meeting, in October 2026, recommended faster, system-based refunds and wider eligibility.

Syllabus: GS3 · Indian Economy & Growth; GS2 · Federalism & Local Government; GS3 · Government Budgeting

In short

Under GST, a registered business offsets tax paid on inputs against tax owed on sales; this input tax credit keeps the levy on value added.

How input tax creditworksCredit set-offZero-ratedsuppliesInverted dutystructurePlace of supplyBlocked credits

Input tax credit works only if it flows; GST should refund stuck credit quickly while risk checks keep fake-invoice claims out.

Why it matters

Take a small laboratory that tests product samples or runs clinical trials for a client abroad. Because the client's goods are made available to it in India, section 13(3)(a) of the IGST Act puts the place of supply in India today, so the laboratory must charge GST and cannot treat the job as an export. If the Council's recommendation becomes law, the place of supply moves to the client's location and the laboratory can claim zero-rating and refunds, pricing its service like any other exporter. Faster, system-based refunds also free working capital for exporters and for makers caught in an inverted duty structure. The larger issue is export competitiveness: a country should export goods and services, not taxes.

Prelims pointers

  • Article 279A: GST Council chaired by the Union Finance Minister, with State Finance or Taxation Ministers; decisions need three-fourths of weighted votes (Centre one-third, States two-thirds).
  • Union of India v. Mohit Minerals (2022): the Supreme Court held GST Council recommendations persuasive, not binding on Parliament and State Legislatures.
  • Article 246A: Parliament and State Legislatures both legislate on GST, Parliament alone on inter-State supply; Article 269A: the Union levies GST on inter-State supply.
  • Zero-rated supply (section 16, IGST Act, 2017): exports of goods or services, and supplies to SEZ developers or units for authorised operations; input tax credit is kept and refunded.
  • Exempt supply: no tax is charged on the output, and input tax credit on inputs used for it cannot be claimed.
  • Inverted duty structure: inputs taxed at a higher rate than the output; unused input tax credit is refunded under section 54 of the CGST Act, 2017.
  • Place of supply (section 13, IGST Act): for services where supplier or recipient is abroad, the default rule is the recipient's location.
  • Reverse charge: the recipient, not the supplier, pays the tax; section 9(5) of the CGST Act makes e-commerce operators liable for notified services.

Practise a UPSC-style question

With reference to zero-rated supplies under GST, consider the following statements:

1. Under the IGST Act, 2017, a supply of goods to a Special Economic Zone unit is treated as an intra-State supply.

2. Under the IGST Act, 2017, exports of goods as well as exports of services are zero-rated supplies.

3. Supplies of goods or services for authorised operations to a Special Economic Zone developer or unit are treated as zero-rated supplies.

Which of the statements given above is/are correct?

  1. (a) 1 and 2 only
  2. (b) 2 and 3 only
  3. (c) 1 and 3 only
  4. (d) 1, 2 and 3
Show the answer

Answer: (b) 2 and 3 only

1 is incorrect: section 7(5) of the IGST Act treats a supply to or by an SEZ developer or unit as an inter-State supply, so integrated tax rules apply. 2 is correct: section 16 of the IGST Act makes exports of goods or services zero-rated. 3 is correct: the same section zero-rates supplies to an SEZ developer or SEZ unit for its authorised operations.

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