Section 16 of IGST Act - Zero Rated Supply
Section 16 of the Integrated Goods and Services Tax Act, 2017 governs zero rated supplies. It covers exports and qualifying supplies to Special Economic Zone developers or units, preserves eligible input tax credit, and sets out the refund framework for zero rated supplies.
Updated for the law in force as on 27 September 2026.
What is a zero rated supply?
Under Section 16(1), a zero rated supply is either an export of goods or services or both, or a supply of goods or services or both for authorised operations to a Special Economic Zone developer or Special Economic Zone unit.
Zero rating is different from an ordinary exempt supply. Section 16(2) specifically permits input tax credit for making zero rated supplies, subject to Section 17(5) of the Central Goods and Services Tax Act, 2017, even where the outward supply may otherwise be exempt.
Section 16 - Current legal position
Sub-section (1): Supplies treated as zero rated
Zero rated supply covers:
- export of goods or services or both; and
- supply of goods or services or both for authorised operations to a Special Economic Zone developer or Special Economic Zone unit.
Sub-section (2): Input tax credit
Subject to Section 17(5) of the CGST Act, input tax credit may be availed for making zero rated supplies even where the supply is an exempt supply. Section 17(5) is the CGST provision that identifies categories of blocked credit for which ITC is not available, subject to the exceptions stated there.
Sub-section (3): Refund without payment of IGST
A registered person making zero rated supplies may claim refund of eligible unutilised input tax credit where the supply is made without payment of integrated tax under bond or Letter of Undertaking. The refund is governed by Section 54 of the CGST Act, the CGST Rules and the prescribed conditions, safeguards and procedure.
For zero rated supply of goods, if sale proceeds are not realised within the time permitted under the Foreign Exchange Management Act, 1999, the refund received under this sub-section is required to be deposited with applicable interest under Section 50 of the CGST Act within the statutory period, subject to the prescribed mechanism.
Sub-section (4): IGST payment and refund for notified cases
The Government, on the recommendation of the GST Council, may notify classes of persons or classes of goods or services or both for which zero rated supply may be made on payment of integrated tax and refund of that tax may be claimed in accordance with Section 54 of the CGST Act or the rules, subject to prescribed conditions, safeguards and procedure.
Sub-section (5): Goods subject to export duty
Notwithstanding sub-sections (3) and (4), refund of unutilised ITC on account of zero rated supply of goods, or refund of integrated tax paid on such zero rated supply of goods, is not allowed where those goods are subjected to export duty.
Refund route under Section 16
From 1 October 2023, the amended Section 16 makes the supply-without-payment route under bond or LUT the general statutory route for claiming refund of unutilised ITC. Payment of IGST followed by refund operates for classes of persons or supplies covered by notification under Section 16(4), subject to the applicable notification and refund rules.
| Route | Basic treatment | Key provision |
|---|---|---|
| Bond or LUT without IGST | Make the zero rated supply without payment of integrated tax and claim eligible refund of unutilised ITC. | IGST Act Section 16(3), CGST Act Section 54 and applicable rules. |
| Payment of IGST and refund | Available where the person or zero rated supply falls within the classes permitted by notification, subject to statutory conditions. | IGST Act Section 16(4), CGST Act Section 54 and applicable notification/rules. |
The original 2017 version of Section 16(3) presented two general refund options. That wording was substituted with effect from 1 October 2023. A current page should therefore not present payment of IGST and refund as an unrestricted alternative available in every zero rated transaction.
Supplies to SEZ developer or SEZ unit
For Section 16(1)(b), the words "for authorised operations" were inserted with effect from 1 October 2023. Accordingly, the statutory zero-rating provision for supplies to an SEZ developer or SEZ unit is tied to authorised operations. The relevant documentation and refund requirements under the CGST Rules should also be satisfied.
Section 7(5)(b) of the IGST Act separately treats supplies to or by an SEZ developer or SEZ unit as inter-State supplies. Section 16 deals with the additional question whether a qualifying supply to the SEZ is zero rated.
Zero rated goods subject to export duty
Section 16(5), effective from 1 November 2024, provides a specific restriction: where zero rated goods are subjected to export duty, neither refund of unutilised ITC on account of that zero rated supply nor refund of IGST paid on that zero rated supply is allowed under the provision.
Meaning of important terms
Export of goods
Section 2(5) of the IGST Act defines "export of goods" as taking goods out of India to a place outside India.
Export of services
Section 2(6) of the IGST Act sets cumulative conditions for a supply of service to qualify as export of services, including conditions concerning the location of supplier and recipient, place of supply, receipt of payment and the relationship between supplier and recipient.
Special Economic Zone
For the IGST Act, expressions relating to a Special Economic Zone take their meaning from the applicable statutory framework, including the Special Economic Zones Act, 2005. For zero rating under Section 16(1)(b), the supply must be for authorised operations.
Related provisions
Section 16 should be read with Section 7 of the IGST Act on inter-State supply and with the refund provisions applied through Section 20 of the IGST Act. The refund mechanism is principally governed by Section 54 of the CGST Act and the applicable CGST Rules.
Integrated Goods and Services Tax Act 2017 - nearby sections
Section 15 - Refund of integrated tax paid on supply of goods to tourist leaving India
Section 16 - Zero Rated Supply
Section 17 - Apportionment of tax and settlement of funds
Section 18 - Transfer of input tax credit
Section 19 - Tax wrongfully collected and paid to Central Government or State Government
Section 20 - Application of provisions of Central Goods and Services Tax Act
This page is an explanatory reference to Section 16. For a filing, refund claim or transaction-specific position, check the current Act, rules, notifications, circulars and portal requirements applicable to the relevant tax period.