What is the difference between GST Free and 0% GST? Do know here 

GST– After the implementation of Goods and Services Tax (GST), it has become necessary for both the common man and the businessman to understand the nuances of tax. Often people consider ‘GST free’ and ‘0% GST’ to be the same, but there is a clear difference between the two.

This difference directly affects your pocket. The difference is not just in the tax rate, but also in whether or not you get input tax credit (ITC). ITC plays a big role in deciding the price of a product. So let’s understand in simple words what GST free and 0% GST are and how they affect your pocket.

What does GST free?

When a product or service is ‘GST free’, the government has given complete exemption from tax on it . For example, milk, vegetables or school fees. But there is a catch in this, the seller does not get input tax credit (ITC) for the tax spent on that product or service. This means that the cost increases and the product may become costlier for the customer.

What is 0% GST?

Now let’s talk about 0% GST . In this, goods or services come under the scope of tax, but the tax rate is 0%. The most important thing is that the seller gets ITC, that is, the tax he has paid on inputs can be taken back. This reduces the cost and the customer gets the goods at a cheaper rate. For example, 0% GST is levied on exported goods or international flights.

Impact of Input Tax Credit (ITC)

GST Exempt / Free Supplies: The seller does not get ITC, which increases expenses and the goods may become expensive.

Zero-Rated / 0% GST Supplies: Seller can claim ITC, costs reduce and customer gets goods at a cheaper rate.

What is the rule from a legal perspective

According to the Institute of Chartered Accountants of India (ICAI), under Section 11 of the CGST Act and Section 6 of the IGST Act, the government exempts certain essential goods and services from tax. Whereas, zero-rated supply is mainly on exports and certain services, so that products made in India remain cheap and competitive in the international market.

Why is it important to know this difference?

If you think that ‘GST free’ means cheap goods, then this is not necessary. In this, the seller does not get the benefit of tax and the goods may become expensive. On the other hand, the seller gets tax credit on goods with 0% GST, due to which the customer gets the goods at a cheaper price.