Introduced on July 1, 2017, the Goods and Services Tax (GST) transformed India’s indirect tax framework by merging multiple state and central levies into a single, unified system. As a destination-based tax, GST is collected where goods or services are consumed, not where they originate.
One defining feature of GST is its tiered tax structure, where rates vary based on the necessity and socio-economic importance of goods and services. Among these, the 0% GST slab, also known as the nil-rated category, plays a critical role in keeping basic goods and services within reach of the masses, particularly low-income households.
This article examines the scope, purpose, and economic implications of India’s 0% GST slab.
Goods and Services Covered Under 0% GST
The 0% GST rate applies to essential goods and services that are exempt from tax at all stages of the supply chain — from manufacturer to end consumer.
Examples of goods under the 0% GST category:
- Unpackaged food grains: Wheat, rice, maize, barley, pulses
- Fresh produce: Fruits, vegetables, unprocessed cereals
- Dairy: Fresh milk, curd, lassi (unbranded, unpackaged)
- Eggs: Fresh, unprocessed
- Salt: Iodized and non-iodized
- Jaggery (gur): Unbranded, unprocessed
Examples of services under the 0% GST category:
- Education: Core school and college courses recognized by the government
- Healthcare: Diagnosis, treatment, and medical care by authorized practitioners
- Local transport: Passenger travel via auto-rickshaw (non-app-based)
Purpose & Rationale Behind the 0% Slab
The 0% GST rate serves both economic and social objectives:
- Affordability – Keeps essentials like food, milk, and education free from tax-driven inflation.
- Poverty Reduction – Low-income households spend heavily on food and healthcare; zero tax reduces their burden.
- Social Development – Exempting education and healthcare supports literacy and public health.
- Administrative Ease – Reduces compliance for small vendors dealing in essentials.
Impact on Consumers
For consumers, the 0% GST slab translates into stable, lower prices for daily necessities. Key benefits include:
- Shielding essentials from inflationary pressures
- Higher purchasing power for rural and low-income families
- No hidden tax burden along the supply chain
However, suppliers of nil-rated goods cannot claim Input Tax Credit (ITC) on GST paid for raw materials, which can indirectly affect pricing.
Impact on Businesses
Businesses dealing in 0% GST items experience mixed outcomes:
Advantages:
- Lower compliance requirements
- Boost in demand for essential goods and services
Challenges:
- No ITC claimability, leading to higher input costs
- Profit margins affected, especially in volatile markets
Recent Changes & GST Council Updates
Since GST’s launch, the list of nil-rated goods and services has evolved:
- July 2022: Pre-packaged and labelled staples like rice, wheat, and flour moved from 0% to 5% GST.
- Certain products, including jaggery and handicrafts, have been shifted between slabs depending on revenue needs.
At the 55th GST Council Meeting (Dec 2024), no major changes were made to the 0% slab, though discussions continue on slab rationalisation.
Challenges in the 0% GST Structure
- ITC Blockage: No credit for GST paid on inputs
- Classification Disputes: Frequent legal cases over whether goods qualify as nil-rated
- Revenue Impact: Large exemption list limits government tax collection potential
Future Outlook
Possible developments include:
- Streamlining the nil-rated list to focus solely on essentials
- Replacing broad exemptions with targeted subsidies
- Including eco-friendly goods to promote sustainable consumption
Conclusion
The 0% GST slab remains a cornerstone of India’s tax system, balancing social welfare with economic policy. While it reduces government revenue and limits ITC for businesses, it plays a crucial role in protecting affordability for millions.
As GST policy evolves, the challenge will be to preserve this safety net for essential goods while ensuring a robust tax base for sustainable growth.