Goods & Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state did. Under GST, goods and services will be taxed at the following rates, 0%, 5%, 12%, 18%, 28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. There will be additional cess on sin goods like cigarettes.
GST is expected to be applicable from 1 July 2017
Why is Goods and Services Tax so Important?
Currently, the Indian tax structure is divided into two – Direct and Indirect Taxes. Direct Taxes are levies where the liability cannot be passed on to someone else. An example of this is Income Tax where you earn the income and you alone are liable to pay the tax on it.
In the case of Indirect Taxes, the liability of the tax can be passed on to someone else. This means that when the shopkeeper must pay VAT on his sale, he can pass on the liability to the customer. So, in effect, the customer pays the price of the item as well as the VAT on it so the shopkeeper can deposit the VAT to the government. This means that the customer must pay not just the price of the product, but he also pays the tax liability, and therefore, he has a higher outlay when he buys an item.
This happens because the shopkeeper has paid a tax when he bought the item from the wholesaler. To recover that amount, as well as to make up for the VAT he must pay to the government, he passes the liability to the customer who has to pay the additional amount. There is currently no other way for the shopkeeper to recover whatever he pays from his own pocket during transactions and therefore, he has no choice but to pass on the liability to the customer.
Goods and Services Tax will address this issue after it is implemented. It has a system of Input Tax Credit which will allow sellers to claim the tax already paid so that the final liability on the end consumer is decreased.
How does GST work?
When Goods and Services Tax is implemented, there will be 3 kinds of applicable Goods and Services Taxes:
- CGST: Central GST where the revenue will be collected by the central government
- SGST: State GST where the revenue will be collected by the state governments for intra-state sales
- IGST: Integrated GST where the revenue will be collected by the central government for inter-state sales
In most cases, the tax structure under the new regime will be as follows
|Transaction||New Regime||Old Regime||Remarks|
|Sale within the Sate||CGST + SGST||VAT + Central Excise/Service tax||Revenue will now be shared between the Centre and the State|
|Sale to another State||IGST||Central Sales Tax + Excise/Service Tax||There will only be one type of tax (central) now in the case of inter-state sales.|
What are final GST rate slabs?
Slab 1. No tax (0%)
Goods: No tax will be imposed on items like Jute, fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom, Bones and horn cores, bone grist, bone meal, etc.; hoof meal, horn meal, Cereal grains hulled, Palmyra jaggery, Salt – all types, Kajal, Children’s’ picture, drawing or colouring books, Human hair
Services: Hotels and lodges with tariff below Rs 1,000, Grandfathering service has been exempted under GST. Rough precious and semi-precious stones will attract GST rate of 0.25 per cent.
Slab 2: 5%
Goods: Items such as fish fillet, Apparel below Rs 1000, packaged food items, footwear below Rs 500, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, Sabu dana, kerosene, coal, medicines, stent, lifeboats, Cashew nut, Cashew nut in shell, Raisin, Ice and snow, Bio gas, Insulin, Agarbatti, Kites, Postage or revenue stamps, stamp-post marks, first-day covers
Services: Transport services (Railways, air transport), small restaurants will be under the 5% category because their main input is petroleum, which is outside GST ambit.
Slab 3: 12%
Goods: Apparel above Rs 1000, frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, cellphones, Ketchup & Sauces, All diagnostic kits and reagents, Exercise books and note books, Spoons, forks, ladles, skimmers, cake-servers, fish knives, tongs, Spectacles, corrective, Playing cards, chess board, carom board and other board games, like Ludo.
Services: State-run lotteries, Non-AC hotels, business class air ticket, fertilizers, Work Contracts will fall under 12 per cent GST tax slab
Slab 4: 18%
Goods: Most items are under this tax slab which includes footwear costing more than Rs 500, Bidi Patta, Biscuits (All categories), flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors, Kajal pencil sticks, Headgear and parts thereof, Aluminium foil, Weighing Machinery [other than electric or electronic weighing machinery], Printers [other than multifunction printers], Electrical Transformer, CCTV, Optical Fiber, Bamboo furniture, Swimming pools and padding pools, Curry paste; mayonnaise and salad dressings; mixed condiments and mixed seasonings
Services: AC hotels that serve liquor, telecom services, IT services, branded garments and financial services will attract 18 per cent tax under GST, Room tariffs between Rs 2,500 and Rs 7,500, Restaurants inside five-star hotels
Slab 5: 28%
Goods: Bidis, chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, will attract 28 % tax – the highest under GST system.
Services: Private-run lotteries authorized by the states, hotels with room tariffs above Rs 7,500, 5-star hotels, race club betting, cinema will attract tax 28 per cent tax slab under GST
Taxes that GST replaces areas
The GST replaces numerous different indirect taxes such as
- Central Excise Duty
- Service Tax
- Countervailing Duty
- Special Countervailing Duty
- Value Added Tax (VAT)
- Central Sales Tax (CST)
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Luxury Tax
- Advertisement taxes
- Taxes applicable on lotteries.
When will GST be implemented?
The Goods and Services Tax or GST is scheduled to be launched on the 1st of July. Previously it was 1st April 2017.
What will become costlier and cheaper?
According to experts, these items could become costlier
- Cigarette prices likely to go up as GST rate for tobacco will be higher than current duties
- Commercial vehicles such as trucks will become costlier
- Mobile phone calls may get costlier as service tax will go up
- Textile and branded jewelry may become costlier
And these could become cheaper
- Auto: Prices of entry-level cars, two-wheelers, SUVs may fall
- Car batteries likely to get cheaper
- Paint, cement prices likely to fall
- Movie ticket prices likely to fall as entertainment tax will come down
- Electronics items like fans, lighting, water heaters, air coolers, etc. will get cheaper