The Goods and Services Tax (GST) has been one of the most controversial and talked about change in the tax structure of India. Before the GST regime took effect in India the tax structure was a mishmash of many different kinds of taxes, some of which was levied at the city level which created a lot of problems and was a source of corruption.
The earlier tax structure created a cascading tax effect, this caused a tax-on-tax scenario that was not optimal for monitoring. This was a source of confusion and the complexity of such a system cost money to maintain.
The GST has changed that and subsumed many different taxes into one and cleared the way for a more transparent tax regime in the country. Like all taxes, there are different slabs for different products and services depending on the prices as well as the socio-economic value of the product. The GST rate in India is a dynamic rate which is changed as per economic conditions.
The current GST rate in India was revised at the 37th GST council meeting. The structure of the GST system is relatively simple and straightforward. There are five slabs in the GST system, a tax-exempt slab, a 5% slab, 12% slab, 18% slab and a 28% slab.
The slabs are explained in detail below.
The government has decided to exempt certain items from the GST tax system as per the country’s socio-economic needs. Everyday items such as fruits, vegetables, bread, salt, flour, eggs, and newspapers are exempt from taxes to reduce the average taxpayer’s burden.
For the service sector, all hotels which charge a room tariff below Rs. 1000 per night, as well as bank charges on savings accounts and Jan Dhan Yojana, are exempt from GST.
5% Tax Slab
The tax slab of 5% is where the GST tax actually begins. The products which attract a 5% GST Rate are skimmed milk powder, coffee, fish fillets, coal, fertilizers, ayurvedic medicines, insulin, cashew nuts, agarbatti, Ethanol – Solid biofuels among a few others.
The GST rate in India for services in the 5% tax slab includes smaller restaurants affiliated with transport services like railways and air travel, standalone AC restaurants, non-AC restaurants, and restaurants that serve alcohol.
Take away food is also in this bracket along with hotels with room tariffs less than Rs. 7,500 per night. The input credit for restaurants in this category has been taken away leading to some dissatisfaction.
12% GST Slab
The 12% slab includes items such as frozen meat products, butter, sausage, ghee, pickles, fruit juices, namkeen, tooth powder, instant food mix, umbrella, medicine, cell phones, man-made yarn, wooden frames for painting, photographs, Brass Kerosene Pressure Stove, Art ware of iron, mirrors, etc.
For services, this tax slab is applicable to Business Class air tickets and movie tickets priced under Rs. 100.
18% GST Slab
The GST rate in India is structured in such a way, that the bulk of the items fall under this category. Some of the main items included are flavored refined sugar, cornflakes, pasta, pastries and cakes, detergents, washing and cleaning preparations, mirror, glassware, safety glass, sheets, pumps, light fitting, compressors, fans, chocolate, tractors, preserved vegetables, ice cream, televisions (up to 68 cm).
Some others include marble & granite, paints, scent sprays, hair shavers, lithium-ion batteries, artificial fruits, hair curlers, hairdryers, stones used in flooring, vacuum cleaners, sanitaryware, leather clothing, wristwatches, cookers, stoves, cutlery, telescope, goggles, binoculars, oil powder, cocoa butter, fat, detergent as well as artificial flower.
The 18% tax slab applies to some groups in the service sector. They are restaurants located inside hotels which charge tariffs in excess of Rs. 7500, movie tickets costing above Rs. 100, IT and telecom services as well as branded garments.
28% GST Slab
The 28% GST slab is the highest GST rate in India. It is mainly reserved for sin goods as well as luxury items. The goods which are part of this slab are, pan masala, dishwasher, weighing machine, paint, cement, sunscreen.
Automobiles and motorcycles along with hair clippers are also part of this slab which is also a bone of contention as the auto industry is going through a downturn currently.
The 28% GST rate also applies to 5-star hotels, where the actual billing amount of the hotel stay is above Rs. 7500 per night, movie tickets, betting in casinos as well as racing.
The 37th GST council issued some revisions to the GST tax rate and those are given below.
Main Decisions of 37th GST Council
- No GST will be charged in hotels where the room tariff is less than Rs. 1000
- No GST for group insurance schemes for paramilitary forces.
- Zero GST for jewelry exports to boost the export sector.
- The tax rate on cut and polished semi-precious stones reduced to 0.25% from 3%
- Job services which are related to diamonds will attract a lower GST rate of 1.5% from the earlier 5%
- Machining job works for the engineering industry will attract a lower GST rate of 12% from the earlier 18%
- The GST rate of electric vehicles was slashed to 5% from 12% earlier to encourage the adoption of environmentally friendly transport in the country.
The rate for caffeinated beverages was increased to 28% from the earlier 12% along with a 12% compensation cess. The GST rates in India is a work in progress as it is brand new, being only a couple of years old. There are many considerations that come into play when deciding the tax structure and which slab to put which item in.
Since India is still a developing country the biggest bone of contention has been the 28% tax bracket with some people complaining that such a high tax rate is not good for the long term growth of the country. This structure is current for now but is liable to change in the future when the next GST council sits for their meeting.