CA Akanksha Agrawal

Goods and Service Tax Rates have been finalised by the GST council. 3rd November 2016 is the date for the finalisation of the applicable rates under most awaiting regime, Goods and Service Tax followed by the acceptance of States on levy of additional Cess with Clean Energy Cess. The new decided Goods and Service Tax rates are with a slight change to the rates proposed in GST Council Meeting held between 17th October to 19th October, 2016.

The four bands of Goods and Service Tax Rates are :

(i) 5 per cent considered as lowest Slab rate items of mass consumption by common people       or in lay man language Aam Admi usage Products,

(ii) 12 per cent considered as Standard Slab Rate,

(iii) 18 per cent considered as Middle Slab Rate, and

(iv) 28 per cent considered as Highest Slab Rate.

In comparison to the slab rates proposed, the final lowest slab rate is reduced by 1 per cent and highest slab rate is increased by 2 per cent

Another category of tax slab decided is between 40 per cent and 65 per cent to be imposed on luxury cars, tobacco and tobacco products, aerated drinks etc which are being levied @ 28 per cent with Cess. The levy of cess is basically for helping in funding compensation to revenue loss to States for the period of 5 years which is estimated by government to be Rs. 50,000 crore in the first year. “If we have to raise this by way of tax we need its cascading effect will be  Rs. 1,72,000 crore”, Finance Minister Mr, Arun Jaitely said.  50 per cent of it will go to State and balance to Centre. And out of balance 50 per cent still 42% will go to states to compensate their revenue loss. However, this is expected to lapse after 5 years. In case of any surplus is left then it will be shared as per rules that will be decided in later period keeping in view the revenue neutrality.

 It has been clarified by our Finance Minister that the cess, is not an additional levy, but an existing one and “there will not be an additional burden of even a rupee”.

“The objective behind including the goods @ 28 per cent is to generate additional revenue that will be used for keeping items at 5 percent from 6 percent and transferring a number of items from 28  percent to 18 percent specifically those being now increasingly used by lower middle class people” clarified by Finance Minister.

The relaxing part of the slab is that there will be Zero Rate on 50 per cent items of CPI index including food grains used by the common people to safeguard interest of poor and insulate people from inflationary pressures. The zero rated goods should not be taken as exempted items as mentioned specifically by our Finance Minister.

Most white goods, like washing machines, air conditioners, refrigerators, shampoo, shaving stuff and soap will be taxed at 28per cent with riders. The riders have been set as there are several items which are used by lower middle class. The current levy on these items which comprise Excise Duty of 12.50 per cent and VAT @ 14.5 per cent and along with cascading effect it lies between 30 to 31 per cent. “It was being suggested to bring these items under tax rate of 26 per cent but with consensus  it is fixed at 28 per cent which is tax below the current levy” said by Mr. Jaitely.

However, there has been no consensus yet on the tax rate on gold which was proposed @ 4 per cent. As specified by the Finance Minister the taxation rate on gold which will depend on the kind of revenue flexibility after taking into consideration the revenue generation by the decided rates.

Now, it is the final hand of Secretary Committee to meet and decide which items will fit to which slab rate.

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Krishan Arora, Partner, Grant Thornton India LLP  on announcements around GST tax rate structure  said that “While the consensus on rate structure among Centre & States seems to be a step closer towards timely implementation of GST, the essence of the multiple split tax rates will need to pass the test of industry acceptance on grounds of revenue neutrality and zero cascading across sectors specially goods falling in the 28% bracket. The government would need to ensure that multiple rates proposed for goods and services do not inherit the legacy issues around classification anomalies. As regards the recommendation of levying Cess on Sin goods which otherwise seems contrary to the spirit of GST, the logic seems to be to ensure adequate revenue to Centre for compensating states over next 5 years, however the same should not adversely impact the ultimate tax costs of such goods and to the extent possible, should be applied at last point of supply chain and not distort the overall credit regime.”

Bill of Supply format under GST

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One response to “Finalisation of Most Awaited GST Rates”

  1. Anil Jain says:

    Thanks for useful information.

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