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GST Council Seals Rates for Goods & Services, Paves Way For July 1 Roll out of GST Regime in India - (18 May 2017)

Indirect Taxation

GST Council headed by Union Finance Minister Arun Jaitley has finalized tax rates for over 1,200 items, at a meeting held in Srinagar. GST will replace several central and state taxes such as excise, value added tax, octroi. It is a single tax on the supply of goods and services, right from the manufacturer to the consumer and is considered to be the most powerful tax reform since independence of India and is aimed to do away with multiple-tax regime on goods and services and bring them under one rate. Council has broadly approved the GST rates for goods at nil rate, 5%, 12%, 18% and 28% to be levied on certain goods from 1st July onwards.

Out of total, about 7% of items have been kept zero rated, 14% will fall in 5% slab, 17% in 12% slab, 43% in 18% slab and 19% in 28% slab. Healthcare and Education, Local train, two-tier travel tickets would be exempted from tax. Further bindi, vermilion, glass bangles, handlooms, hearing aids and handmade musical instruments, Cereals and milk have also been exempted under GST. A consensus was drawn to exempt or lower taxes on several items of daily use. There will be no change in cost of milk, vegetables and fruits, bread, basmati rice, atta and pulses.

In short, out of around 1211 items, 81% of the items will attract tax of 18% or less. Only the remaining 19% of items will attract a highest rate of 28%. Household items such as, Tea, Coffee, Sugar and edible oils will attract only 5% levy. Manufactured goods will attract 18% levy. The Luxury cars will attract highest rate of GST OF 28% in addition to a cess of 15%. Similarly, small petrol cars will attract 28% GST plus only 1% cess. The diesel cars will also be levied at highest of 28% plus 3% cess. Capital goods, a key asset for the manufacturing sector, will be taxed at 28%. Aerated drinks will also be levied highest at 28% GST.

In relation to services, Business class air tickets, permitting use of intellectual property, works contracts will be charged under 12% tax slab. Animal slaughtering and veterinary clinics will be exempt from GST. Telecom Financial services are under 18% tax slab. Rides taken from cab aggregators like Ola and Uber will be under 5% tax slab. However, legal services are exempted under GST. Also, service tax is exempted for Senior Advocates for providing services to person or business entity with less than 20 lakh turnover. With regard to services provided by restaurants, there will be no levy for turnover of upto Rs. 20 lakh. However, there is levy of 5% on those with turnover of upto Rs. 50 lakh. Services provided by toll operators are also exempt from tax net. Job work services relating to printing of newspaper will attract 5% levy. Hotels with tariff under Rs 1,000 will be exempt from GST, those between Rs 1,000-2,500 will be taxed at 12%, those between Rs 2,500-5,000 will attract 18%, and those with tariffs of above Rs 5,000 will be taxed at 28%.

Overall, GST is a solo tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only GST charged by the last dealer in the supply chain, with set-off benefits at all previous stages.

GST would confer simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax. The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except on exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.

With introduction of GST, entire system of levying of various types of taxes and its implementation will go through a complete overhaul and will put in place under one roof.