India’s GST Rates for Goods and Services Released ahead of July 1 Implementation

By Dezan Shira & Associates

With the Goods and Services Tax (GST) set to be rolled out on July 1, the GST Council finally released its tax schedule for goods and services.

During the Council’s 14^th session held from May 18 to 19, 1,211 goods and various service categories were fitted into the tax slabs – 5, 12, 18, and 28 percent.

In addition, the GST Council finalized the goods and services that will be exempted from paying GST.

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In the goods schedule, zero percent will apply to primary food like fresh fruits and vegetables, oilseeds, eggs and dairy produce and other essential items like vaccines, kerosene, books, journals, and periodicals, and aids and implements used by handicapped persons (some of these are mentioned in the table below).

For services, categories that are exempt include education and healthcare, as well as travelling on the metro, local train, and religious travel.

The GST Council has also published a separate schedule listing consumption cess rates; these will be levied on luxury and demerit goods (that already fall in the highest tax category of 28 percent). The rate of this additional surcharge can range anywhere from three percent (on personal jets) to 12 percent (on sodas) to 290 percent (on pipe tobacco).

This means that, in effect, there are six tax slabs – 0, 5, 12, 18, 28, and 28 percent plus cess. It complicates what was proposed to be a simplified tax structure, inevitably creating the incidence of cascading taxes. The compensation cess structure especially creates scope for bribery, corruption, and harassment given its complicated and varied application.

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Six items now await classification, including jewelry, gems, and textiles. It is most likely that these goods will be slotted into varying tax slabs depending on product quality and type. The GST Council has deferred this decision to June 3, when it will hold its 15^th meeting.

Note: For a comprehensive list, please refer to the GST Schedule for Goods uploaded by the Central Board of Excise and Customs here; find the complete list of compensation cess rates here.

Note: For a comprehensive list, please refer to the GST Schedule for Services uploaded by the Central Board of Excise and Customs here.

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Final GST rules approved

Other major decisions taken during the 14^th GST Council meeting pertain to the approval of final GST rules on composition, valuation, claiming of input tax credit (ITC), invoice, debit and credit notes, payments, and refunds.

These are crucial for the smooth rollout of the GST; experts state that they provide clarity on three major fronts.

Firstly, the rules explain that transactions between related parties, for example, between two firms belonging to the same industry, will now be valued at 90 percent of the market value.

Secondly, the rules provide clarity on how banks will levy GST rates when repossessing assets.

Thirdly, the rules remove the time limit for when ITC can be claimed upon payment to the vendor. This is relevant to sectors like real estate, where payments may be settled after a long period.

Aside from the above, the GST Council  confirmed that all e-commerce vendors will be liable to pay one percent tax collected at source under the GST regime.

 RELATED: Goods and Services Tax in India: What it Means for Businesses 

Impact on consumption

The GST regime will be a landmark tax reform in India as it replaces the existing multilayered indirect tax structure in favor of a single tax for a national market.

But the classification of multiple tax slabs and higher rates have raised concerns over the possible dampening impact of the new tax regime on consumption demand. For instance, the GST Council has increased the service tax on financial services and telecom to 18 percent from 15 percent.

In response, the finance ministry has assured businesses that the GST will reduce overall tax incidence. Since the current system contains multiple taxes levied at the federal and state levels, their cumulative incidence amounts to a much higher actual tax rate. The GST, on the other hand, imposes a single rate on respective goods and services, which will  get redistributed internally between federal and state coffers.

Nevertheless, certain categories of goods and services will be subject to a higher tax rate under the GST; this is to compensate for revenue loss in other categories.

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