GST rates from 5% to 28% fixed for most specific items

By L Badri Narayanan and Asish Philip Abraham, Lakshmikumaran & Sridharan

The government has set 1 July as the deadline for the rollout of the goods and services tax (GST) from the current indirect tax regime. GST is set to subsume a variety of central and state taxes and make the indirect tax regime in India much simpler. The date for GST has been delayed multiple times for a variety of constitutional and political reasons. However, the meetings of the GST Council (comprising the central and state finance ministers) held on 18 and 19 May were significant and have paved the way for GST implementation by the deadline date.

L Badri Narayanan Partner Lakshmikumaran & Sridharan
L Badri Narayanan
Lakshmikumaran & Sridharan

The GST Council has met several times over the past year and had earlier approved the model GST laws to be adopted by the centre and the states, various rules and administration protocols. The major outstanding issue was the tax rates for individual commodities and services.

While the council had approved a four-band structure of rates – 5%, 12%, 18% and 28% – the application of the rates to specific goods and services was unclear. After the meetings on 18 and 19 May the council unveiled a comprehensive list of goods and services with rates, making the 1 July date for GST rollout a real possibility.

On 18 May, the council approved seven sets of rules, pertaining to composition, valuation, input tax credit, invoice, payment, refund and registration. Two set of rules – on transition and returns – have been referred to a legal committee. These were expected to be finalized at the GST Council meeting scheduled for 3 June.

Besides approving rules, the council reached a consensus on the tax rates on 1,211 items, with the rates on six items yet to be finalized. Most of the goods fall under the rate of 18%, including items as diverse as hair oil, steel, soap, toothpaste, refractory bricks and nuclear reactors.

Coffee, sugar, tea, coal and edible oil will attract a lower tax rate of 5%, while items such as medicines, fruit juices, paintings, telephones, butter, cheese, LED lights and fertilizers are in the 12% tax bracket.

Common daily necessities such as milk, food grain, bread, printed books and stamp papers will attract a nil rate of tax.

Hair shampoo, dye, ceramic tiles, water heaters, dishwashers, washing machines, ATMs, tobacco, vending machines, vacuum cleaners, automobiles and motorcycles will attract the highest tax rate of 28%.

Asish Philip Abraham Associate Lakshmikumaran & Sridharan
Asish Philip Abraham
Principal associate
Lakshmikumaran & Sridharan

The rates of a few items such as textiles, footwear, gold, beedis and cigarettes, biscuits, bio-diesel and agricultural implements were not announced as consensus among the members had not been reached. The tax rates on these items were expected to be decided in the council meeting to be held on 3 June.

Apart from levy of GST, the GST Council has recommended an additional tax, called compensation cess, which is to be levied on a small class of goods such as tobacco, cigarettes, aerated water and automobiles. The compensation cess collected would be used to compensate the states in the event the states suffer any loss of taxes due to implementation of GST.

The centre will keep 58% of the collections in the compensation fund, while the remaining 42% will be given to the states.

Making a departure from the current service tax regime, which provides for a single rate of tax of 14% (with some cesses in addition) for most services, the GST Council had recommended a multi-rate structure for services in GST. The tax rates bands for services are to be 5%, 12%, 18% and 28%, the same as for goods. On 19 May, the GST council unveiled the rates for specific services.

Luxury hotels, gambling, race-club betting and cinema services will attract the maximum levy of 28%. Transport services, cab services and print media advertisement services will attract GST at 5%.

Services by restaurants and hotels will be taxed at either 12% or 18%.

Most of the services which were exempt in the current regime will also be exempt in GST regime such as healthcare services, education services and government services.

The GST Council has also introduced a classification scheme for services. This scheme aims to remove difficulties and resolve disputes regarding classification of services that are present in current regime.

The next GST Council meeting, scheduled for 3 June, was expected to pave the way for the GST rollout from 1 July by making recommendations on the remaining items. Other concerns that remain now are the readiness of businesses to make the transition to GST and the preparedness of the GST Network to handle GST transactions from 1 July.

L Badri Narayanan is a partner and Asish Philip Abraham is a principal associate at Lakshmikumaran & Sridharan.

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