GST Rates and its Impact

Arjuna (Fictional Character): Krishna, GST rates have been finalized in the GST council meeting held on 3rd November 2016. What are these rates and what is its impact?

Krishna (Fictional Character): Arjuna, India’s government is trying very hard to bring GST in implementation from 1st April 2017. The government held council meeting immediately after Diwali to discuss about the most important issue “GST Rates” and took a final decision about the rate of GST to be levied on goods and services.

Arjuna (Fictional Character): Krishna, how were rates of GST determined?

Krishna (Fictional Character): Arjuna, to determine the rate of GST, government introduced the concept of “Revenue Neutral Rate”. “Revenue Neutral Rate” means the rate at which the revenue of government would not get sacrificed in comparison to present revenue even after allowing credit of GST. Other important issues such as inflation, etc. were given attention to for determining rate of GST.

Arjuna (Fictional Character): Krishna, what are the rates of GST?

Krishna (Fictional Character): Arjuna, the four rates of GST are determined on the basis of the use and type of goods and services. But the classification of such goods and services under these rates has not been determined yet. The four rates are as follows:

1. 5%:- It will be levied on essential foods items and goods that are commonly used. This will include the goods are the most used by people.
2. 12%:- It is a standard slab rate.
3. 18%:- The goods that are not included in the above rates will be taxed at 18% slab rate.
4. 28%:- This rate will be levied on luxurious goods. This will include car, washing machine, air conditioner, etc.

Zero rate GST will be applicable for the 50% of goods falling under consumer price index. This will also include foods grains. Further, the central government has given power to state government to levy 2% extra or lower tax over and above the rate of SGST.

Arjuna (Fictional Character): Krishna, whether cess will be levied on GST?

Krishna (Fictional Character): Arjuna, on some goods such as a luxury car, tobacco, aerated drinks falling under 28% category of GST will be levied with cess. This will be a help to compensate the revenue of government.

Arjuna (Fictional Character): Krishna, what will be the rate of GST on services?

Krishna (Fictional Character): Arjuna, the rate of GST on services is not yet confirmed. However, 18% GST may be levied on services.

Arjuna (Fictional Character): Krishna, what will be the rate of GST on gold?

Krishna (Fictional Character): Arjuna, the rate of GST on gold has not yet been determined. The central government is of the view to levy 4% GST on gold.

Arjuna (Fictional Character): Krishna, what is the composition scheme in GST?

Krishna (Fictional Character): One of the important features of GST is the composition scheme introduced for providing support to small businessman. Under this scheme, the rate will be dependent on the limit of annual turnover. This limit is Rs. 50 lakhs and rate is 1%.

Arjuna (Fictional Character): Krishna, What is the impact of rate of GST on businessman or how it will be worked out?

Krishna (Fictional Character): Arjuna, the government has determined the rates of GST. It will announce the classification of goods i.e. which goods will taxable at which rate after determining it. But for now, businessman can determine GST rate on goods on estimate basis. The rate of GST on goods will be approximately equal to the rate derived by adding up excise duty and VAT levied presently on such goods. For example: If presently excise duty on car is levied at the rate of 12.5% and VAT is levied at the rate of 13.5%, then it is been taxed at 26%. This means that under GST, tax will be levied on it at the rate of 28%.

Arjuna (Fictional Character): Krishna, what should we learn from this?

Krishna (Fictional Character): Arjuna, due to GST rate structure, the rates of many goods will rise and similarly, rates on many goods will decrease. But businessman should analyze the difference of rate on goods traded by him and work accordingly. Also, the consumers of goods should try to understand the effect on goods that are consumed by them. The rates of GST have been determined by the council and it is now awaited for confirmation from the Parliament.