Explained: How GST rate rejig is going to boost businesses, empower common man

New Delhi, Sep 4 (IANS) The wide-ranging GST reforms are set to improve the lives of citizens and ensure ease of doing business for all, especially small traders, thus strengthening the economy.

The changes in GST rates on services and goods other than cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi will be effective from September 22, as per recommendations of the GST Council in its 56th meeting.

For the specified goods, namely, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi, the existing rates of GST and compensation cess will continue to apply, and the new rates will be implemented at a later date to be notified, based on discharge of the entire loan and interest liabilities on account of compensation cess.

There is no change in the threshold of registration required for goods under the CGST Act, 2017. The IGST on imported goods will be the GST rates as notified in the rate notification, except where the IGST rate has been exempted separately, according to the Ministry of Finance.

GST is levied on supply. Therefore, on goods supplied on or after the revised GST rates are notified, the new GST rates will be applicable on the outward supplies of goods/services or both.

All dairy milk, other than Ultra High Temperature (UHT) milk, was already exempt from GST. Hence, UHT milk has been exempted to provide the same tax treatment to similar goods. Plant-based milk drinks, except soya milk drinks, attracted 18 per cent GST while soya milk drinks attracted 12 per cent GST. The GST rate on plant-based milk drinks and soya milk drinks has now been reduced to 5 per cent.

The principle behind the recent rate rationalisation exercise is to keep similar goods at the same rate to avoid issues of misclassification and disputes. This has also been applied to ‘other non- alcoholic beverages’.

“Food preparations not elsewhere specified will attract a GST rate of 5 per cent. Bread was already exempt, while pizza bread, roti, porotta, paratha, etc., attracted different rates. All Indian breads, by whatever name called, have been exempted even though only a few goods have been mentioned by way of illustrative example,” the ministry said.

The rate hike of carbonated beverages of fruit drink or carbonated beverages with fruit juice is because these goods attracted compensation cess in addition to GST. Since it has been decided to end the compensation cess levy, the tax has been increased to maintain the pre-rate rationalisation level of tax.

Prior to rate rationalisation, paneer sold in other than pre-packaged and labelled form already attracted a nil rate. Therefore, the changes have been made only in respect of paneer supplied in pre-packaged and labelled form. Paneer is an Indian cottage cheese. This is mostly produced in the small-scale sector. The measure is intended to promote Indian cottage cheese.

The GST rate on agriculture machinery/equipment such as, sprinklers, drip irrigation system, Agricultural, horticultural or forestry machinery for soil preparation or cultivation; lawn or sports-ground rollers, harvesting or threshing machinery, including straw or fodder balers; grass or hay mowers, other agricultural, horticultural, forestry, poultry-keeping or bee-keeping machinery, composting machines, etc., which earlier attracted 12 per cent GST, has now been reduced to 5 per cent.

“The objective of the rate rationalisation is to maintain a balance between users and producers. While providing relief for the farmers, it is important that the domestic manufacturing does not get adversely impacted. If agriculture machinery is fully exempted, the manufacturers/dealers of these goods would not be able to claim input tax credit on the GST paid on raw materials and will have to reverse the ITC paid on the inputs,” explained the ministry.

This would increase their effective tax incidence and cost of production. This may, in turn, be passed on to farmers in the form of higher prices, which in turn would make the measure counterproductive.

All drugs/ medicines have been prescribed a concessional rate of GST of 5 per cent, except those specified at a nil rate.

“If drugs/medicines are fully exempted, the manufacturers/dealers would not be able to claim input tax credit on GST paid on raw materials and will have to reverse the ITC paid on the inputs. This would increase their effective tax incidence and cost of production. This may in turn be passed on to consumers/ patients in the form of higher prices, which in turn would make the measure counterproductive,” the ministry noted.

Moreover, the rate of 5 per cent applies to all medical devices, instruments, and apparatus used in medical, surgical, dental and veterinary uses; other than that are exempted specifically.

The GST rate on all small cars has been reduced from 28 per cent to 18 per cent. For the purposes of GST, small cars mean petrol, LPG, or CNG cars with engine capacity up to 1200 cc and length up to 4000 mm and diesel cars with engine capacity up to 1500 cc and length up to 4000 mm.

The GST rate on three-wheelers has been reduced from 28 per cent to 18 per cent. All motor vehicles designed to transport ten or more persons, including the driver, and classified under HSN 8702, will attract a GST rate of 18 per cent. It has been reduced from 28 per cent.

Motorcycles of engine capacity up to 350 cc attract a GST rate of 18 per cent, while motorcycles of engine capacity exceeding 350 cc attract a GST rate of 40 per cent. The new GST rate on mid-size and big cars will be 40 per cent with no compensation cess.

The GST rate has been reduced to 5 per cent on bicycles and their parts from 12 per cent.

The 40 per cent special rate is applicable only on a few select goods, predominantly on sin goods and a few luxury goods and therefore is a special rate. Most of these goods attracted Compensation Cess in addition to GST. Since it has been decided to end the Compensation Cess levy, the Compensation Cess rate is being merged with GST so as to maintain tax incidence on most goods.

On other goods and services, the special rate has been applied as these were already attracting the highest GST rate of 28 per cent.

Currently, cotton attracts GST on a reverse charge basis. This means that agriculturists do not have to pay GST when they supply raw cotton. The reason for taxing cotton in GST is to avoid breakage in the input credit chain, and the GST paid on cotton is available as input tax credit for the textile industry. This will ultimately benefit the consumers.

The new GST rate on a toilet soap bar is 5 per cent. This is intended to lower the monthly expenditure for the lower middle class and the poorer sections of society.

The reason for reducing GST on face powder and shampoos is that these goods are daily-use items for almost all segments of the population. The GST rate has been reduced to 5 per cent only on certain goods that are daily-use items for most segments of the population.

GST Council recommended a reduction in the GST rate to 5 per cent on toothpaste, toothbrush and dental floss, which are the basic dental hygiene goods.

The GST rate on renewable energy equipment/devices that were at 12 per cent has been reduced to 5 per cent.

“These goods already faced an inverted duty structure. While reducing the GST rate to 5 per cent will deepen inversion, a mechanism for refund arising out of the inverted duty structure is available. In addition, process reforms will ensure expedited refunds. The objective is to promote renewable energy goods,” said the ministry.

GST on air conditioners and dishwashers has been reduced from 28 per cent to 18 per cent. Earlier TVs and monitors up to 32 inches attracted 18 per cent GST, while larger TVs and monitors attracted 28 per cent GST. Now all TVs and monitors will be uniformly taxed at 18 per cent.

“The policies covered under the exemption recommended on life insurance are all individual life insurance policies, including term, ULIP, and endowment plans and reinsurance services thereof. The policies covered under the exemption recommended on health insurance are all individual health insurance policies, including family floater plans and senior citizen policies and the reinsurance services thereof,” the ministry informed.

–IANS

na/dpb