Final GST rates out, slabs fixed at 5%, 12%, 18% & 28%

A four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess, was decided by the all- powerful GST Council on Thursday.

With a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.

The lowest rate of 5% would be for common use items while there would be two standard rates of 12% and 18% under the Goods and Services Tax (GST) regime targetted to be rolled out from April 1, 2017.

Announcing the decisions arrived at the first day of the two-day GST Council meeting, finance minister Arun Jaitley said highest tax slab will be applicable to items which are currently taxed at 30-31% (excise duty plus VAT).

Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate.

The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.

The cess, he said, would be lapsable after five years.

Jaitley said about Rs 50,000 crore would be needed to compensate states for loss of revenue from rollout of GST, which is to subsume a host of central and state taxes like excise duty, service tax and VAT, in the first year.

The four-tier tax structure agreed to has slight modification to the 6%, 12%, 18% and 26% slab that were under discussion at the GST Council last month.
The structure to agreed is a compromise to accommodate demand for highest tax rate of 40% by states like Kerala.
While the Centre proposed to levy a 4% GST on gold, a final decision was put off, Jaitley said.

The long-delayed tax, which would transform Asia’s third largest economy into a single market, is expected to boost revenues through better compliance while making life simpler for business that now pay a host of federal and state levies.
Arun Jaitley will seek parliamentary approval for bills later this month that would set the rate and scope of the GST. State assemblies must also approve similar bills for the tax to enter force as planned next April 1.

GST Rates Decided, 4 Slabs Ranging From 5 To 28%: 10 Developments

  1. The rate and scope of the long-delayed tax has been agreed upon today by the powerful GST Council, which consists of Mr Jaitley and his counterparts from different states.
  2. The four GST slabs have been set at 5%, 12%, 18% and 28% for different items or services. The brackets are steeper than the rates of 6, 12, 18 and 26% earlier proposed by the government.
  3. To keep inflation in check, essential items including food, which at present constitute roughly half of the consumer inflation basket, will be taxed at a zero rate. The lowest rate of 5 per cent would apply to common use items.
  4. The peak rate of 28% will apply to luxury goods. Luxury cars, tobacco products and aerated drinks will attract an additional cess on top of the highest tax rate.
  5. The additional cess and a clean energy cess will create a revenue pool which will be used to compensate states for any loss of revenue during the first five years of the implementation of GST, Mr Jaitley said.
  6. The Finance Minister pointed out that the average is lower than the 18% demanded by the opposition, in particular by the Congress.
  7. Service Tax will go up from 15% to 18 %, said Revenue Secretary Hasmukh Adhia.
  8. The tax rate agreed upon today must be now be approved by parliament, which meets from November 16 for the winter session. Parliament has to pass two bills related to GST in the winter session to be on track to roll out of the new indirect tax regime from April 1 next year.
  9. Fitment or categorization of items for each slab will be done by officials and will then be approved by the GST council, Mr Jaitley said.
  10. GST does away with indirect levies charged when goods cross state lines and unifies India into a single market.