GST council fixes 4-tier tax structure: All you need to know
In order to keep inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
- Nov 4, 2016,
- Updated Nov 4, 2016 1:16 PM IST
In a step towards realising the Goods and Services Tax, the GST council on Thursday has finalised a 4-tier tax structure of 5, 12, 18 and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods.
The multiple rates have been fixed on lines of some European countries. The IMF has lauded India for adopting GST saying it would boost economic growth.
Here are seven things you need to know about the GST structure.
1. Apart from the four fixed GST rates, a cess between 40 per cent and 65 per cent will be imposed on goods like high-end cars, pan masala, aerated drinks and tobacco products. The cess on demerit and sin goods ranging between 40 to 65 per cent will create a revenue pool of Rs 5,000 crore to compensate the states for their revenue loss for the first five years of implementation of the GST.
3. The cess will be lapsable after the first five years.
4. Food grains will have a zero rate to protect people from pressure of inflation.
5. Heavy consumer durables like washing machines and refrigerators will be taxed at 28 per cent with riders. These riders have been set because these goods are purchased by lower middle class too. The new tax would also include a separate central "cess" that will be levied on tobacco products, luxury cars and aerated drinks, charged on top of the 28 percent tax bracket.
6. The GST council have also decided to levy a cess to compensate states for their revenue loss. A finance ministry official said the central government might have to pay about $7.5 billion in compensation to states in the first year of the tax's rollout.
7. There has been no decision on a tax rate for gold. Earlier, a four per cent tax rate was suggested on gold.
8. The standard rate of GST has been fixed at 18 per cent. The states had called for rate above 18-19 per cent in order to minimize their losses from the incidence of tax. The industry had said any standard rate above 20 percent would have an inflationary impact and would impact the likely benefits of GST.
In a step towards realising the Goods and Services Tax, the GST council on Thursday has finalised a 4-tier tax structure of 5, 12, 18 and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods.
The multiple rates have been fixed on lines of some European countries. The IMF has lauded India for adopting GST saying it would boost economic growth.
Here are seven things you need to know about the GST structure.
1. Apart from the four fixed GST rates, a cess between 40 per cent and 65 per cent will be imposed on goods like high-end cars, pan masala, aerated drinks and tobacco products. The cess on demerit and sin goods ranging between 40 to 65 per cent will create a revenue pool of Rs 5,000 crore to compensate the states for their revenue loss for the first five years of implementation of the GST.
3. The cess will be lapsable after the first five years.
4. Food grains will have a zero rate to protect people from pressure of inflation.
5. Heavy consumer durables like washing machines and refrigerators will be taxed at 28 per cent with riders. These riders have been set because these goods are purchased by lower middle class too. The new tax would also include a separate central "cess" that will be levied on tobacco products, luxury cars and aerated drinks, charged on top of the 28 percent tax bracket.
6. The GST council have also decided to levy a cess to compensate states for their revenue loss. A finance ministry official said the central government might have to pay about $7.5 billion in compensation to states in the first year of the tax's rollout.
7. There has been no decision on a tax rate for gold. Earlier, a four per cent tax rate was suggested on gold.
8. The standard rate of GST has been fixed at 18 per cent. The states had called for rate above 18-19 per cent in order to minimize their losses from the incidence of tax. The industry had said any standard rate above 20 percent would have an inflationary impact and would impact the likely benefits of GST.