The Indian government introduced a new GST (Goods and Services Tax) structure in 2017 and transformed the nation indirect tax system into an integrated, clear, and place-based approach of taxation. To consumers GST was not just a tax reform as it affected the prices, buying decisions and understanding of what they are paying every day.
But even though it is several years into its actualization, GST rates are still confusing to many consumers. What makes a particular item to be taxed at 5% and another one at 28%? What makes the restaurant bills appear different pre-GST and post-GST? The organization of GST rates can provide the opportunity of every consumer to make a balanced choice and detect equitable prices.
Respectively, this blog repeats the GST rate brackets, justifying the reason of the segmenting and providing clarity as to how GST will impact the day-to-day purchases and services.
THE FOUR-TIER GST STRUCTURE.
GST Council has put goods and services in four broad taxation ranges besides minor exceptions made on essential items:
1. 0 % - Tax-Free Essentials.
What is in it:
- Raw fresh food (fruits, vegetables, cereals, milk)
- Books
- Services in healthcare
- Education services
- Some crafts
Effect on Consumer: Basic needs of daily life are not taxed leaving all section of the economy to afford it.
2. 5% – Rate for Mass Consumption.
What it comprises of:
- Packaged food items (Container, Bottled) / Tea / Edible Oil /Sugar
- Economy class (rails and air travel)
- Lifesaving drugs
- Shoes Under ₹1000
- Solar panel, ai Farmers tool
Impact on Consumers: The following products are every day necessities and taxed at lower rates to ensure affordability without overburdening family budgets.
3.12% Standard Use goods and Services
It contains:
- Processed food stuffs (such as butter, cheese, frozen vegetables)
- Toothpaste, sanitary napkins (just cut down to 18 percent)
- Bottled drinking water
- Cell phones
- Train and Air travel in the business class
Impact on Consumers: These can be referred to as non-essential yet common in use, and thus they finance a moderate rate.
4. 18% Common Standard Rate
What it consists of:
- Labelled clothes above 1,000 (rupees)
- Refrigerators, washing machines, air- conditioners
- Online services and telecom
- Insurance, financial services, hotel accommodation between 1,000 and 7,500 per night
Impact on Consumer: This is the most prevalent GST rate and it applies to average consumption as well as professional services. It is a repetition of value-added processing and price determined by demand.
5. 28% Luxury and Sin Goods
What it entails:
- Luxury cars
- Tobacco and cigarettes
- Fizzy drinks
- Luxury electronic devices (i.e. big-screen TVs, expensive air-conditioners)
- Hotel rooms over 7,500 Rs per Night.
Impact on Consumers: This is meant in two ways, generating revenue and deterring people against consuming luxury or even harmful goods.
SPECIAL CASES AND CESS.
There are products that are charged with a compensation cess in addition to GST and some examples of these are tobacco products, aerated drinks and luxury cars. This cess is to reimburse states on revenue loss GST.
Besides, petroleum products, alcohol, and electricity are at the moment not subject to GST and are levied instead of taxation by the states.
GST ON SERVICES: WHAT YOU NEED TO KNOW.
Services also attract GST and most of them attract 18 per cent unless it is stipulated otherwise.
Examples:
Restaurants:
- 5 percent GST without input tax credit (major non-AC or small eateries)
- ITC GST 18 per cent/GST 28 per cent (AC restaurants or chains)
Transport:
- Ola/Uber rides5% to 18% on the basis of category
- Flights -5% (economy), 12% (business class)
Tip For Consumers: One should always verify the final price (including or excluding GST) on bills and invoices. Legit business should use affable GST invoice with a valid GSTIN.
LEGAL BACKING.
1. The Constitution (101st Amendment) Act, 2016.
This amendment gave the constitutional basis to GST since it provided both the Centre and the States with the power to levy/collect goods and services taxes. It was in this Act that the GST Council, a federal decision-making body, has also been set up which decides rates and exemptions under GST.
2. The Central Goods and Services Tax (CGST) Act, 2017.
The said law regulates the GST charged by the Central Government on Intra-state supplies of goods and services. It defines rate, exemptions, invoicing, penalty, and input tax credit structure.
3. The Integrated Goods and Services Tax (IGST) Act, 2017.
This regulates the supply of goods and services between states, and moves tax credit easily between states. Convenient transportation of goods and the absence of hidden prices are the benefits to the consumers.
4. The State Goods and Services Tax (SGST) Acts.
All the states have their SGST acts similar to the CGST Act and this act applies to the transactions within the same state. Combined with CGST, it forms a dual GST model of local consumption.
5. The GST (Compensation to States) Act, 2017.
In order to fix the issue of losses of the state after GST, this legislation instated a compensation cess on some luxury goods and sin items. This exemption creates a harmonical taxation in states.
6. GST Council Guidelines and Rate Notifications.
Under the chairmanship of Union Finance Minister, it has state finance ministers and it is the GST Council that oversees the official notification of reviews and changes in tax rate regularly. Such notifications effect legal changes of rates and exemptions which keeps the system dynamic and responsive.
FAQ’s
Q1. Why do some products attract 0% tax and others attract 28 % tax?
GST is of progressive logic. Vital commodities are maintained tax-exempted and there are higher tax placed on luxurious and dangerous commodities to draw back extravagant usage as well as to obtain revenue.
Q2. Does MRP document GST or does it add it separately?
The MRP (Maximum Retail Price) contains all the taxes, including GST. But, in eateries or services the GST is typically applied to the base rate distinctly.
Q3. Is it mandatory on all service providers to pay GST?
Just when the annual turnover crosses the specified limit pertinent to the period (Rs. 20-40 lakh in respect of different services and various states). Otherwise, it is not mandatory to register GST.
Q4. Can a consumer verify if a business is genuinely charging GST?
Yes. Consumers can check the business’s GSTIN (Goods and Services Tax Identification Number) on their invoice and verify it on the official GST portal.
Q5. Do GST include the tax of discounts?
The discount has to be clearly stated on the invoice and GST is charged on the net balance after the discount.
CONCLUSION.
To a common citizen, it is not only the knowledge of a breakdown of taxes, but it also implies acknowledgement of the rights and being informed of the pricing process, as well as making the transactions transparent. GST system was developed so as to standardize and harmonize the Indian market and as consumers being aware of these rates will assist us in making wiser and more conscientious purchases.
GST has touched almost all economic interactions whether you are going to the restaurant, buying a product online or buying a flight. When you know more, you are more empowered not only as a buyer but also as a person living in a modern, tax consciousness economy.
