GST is a “one nation one tax system” in India. It is a major taxation reform that has been introduced since India’s independence in 1947. GST imposition received mixed responses from people. While supporters celebrated by beating drums and bursting firecrackers, others burnt effigies of political leaders as a protest. For businessmen the tax seemed simplified while traders were nervous and apprehensive of its outcome.
In this article, we will talk about what is GST, New GST rates, recent list of all the goods and services with GST spike or slump, items exempted from GST in 2022 and the reason behind the current GST hike.
What is GST?
GST is the abbreviation of Goods and Services Tax. It is an indirect tax that resulted from the subsuming of multiple indirect taxes that were being levied by the State Governments or the Central Government. The taxes that were initially imposed by the State Governments included the Service Tax, Value Added Tax, Purchase Tax, Local body Taxes, Entertainment Tax and Amusement Tax, Central Excise Duty, Entry tax, Luxury tax etc. Eventually, these were merged that culminated into the Goods and Services Tax under the Central Government.
GST was introduced by the Central Government on July 1, 2017. There are five fixed GST slabs: 0%, 5%, 12%, 18% and 28%. There are a few exceptions like the 0.25% tax slab on precious and semi-precious stones and 3% tax slab on gold. The tax system deviates in certain cases where seperate taxes are levied on certain items by the State Government. These items typically include petroleum products, electricity, alcoholic beverages eetc
The tax rates, exemptions, regulations are decided by the GST Council which is the highest decision making body of the indirect tax system comprising of the financial ministers of the states and the centre. The revenue received from a GST is equally split between the Central and the State Governments.
Why GST is applied on goods and services?
The sole aim of GST is to have an integrated economy rather than a dispersed one. Only by unifying tax rates can this integration be possible. As a result, Goods and Services Tax came into being. The GST thus imposed will boost competition not only in the national markets but in the international ones as well. By having a single tax in the form of GST, double taxation and cascading will be avoided. Overall, it is an easier administration tax that boosts economic growth.
Current GST rates in 2022
In the 47th meeting held by the GST Council in Chandigarh on June 28, 2022, the prevailing GST issue was presented by the Group of Ministries who then collectively decided for the rate rationalization. Exemptions were reviewed keeping revenue augmentation under consideration. All states were present during the discussion and consented to the GST rate hike. Even non-BJP states like Chhattisgarh, Rajasthan, West Bengal, Kerala etc formally agreed to the GST proposition.
The Goods and Services Tax hike came into effect from Monday, 18 July 2022. Some parliamentary opposition members and the Confederation of All India Traders (CAIT) have protested against such GST hike as per recent news updates. Indian finance minister Nirmala Sitaraman responds to the protest by pointing out that it is not the first time that the taxes are imposed on food articles. States collected significant revenue from food items in the past through purchase taxes.
List of all the goods and services with their % GST
5% GST rate has been applied to various packaged and labelled everyday food items from an earlier exempted state. These food items are given below:
- Milk products like curd, paneer, lassi, buttermilk
- Rice, wheat, rice flour, rye, barley, oats, meslin flour
- Dried makhana, puffed rice (muri), flattened rice (chira), parched or popped rice (khoi)
- Jaggery including cane jaggery (gur), Palmyra jaggery, natural honey, papad, khandsari sugar, sugar (murki)
- Meat and fish (except frozen meat and fish)
Other GST rates applied on goods and services
- A 12% GST is applied to fruits like the different varieties of mango inclusive of its pulp and tender coconut water.
- The GST rate on cutlery including spoons, forks, knives, ladles etc is 18% from an initial 12%.
- The GST rate of printing and writing ink, pencil sharpeners, paper knives, cutting blades is now 18% that escalated from an initial GST rate of 12%.
- Charts and maps included atlases will bear a GST hike rate of 12%.
- A 12% GST is imposed on finished leather.
- The machines operated in mills and cereal industry will have a GST rate hike of 18% from the initial 5%.
- An 18% GST Is applied to power driven pumps including centrifugal pumps, bicycle pumps, submersible pumps etc. There has been a 6% GST hike rate from an earlier 12%.
- The work contract for public infrastructures like roads, bridges, crematoriums also receives a GST slab of 18% against an earlier 12%.
- Issuing of bank cheques were earlier exempted of GST but now, consumers need to pay a GST rate of 18% for receiving new bank cheques.
- The GST rate for petroleum or coal bed methane will reach a tax slab of 12% with a hike from 5%.
- Similarly, the GST rate for LED lights and printed circuit boards increased from 12% to 18%.
- Electronic waste or E-waste also witnessed a GST spike from an initial 5% to 18%.
- There has been a total 7% GST hike in solar water heater and system. Initially the GST rate was 5% which rose to 12%.
- Hotel rooms that had a tariff of less than Rs 1000 per day will now avail a 12% GST rate. There were no GST applied to hotel rooms beforehand.
- Hospital rooms that cost more than Rs 5000 per day will now have a GST tax slab of 5% from an initial 0%.
- Apartments leased out to employees or top executives by their companies will have a GST bearing of 18%. The tax maybe paid by either the company or the landlord depending on the commercial arrangement by the two parties. The salaried class will remain unaffected by the move.
- A GST rate of 1.5 % was applied on cut and polished diamonds from an initial 0.25%.
GST cheaper rates in 2022
- Electric vehicles irrespective of battery pack will have a lowered GST of 5%.
- Rented trucks carrying freight attracted a 6% dip in GST from 18%, with the output as 12% that is inclusive of fuel cost.
- Initially the GST rate for orthopedic appliances like artificial body parts, crutches, surgical belts, fracture appliances and intraocular lenses carried a 12% GST which was reduced to 5%.
Food items exempted of GST in 2022
All food items which are not packed or labelled and sold loose will be exempted from GST. India’s finance minister Nirmala Sitaraman has clarified and mentioned the food items that will be exempted from the tax in her Twitter handle.
She also pointed out that the new GST rates are a collective decision of the GST Council and not of one individual. Below is a list of the unlabelled or pre-packaged food items that will skip getting taxed under GST:
- Pulses or Daal
- Curd and lassi
- Suji or Rawa
- Puffed rice
- Aata or flour
What led to the current GST rate hike in 2022?
An initial GST of 5% was applied to most branded cereals, pulses and flour. Later, some changes were made where items that were of a specific registered brand were the only ones to be taxed. It also included brands on which enforceable right was not foregone by the supplier. This provision started being misused by several reputed manufacturers and brand owners. As a result, GST revenue from these items took a downward slope. Even states were a part of such rampant evasion of taxes.
Suppliers and industry associations who were paying taxes on branded items were highly dissatisfied over the prevailing situation. They pleaded to the Indian government to apply uniform taxes on all packaged items to avoid such misuse. Thus a shift was made from branded items with a 5% GST to “pre-packaged and labelled” items bearing either 5% GST or more. The GST move was important to address the issue of inverted duty structures that results in government refunding in the majority of the cases.
The implementation of GST was not an easy affair. It took 17 years of tumultuous debate for its successful launching on July 1, 2017. The new GST rates applied is a rationalization that will benefit the economy in multiple ways. It increases the value of products internationally. Charging uniform tax rates unifies the economy and establishes a common national market. GST changes are important for not only the government but also for industries and citizens of India.