Finance Minister Arun Jaitley, who heads the GST Council that has state finance ministers as members, on Thursday announced four main tax slabs, ranging from 5 per cent to 28 per cent under the goods and services tax (GST) - 5 per cent, 12 per cent, 18 per cent and 28 per cent.
The rates agreed by the GST Council have to be approved by Parliament, which meets from November 19 for the winter session. Once implemented, the new indirect tax regime - GST - will subsume various taxes including excise, services tax, octroi and other levies and the proceeds will be shared between the Centre and states.
Mr Jaitley said individual items which will fall under different tax slabs will be decided later.
Here's how GST could impact you:
1) Mr Jaitley said that under the GST rate structure, several items, comprising about 50 per cent of the consumer inflation index, would attract zero tax. Food grains used by common people would be in the zero tax category, he added.
2) Items of mass consumption would come under the 5 per cent GST rate, said Mr Jaitley. (Also read: GST to be ess regressive with lower tax band at 5%, say experts)
3) The finance minister said there would be two standard rates - the rates at which bulk of the goods would be taxed - of 12 per cent and 18 per cent.
4) The minister said that under the current rate, several manufactured items including most white goods (such as refrigerator, washing machine, etc.) are taxed at an excise rate of 12.5 per cent and VAT of 14.5 per cent. Along with the cascading effect, these items are taxed at a combined 30-31 per cent, he said. These items will now be taxed at 28 per cent, he added.
5) Mr Jaitley said that several items in this which is now being used increasingly by the lower middle class are likely to be transferred to the 18 per cent rate.
6) Earlier, the government had proposed GST slabs at 6 per cent, 12 per cent, 18 per cent or 26 per cent. Mr Jaitley said the higher tax rate of 28 per cent will help to offset losses in the other three tax brackets.
7) Mahesh Jaising, partner at BMR & Associates LLP, said that India Inc is worried about the items that will fall under the 28 per cent slab as it is higher than the earlier proposed rate of 26 per cent.
8) Mr Jaitley didn't elaborate which tax rate will apply to services that contribute nearly 60 per cent of India's $2 trillion economy. Mr Jaising of BMR & Associates said that the services could fall under both 12 per cent and 18 per cent slabs, with the essential ones in the 12 per cent category. Currently, the service tax rate is 15 per cent.
9) A cess would be levied on products such as tobacco, luxury cars and aerated drinks on top of the 28 per cent tax bracket, Mr Jaitley said.
10) Mr Jaitley said that the GST rate on gold will be later decided by the Council.
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