How Will GST Rate Changes Enhance Business Growth and Benefit the Common Man?

New Delhi, Sep 4 (NationPress) The extensive reforms in GST are poised to significantly enhance the lives of citizens while facilitating a smoother business environment for everyone, particularly small traders and enterprises, thereby fortifying the economy.

Changes in GST rates regarding services and goods, excluding cigarettes and certain tobacco products such as zarda and beedi, will take effect on September 22, following recommendations from the GST Council during its 56th meeting.

The current GST rates for specified items, including cigarettes and various tobacco products, will remain in place until a future notification, contingent on settling all loan and interest obligations related to the compensation cess.

No alterations have been made to the registration threshold for goods under the CGST Act of 2017. The IGST on imported goods will follow the GST rates as detailed in the respective notifications, except where an IGST exemption has been separately issued, as stated by the Ministry of Finance.

The GST is applied to the supply of goods. Therefore, for goods supplied post-notification of revised GST rates, the new rates will be applicable to the outward supplies of goods/services or both.

All dairy milk, excluding Ultra High Temperature (UHT) milk, had already been exempt from GST. Consequently, UHT milk has now been exempted to ensure uniform tax treatment across similar products. Plant-based milk drinks, excluding soya milk drinks, were previously subject to an 18% GST, while soya milk drinks faced a 12% rate. The new GST rate for both plant-based and soya milk drinks has been revised to 5%.

The rationale behind the recent rate adjustments aims to align similar goods at the same tax rate to minimize misclassification and disputes. This principle has also been extended to 'other non-alcoholic beverages.'

Food preparations not categorized elsewhere will now attract a GST rate of 5%. While bread was already exempt, items like pizza bread, roti, porotta, and paratha faced varying rates. All forms of Indian bread, regardless of nomenclature, have now been exempted, despite only a few examples being mentioned.

The increase in GST for carbonated beverages containing fruit juice is due to these products attracting a compensation cess in addition to GST. In light of the cessation of the compensation cess, the tax has been increased to preserve the pre-rate rationalization tax levels.

Before rate rationalization, paneer sold in non-pre-packaged forms already had a nil rate. Consequently, changes have been implemented solely regarding paneer sold in pre-packaged and labeled forms, promoting Indian cottage cheese, primarily produced in the small-scale sector.

The GST rate for agricultural machinery and equipment, such as sprinklers, drip irrigation systems, and various other farming tools, previously subject to a 12% GST, has now been lowered to 5%.

The aim of the rate rationalization is to balance the interests of users and producers. While offering relief to farmers, it is crucial to ensure that domestic manufacturing remains unaffected. A complete exemption on agricultural machinery might prevent manufacturers and dealers from claiming input tax credits for the GST paid on raw materials, leading to an increased effective tax burden and production costs, which could ultimately be passed on to farmers as higher prices.

All drugs and medicines have been assigned a concessional GST rate of 5%, with the exception of those specified at a nil rate.

Should drugs and medicines be fully exempt, manufacturers and dealers would lose the ability to claim input tax credits on GST paid on raw materials, leading to increased production costs. This could result in higher prices for consumers and patients, rendering the measure ineffective.

Furthermore, a 5% rate applies to all medical devices, instruments, and apparatus used in medical, surgical, dental, and veterinary applications, barring specific exemptions.

The GST rate for small cars has been reduced from 28% to 18%. For GST purposes, a small car is defined as a petrol, LPG, or CNG vehicle with an engine capacity of up to 1200 cc and a length not exceeding 4000 mm, or a diesel car with a capacity of up to 1500 cc and a length not exceeding 4000 mm.

The GST rate on three-wheelers has similarly decreased from 28% to 18%. All vehicles designed to transport ten or more passengers, including the driver, classified under HSN 8702, will now attract an 18% GST, down from 28%.

Motorcycles with engine capacities up to 350 cc will face an 18% GST, while those exceeding 350 cc will incur a 40% rate. The new GST rate for mid-sized and larger cars will be 40%, with no compensation cess.

The GST for bicycles and their components has been reduced to 5% from 12%.

The special 40% rate applies exclusively to select goods, primarily sin goods and a few luxury items that previously attracted a compensation cess in addition to GST. With the cessation of the compensation cess, the rate is now merged with GST to maintain tax incidence on most goods.

In other cases, the special rate has been implemented as these already faced the highest GST rate of 28%.

Currently, cotton is taxed under a reverse charge mechanism, allowing agriculturists to supply raw cotton without incurring GST. Taxing cotton in GST prevents disruptions in the input credit chain; the GST paid on cotton is available as input tax credit for the textile industry, ultimately benefiting consumers.

The new GST rate for toilet soap bars is now set at 5%, aimed at reducing monthly expenses for lower-middle-class and impoverished sectors of society.

The reduction in GST on face powders and shampoos stems from their status as daily essentials for nearly all population segments. The GST rate has been lowered to 5% for certain daily use items.

The GST Council has recommended a reduction to 5% on toothpaste, toothbrushes, and dental floss, categorized as basic dental hygiene products.

The GST rate for renewable energy equipment/devices previously set at 12% has been lowered to 5%.

“These goods faced an inverted duty structure. While a reduction to 5% could exacerbate this inversion, a refund mechanism for the inverted duty structure is available, and process reforms will ensure expedited refunds. The objective is to promote renewable energy goods,” the ministry stated.

Furthermore, GST on air conditioners and dishwashers has been reduced from 28% to 18%. Previously, TVs and monitors up to 32 inches attracted an 18% GST, while larger screens incurred a 28% tax. Now, all TVs and monitors will uniformly be taxed at 18%.

“The policies covered under the exemption recommended for life insurance encompass all individual life insurance policies, including term, ULIP, and endowment plans, along with their reinsurance services. Health insurance exemptions apply to all individual health insurance policies, including family floater and senior citizen plans, alongside their reinsurance services,” the ministry clarified.