Starting November 15, eating out in hotels and restaurants would be cheaper. So would be savouring your favourite chocolate or using your preferred brand of cosmetics, as the Goods and Services Tax (GST) Council on Friday slashed tax rates on over 200 items in the biggest restructuring exercise undertaken since the new indirect tax system came into force on July 1, reducing 28 per cent tax on 178 items to 18 per cent or less..
Nevertheless, the Council retained the maximum 28 per cent tax slab on luxury, sin and white goods like cigars and cigarettes, washing machines and air-conditioners. The massive reductions are aimed at providing a major relief to consumers as well as businesses. Following the implementation of GST, while traders and small businesses complained of increased compliance burden, the masses dissented on the high tax rate on some common use goods.
In one of the most significant decisions, the Council fixed a uniform 5 per cent GST rate for all restaurants, AC or Non-AC. Currently, 12 per cent GST on food bill is levied in non-AC restaurants and 18 per cent in air-conditioned ones. All these got input tax credit (ITC), a facility to set off tax paid on inputs with final tax. “The restaurants, however, did not pass on the ITC to customers and so the ITC facility is being withdrawn,” Union Finance Minister Arun Jaitley said in Guwahati after chairing the marathon 23rd GST Council Meeting.
“As many as 178 items of daily use were shifted from the top tax bracket of 28 per cent to 18 per cent.” Jaitley pointed out.
Shortly after the Council’s decision, Prime Minister Narendra Modi tweeted, “The recommendations made by the GST Council today will further benefit our citizens and add strength to the GST. These recommendations are in spirit of the continuous feedback we are getting from various stakeholders on GST.”
“Jan Bhagidari is at the core of our working. All our decisions are people-inspired, people-friendly and people-centric. We are working tirelessly for India’s economic integration through GST,” he said.
The top tax rate is now restricted to luxury and demerit goods like pan masala, aerated water and beverages, cigars and cigarettes, tobacco products, cement, paints, perfumes, ACs, dish washing machine, washing machine, refrigerators, vacuum cleaners, cars and two-wheelers, aircraft and yacht.
As per the Council’s decision, chewing gum, chocolates, coffee, custard powder, marble and granite, dental hygiene products, polishes and creams, sanitary ware, leather clothing, artificial fur, wigs, cookers, stoves, after-shave, deodorant, detergent and washing power, razors and blades, cutlery, storage water heater, batteries, goggles, wrist watches and mattress are among the products on which tax rate has been cut from 28 per cent to 18 per cent.
Restaurants in starred-hotels that charge Rs 7,500 or more per day on room tariff will be levied 18 per cent GST but the ITC is allowed for them. Those restaurants in hotels charging less than Rs 7,500 room tariff will charge 5 per cent GST but will not get ITC.
Tax on wet grinders and armoured vehicles has been cut from 28 per cent to 12 per cent, he said, adding the tax rate on six items was reduced from 18 per cent to 5 per cent, on 8 items from 12 per cent to 5 per cent and on six items from 5 per cent to nil.
Bihar Deputy Chief Minister Sushil Kumar Modi said the cut in tax would cost Rs 20,000 crore in revenues annually. “There was unanimity that in the 28 per cent slab, there should only be the so-called sin and demerit goods (the consumption of which is discouraged through high tax rates). So, today the council took a historic decision to retain only 50 items in the highest slab and to bring down the rate on the rest to 18 per cent,” added Modi.
In order to ease compliance burden to the tax payers, the Council also relaxed the return filing criteria and also lowered the penalties for late filing. “As part of efforts to rationalise GST structure, the Council has been reviewing rates from time to time. In the last 3 meetings, we have been systematically looking at 28 per cent tax bracket and rationalising certain items out of that bracket into lesser categories, mostly 18 per cent or even less,” Jaitley said.
GST tax slabs of 5, 12, 18 and 28 per cent were decided going by the principle of fitting each item into a category most close to cumulative pre-GST taxes. “Optically, some items should not have been in 28 per cent despite being in old regime. Secondly, some items manufactured by small entities had excise exemption,” he said, adding in the last meetings 30-40 items have been taken out of 28 per cent bracket.