What is GST and how does it affect common man in India?
Goods and Services Tax (GST) is another suspense thriller movie that would be released on 1st July, 2017 in India. While Govt. of India is trying to make this effective from 1st July, neither Govt, nor business men nor common man are ready to implement these changes in the system. What is Goods and Services Tax (GST) all about? How does GST affect common man? How does GST Tax Rate List look like? Why they are several criticisms about immediate implementation of GST? Let me try to provide some insights in this article about GST and would explain this in simple terms to you.
Why should you know about GST?
GST would have impact on the household items which you buy, hence this would impact your pocket. Also if you are investor in stock markets, some of the companies would loose and some companies would benefit. It is an opportunity for you to grab the stocks that would get benefitted with GST implementation in India.
What is Goods and Services Tax (GST) In India?
Goods and Services tax is an indirect tax that is applicable throughout India and is replacing different taxes levied by the state and central government. This tax system would amalgamate several central and state taxes into a single tax and eradicate double taxation. It would enable the goods to move from state to another without any stoppage at state borders for payment of state tax and also reduce the paper work to the large extent. GST is expected to be applicable from 1st July 2017. The various indirect taxes like entertainment tax, central excise duty, service tax, octroi, value added tax (VAT), central sales tax (CST), etc. would be replaced by the single tax system-GST. Every business has to file 3 returns per month, i.e. 36 returns and one annual return that means 37 returns in a year if you are dealing in a single state. This number would increase accordingly if you were trading in more than one state.
The businessmen and companies will have to change their accounting system, which may involve one-time investment costs. Some products that are kept under the lower brackets will be benefitted while some will suffer a lot due to their placement in higher brackets. The prices of those items will increase tremendously.
What are various GST tax rates applicable?
The government announced that GST would be applicable in four taxes rates – 5%, 12%, 18%, and 28%. Few items have been kept out of GST. The states are interested in keeping few things out of the field of GST which are sensitive to their states like UP wants puja material out of tax net while few want cotton and silk yarn out. All the Goods and Servicess would be charged with any of the mentioned rates as decided by the GST council. Nearly 81% of items have been kept under 18% tax slab and only 19% of the goods will be taxed above 18%.
What are the benefits of GST in India?
1) The tax structure will be made lean and simple.
2) The entire Indian market will be under single umbrella about taxation.
3) It can bring more transparency and good compliance.
4) Number of departments (tax departments) will reduce which in turn may lead to less corruption.
5) More business entities will come under the tax system which would lead to more revenue tax collections.
6) Companies under unorganized sector will come under tax regime.
What are the GST rates for the house hold expenses?
Now, let us categorize all house hold expenses into 5 buckets i.e. Food, Entertainment, Personal Care, Transportation and communication services.
- Food items – Earlier tax 12.5% – New Tax under GST – 5% – Positive news
- Entertainment – Earlier tax 30% – New Tax under GST – 28% – Positive news
- Transportation – Earlier tax 15% – New Tax under GST – 18% – Negative news
- Personal Care – Earlier tax 28% – New Tax under GST – 18% – Positive news
- Communication (mobile and Internet services) – Earlier taxes 15% – New Tax under GST – 18% – Negative news
How does GST Rates look for high consuming products for a common man?
The following are the rates of few items that are of use for a common man.
- Sugar, tea, coffee (not instant) and edible oil to fall under 5% slab
- Cereals and milk have been exempted from GST.
- Capital and intermediate goods would be taxed at 18%, which is expected to be a good boon for the industrial growth.
- Coal is kept in 5% tax slab which is currently 11.69 %
- Toothpaste, hair oil and soaps will be taxed at 18% instead of 28% current rate.
- Common man items have been kept under 12% and 18% slab.
- Indian sweets and mithai in 5% slab.
- All raw food items including food grains are exempted from GST.
- Processed food of daily needs to be in 5% slab.
Now let us look at GST Rates in India item wise
1) What are the Goods and Servicess where these are exempted from GST / Zero tax in GST?
The items that are exempted from GST / Zero GST tax are like Jute, fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi, Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom, Bones and horn cores, bone grist, bone meal, etc.; hoof meal, horn meal, Cereal grains hulled, Palmyra jaggery, Salt – all types, Kajal, Children's' picture, drawing or colouring books, Human hair
Hotels and lodges with tariff below Rs 1,000 service has been exempted under GST.
2) What are the Goods and Servicess which are charged at 5% GST?
Items that have 5% GST are fish fillet, Apparel below Rs 1000, packaged food items, foot wear below Rs 500, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, kerosene, coal, medicines, Cashew nut, Ice and snow, Bio gas, Insulin, Agarbatti, Kites, Postage or revenue stamps, stamp-post marks, first-day covers. Railways, Air transport, small restaurants also will be under the 5% category because their main input is petroleum, which is outside GST ambit.
3) What are the Goods and Servicess which are charged at 12% GST?
Apparel above Rs 1000, frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines, tooth powder, color books, picture books, umbrella, sewing machine, cellphones, Ketchup, diagnostic kits, exercise books and note books, Spoons/forks, skimmers, cake servers, fish knives, tongs, Spectacles, corrective, Playing cards. Services like State run lotteries, Non-AC hotels, business class air ticket, fertilisers, Work Contracts would also fall under 12% GST.
4) What are the Goods and Servicess which are charged at 18% GST?
Majority of the items fall under this GST Slab. Footwear costing more than Rs 500, Bidi Patta, Biscuits, flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors, Kajal pencil sticks, Headgear and parts thereof, Aluminium foil, Weighing Machinery [other than electric or electronic. Under services, A/C hotels that serve liquor, telecom services, IT services, branded garments and financial services would attract 18% GST.
5) What are the Goods and Servicess which are charged at 28% GST?
This bucket has highest GST rate of 28% and every one are scared.
Bidis, chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, pan masala, aerated water, paint, deodorants, shaving creams, after shave lotions, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use etc., would attract 28% GST.
How does GST impact the Indian economy?
The economists say that countries like New Zealand, Australia and Canada experienced a one-time bump in the prices but soon the situation normalized. Looking the economy of India, it is expected that after the introduction of GST, the GDP of the country would go up by 2%.
What is the impact of GST on various sectors in India?
The implementation of GST will have mixed effects on the different sectors of Indian economy. There are some sectors that would get benefitted from GST in India.
a) Automobile sector – GST is a significant cost saver for this industry. The transportation time and overall cost for inter-state transfer of goods will be cut down which will ultimately reduce the cost by 8-10%.
b) Cement industry – overall tax incidence for the sector will come down if GST rate is fixed at 18%. Reduction of effective rates and supply chain costs will bring tangible benefits to the cement industry at large.
c) Logistics – GST will result in lower transit time, which will ultimately generate high tuck utilization. Facilitation of uninterrupted flow of goods from one state to another will directly accelerate demand for logistics services.
d) FMCG sector – there is a mixed bag response in FMCG sector. Sweetened aerated water will attract 28% of tax with 12% of additional cess, which is very high as compared to current rates. Basic things like jaggery, cereals, and milk are exempted from tax, which is beneficial for the industry.
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Conclusion: With the implementation of GST, India would eliminate all the taxes levied by different states and would come under the category of “One nation, one tax” although there is lot of confusion in its application. The banks, finance professionals, traders and the industries seems to be not fully prepared to accept the changes of implementing the GST.
By next week, I would write an article about some of the stocks that would have high potential to grow in their share prices with GST implementation.
Readers, do you think GST would reduce complex taxation? Would this be of any help to common man?
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What is GST and how does it affect common man in India
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