How is GST Tax Structure Different from Previous Tax Structure?

The Goods and Services Tax (GST), implemented on July 1, 2017, has subsumed the Central and State indirect taxes such as VAT, service tax and excise duty. It has brought in a paradigm shift in the Indian tax structure with the numerous changes.

GST tax is a form of tax structure wherein the tax is levied on the value addition of the products and services on every stage, and it is collected by the end consumer. There are four types of GST as per the act i.e. Central GST, Union Territory GST, Integrated GST and State GST. Here are some of the primary differences between GST and erstwhile taxes.

The structure of the GST has been designed in such manner that the luxury services are placed in higher tax bracket whilst the essentials are placed in the higher bracket. There are total 1300 goods and 500 services that are divided across 4 slabs under the GST tax structure plus there is a special provision of goods that are exempted from tax . The tax rate slabs under GST tax structure are 5%, 12%, 18% and 28%. Read further to understand the slabs better.

• No Tax / Exempted GST rate slab – This category includes 7% of the goods and services, which are items of regular consumption like vegetables, fresh fruits, milk, butter milk, curd, bread, besan, natural honey, jaggery, fish, chicken, eggs, etc. It also includes products like kajal, bangles, book stamps, drawing and colouring books, newspapers, hotels and lodges having tariff below ₹1000.
• 5% GST rate slab - This category includes 14% of the goods and services, which are apparel below ₹1000, footwear below ₹500, skimmed milk powder, branded paneer, packaged food items, pizza bread, frozen vegetables, coffee, tea, spices, coal, medicines, postage stamps, and so on.
• 12% GST rate slab – This category includes 17% of goods and services such as edible items like butter, cheese, ghee, frozen meat products, dry fruits in packaged form, animal fat, sausages, ketchup and sauces, fruit juices, spectacles, sewing machine, cellphones, ayurvedic medicines, non-AC restaurants, etc attract 12% GST.
• 18% GST rate slab – This category includes 43% of goods and services like cornflakes, biscuits, pasta, mineral water, ice cream, cameras, speakers, monitors , printers, sanitary napkins, notebooks, tissue papers, AC restaurants serving liquor, five star and luxury hotels, telecom and IT services, and so on.
• 28% GST rate slab – This category includes 19% of goods and services like chewing gum, chocolates, dishwasher, hair shampoo, dye, sunscreen, paint, movie tickets above ₹1000 and so on.

· Eliminate The Cascading Effect Of Tax –

Cascading effect is a phenomenon of taxation that puts an extra burden on the end consumer. With the cascading effect in place, the taxes were levied on the value on which the previous buyer has already paid the tax. Thus, GST removed this “tax on tax” by bringing the concept of input tax credit that can be claimed at every stage by the seller or service providers.

· Single And Comprehensive Tax –

GST has subsumed almost all the taxes including Service Tax, VAT, Excise Duty, Entry Tax etc., levied domestically on items and services while providing for a set of uniform rates across four slabs. These taxes are divided equally into two parts, viz. Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST), depending on its nature as well as distribution.

· Destination-based taxation –

With the onset of GST, the taxes were charged on the point of consumption, unlike the former tax structure that levied taxes on the place of manufacturing. This change from origin-based tax to destination-based tax has also significantly altered the revenue generation of producer states as well as consumer states.

· Simple online procedure –

The GST has brought in a new digital era in the Indian taxation system. All the process, right from the registration to the payment of taxes has been made online. This uniform e-registration is a considerable change as compared to the earlier decentralised multiple registration mechanisms.

· GST Council –

Earlier there was a single body - Central Board of Indirect Taxes and Customs, which was responsible for tax-related purposes. However, under the new GST regime, a GST Council was formed that would be administering different tax rates in different slabs.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.