The GST council announced the GST rates for goods and services on 18th May and 3rd June 2017. They have opted to lower the incidence of tax on common mass-use items to ensure that the prices are reduced in GST regime.
We already know that the GST rates will be 5%, 12%, 18% and 28 %. Do you know how these rates will affect your pocket?
Food items and other basic items
Most food items are exempted from tax under GST as under the current regime. So the price change is expected to be largely neutral. The following items are exempt from GST:
- Fresh fruits and vegetables (Other than frozen or processed)
- Meat (Other than in frozen state and put in unit containers)
- Fish (not frozen or processed)
- Common salt
So we see that the processed food industry will see a variable impact of GST. Certain items like corn flakes will see a reduction in price under GST, while the cost of items like pastries and cakes will rise.
Other basic items such as Kumkum, alta, puja samagri, bangles (except those made from precious metals) are exempt from GST which will lead to a decrease in their prices. Similarly household items like hair oil, soaps, and shampoos are also expected to get cheaper.
The cost of laundry will increase due to increase in detergent prices and also due to the increase in tax on services of laundromats.
Full Coverage: All the latest news, views and FAQs on GST
Household items and Appliances
Kitchen utensils like stainless steel cookers, pans etc. are likely to get a little cheaper as they are charged at the rate of 12% under GST, which is lesser than the current tax rate of 19.5%.
Sanitary items like taps, faucets etc. would get costlier under GST as they are kept under the 28% tax bracket.
Human blood and its various components are exempt under GST as well as under the existing laws, so the prices will remain neutral even after the policy change.
Only chemical contraceptives (hormone based) are exempt under the current tax laws. Now, condoms and other contraceptives will also be exempt under GST. The impact on life-saving drugs is largely neutral which are taxed around 5% both under the existing scheme as well as GST. The prices of Ayurvedic and other alternative medicines will increase as they will be taxed under 12% GST.
Mobile network, DTH and other services
Most services like mobile, DTH, booking of tickets through agents, apps will increase due to the increase in rates from 15% to 18%. Buying computers is expected to become cheaper.
Restaurants and movie tickets
Dining out will become expensive in most cases because of increase in taxes. Movie tickets will attract GST at 28% (except for tickets priced below Rs 100, which will be taxed at 18%) while buying food and drinks at theaters will attract 18%. The effect of GST on this sector will be mixed depending on the states. States with high entertainment tax such as Maharashtra and UP will benefit as it will reduce the prices for the end consumers. However, GST will have a negative effect on states which already have a low entertainment tax such as Punjab and Rajasthan.
#GST on TN cinema tickets - sources say from July 1 ticket prices will b existing prices + 28% GST. A Rs 120 ticket will now cost=Rs 153.60— Sreedhar Pillai (@sri50) June 28, 2017
Banking and insurance
Life, health, and car insurance premiums will increase as they attract only 15% currently and will taxed under 18% under GST. Banking services charge 15% service tax currently which will increase to 18% under GST.
Most banks have applied transaction charges on cash withdrawals from different bank ATMs as well as cash withdrawals from branch (first 5 for both are free). All these attract 15% service tax currently which will increase to 18% under GST regime.
Prices of cars will increase as they will attract 28% GST along with cess. Small cars will attract 1%-3% cess. Mid-sized cars, SUVs and luxury cars will have a 15% cess. Motorcycles will attract 3% cess.
Travelling by app-based cabs like Ola and Uber will become more expensive as the tax is increasing to 18%. Railways tickets will increase slightly while air travel via economy will fall. However, luxury and business class ticket prices will rise.
Budget hotel rooms below Rs. 1000 per day are exempted from GST. Rooms with daily tariff between INR 1000- 2500 will attract 12% GST. Rooms with daily tariff between INR 2500-5000 will be taxed under 18%. Rooms above INR 5000 per day will be taxed at the luxury rate of 28%. Hotel rent will increase from the current effective rate of 9% (after 60% abatement).
Gold, diamonds, and other precious stones will attract 3% GST which will increase prices in most states where the earlier rate came to 2% (1% excise +1% VAT)
Cement prices will increase due to the 28% GST rate. In turn, costs for infrastructure and housing which are highly dependent on cement, will also increase.
Also, the rent of office buildings will be subject to GST of 18%. However, the rent of residential buildings is exempt from GST.
Impact on the tobacco industry is going to be largely neutral since the 5% cess was less than the expected rate by the tobacco industry.
Effective rate on capital goods and industrial intermediaries has reduced (mostly within the 12-18% range) which will result in a big boost to industries.
Manufacturers of household electronic appliances like Samsung, Godrej, Voltas etc will be forced to increase their prices due to the tax rate of 28%.
The steel industry will enjoy the benefit of lower tax rate of 5% on the major inputs such as coal and iron ore, which in turn will benefit all the industries dependant on iron and steel. Transportation services used for transporting steel is placed in the 5% tax bracket which will reduce the cost of logistics. The cost of laying of new railway tracks would be largely neutral under GST.
We are still awaiting the final exemption list for goods and it is expected to have around 100 items only as exemptions break the tax chain and create scope for tax evasion. Keeping a small list will help curb tax evasion.
Most of the commonly used items are under 12% and 18%. Online shopping is expected to be balanced by lower costs of logistics and smoother inter-state transport because of a uniform tax rate.
The FM Arun Jaitley has said that the GST Council has tried its best to ensure that the "tax rate under GST will not go up for any of the commodities… On many commodities, there is a reduction particularly because the cascading effect of tax is gone."
There are still more clarifications required from the GST Council regarding the various tax benefits currently enjoyed by businesses in order to ensure a smooth transition to GST.
|0%||Most food items such as -
||Most of the food items were also not taxable under current regime so the price change is expected to be largely neutral.|
|Bangles (except those made from precious metals)
Pharmaceutical products such as -
|Prices on certain items like bangles is expected to fall.|
||Human blood also exempted under existing laws.|
||Chemical contraceptives were earlier exempted.
Now condoms and other contraceptives are also exempted.
|3%||Gold, diamonds, precious stones||There will be a marginal increase in prices.|
||Slight reduction in prices.|
||Coal is the raw material for many industries.
GST at 5% will mean reduction in operating costs for many such industries.
Impact largely neutral. Life-saving drugs were taxed also around 5% under existing scheme.
||Railways tickets will turn slightly costlier due to new rates.|
||Economy air prices will fall.|
|12%||Computers, processed food Carpets, mats, bath mats||Impact on processed food industry will be varied.
Certain items like corn flakes will be cheapeer under GST.
Items like pastries and cakes will rise.
Computers are expected to become cheaper.
|18%||1. Hair oil, toothpaste and soaps (currently at 28%)||Hair oil, soaps, shampoos are expected to get cheaper.|
|2. Capital goods and industrial intermediaries
3. Biscuits - Sweet biscuits and other biscuits
4. Other footwear priced more than Rs. 500 and also waterproof footwear
|Effective rate on capital goods & industrial intermediaries has reduced which will result in a big boost to industries.|
|Most restaurants, booking air/railways tickets, DTH and mobile services||Most services like mobile, DTH, booking of tickets will turn costlier due to the increase in rates from 15 to 18%.
Dining out will be expensive in most cases because of increase in taxes.
|Insurance Premiums||Insurance premiums will rise as they attracted only 15% earlier.|
||Prices of most of the items in this list will increase post GST.
Cost of washing clothes will increase due to increase in detergent and also due to increase in tax on services of laundromats.
(Archit Gupta, the author is the Founder & CEO at ClearTax, a tax preparation and e-filing platform.)