The GST in India: Tax Rates Slashed, Some Compliance Relaxed

Last week, the GST Council announced the biggest tax re-shuffle since the launch of the Goods and Services Tax (GST) on July 1, 2017. Many businesses in India were frustrated that authorities had placed their goods into a high tax category – hitting manufacturers where it hurt most.

Now the GST council is attempting to make the GST more business-friendly, slashing rates for goods in high tax categories. All changes come into effect today, November 15, 2017.

Tax slab revised

The list of items in the highest tax bracket – 28 percent – has been cut down to 50 from 228. Now, only luxury goods and items such as auto parts, cement, paint, tobacco, and cigarettes remain in the highest tax bracket.

The GST Council shifted a wide range of mass use items to a lower 18 percent tax slab. As a result, many products will cost less, including food and edible products (such as cocoa products, non-alcoholic beverages, and wafers); goggles and wristwatches; facial make-up, shampoo deodorants, washing powder detergent, tire tubes for bicycles and three-wheelers; as well as, stones and ceramic products.

The GST Council has also pruned the18 percent slab:13 items have been moved from 18 percent to 12 percent slab, while six items have been shifted from 18 percent to the 5 percent slab.

A detailed list of the changes can be found here.

Composition scheme changed

The GST Council has announced a new two-pronged approach for traders and manufacturers under the composition scheme.

Traders and manufacturers that want to exclude sale proceeds of tax-free items from their total turnover can register for the scheme and obtain a 1 percent GST rate. Those that want to pay tax on total turnover can obtain a 0.5 percent GST rate.

No inter-state taxes and input tax credit (ITC) for composition dealers will be levied.

Deadlines for filing returns relaxed

Business owners will find some relief in a simplified GST filing process: the GST Council extended the deadline for filing of GSTR-3B until March 31, 2018.

Moreover, the GST Council simplified the GSTR-3B and will introduce indicative filing facility for businesses that have zero tax liability or have no transactions to file in the invoice.

Late filing fines softened

The GST Council has waived late fees for the months of July, August and September 2017, for the GSTR-3B form. 

From October 2017 onwards, the late fee amount payable by a taxpayer (whose tax liability for that month was zero) will be US$0.3 (Rs. 20) per day, instead of US$3 (Rs. 200) per day. For other tax filers, the late fee will be US$0.8 (Rs 50) per day.

Other announcements

The GST Council has levied a single GST rate at flat five percent against all restaurants, without ITC benefits. However, five-star restaurants within starred-hotels with room rent above US$115 (Rs. 7,500) will attract GST at 18 percent – these restaurants can avail ITC benefits.

Taxpayers will annual aggregate turnover of up to US$229 (Rs. 15 million) will need to file GSTR-1 on a quarterly basis, while taxpayers with a turnover of above US$229 (Rs. 15 million) need to file GSTR-1 on monthly basis.

Exporters from Nepal and Bhutan can now avail of ITC on output services.