Chapter 2: All You Need to Know About the Rates Under GST

GST is a destination based tax on the supply of goods and services. It is a single tax that is charged right from the manufacturer to the end consumer. The intention of introducing GST was to bring equality in the prices across the country.


Tax Slabs Under GST

The GST Council meets from time to time to revise the GST rates for various products. During these meetings, several states and industries recommend the revisions to the existing rates. The rates have been structured in a way that essential services and food items are placed in the lower tax brackets, whereas the luxury services and products have been placed in the higher tax bracket.

Exempted Rate Slab (No tax levied)

Goods that are used for regular consumption such as fresh fruits and vegetables, milk, butter, curd, bread, etc. fall under this category. Sanitary napkins, hulled cereal grains, all types of salts, etc. were the latest additions to this slab.

5% Tax Slab

This tax slab covers household necessities such as edible oils, spices, tea and coffee (except instant), sugar etc. Walking sticks, life-saving drugs, braille papers, hearing aids, insulin were the latest additions under this slab.

12% Tax Slab

The 12 percent slab mainly includes 

  • Computers and processed foods
  • Preparation of pickles, jams, sauces 
  • Spoons, forks, ladles
  • Board games

18% Tax Slab

  • Hair oil, toothpaste and soaps
  • Capital Goods and industrial intermediaries
  • Swimming pools and paddle pools
  • Bamboo furniture
  • Electrical Transformers and Static Converters (UPS)

28% Tax Slab

This tax slab includes luxury goods such as

  • ACs and refrigerators
  • Premium cars
  • Cigarettes and aerated drinks
  • High-end motorcycles

Understanding the applicability of CGST, IGST & SGST

GST was introduced in order to merge almost all the indirect taxes into a single tax called Goods and Services Tax. GST subsumed the indirect taxes of both the Central Government and the State Governments. Both Governments now rely on GST for their indirect tax revenue.

CGST

CGST refers to the Central GST that is levied by the Central Government of India on any transaction of goods and services taking place within a state. It is one of the two taxes charged on every intrastate transaction, the other one being SGST. The rate of CGST is usually equal to the SGST rate. For instance, an item that comes under the 5% tax slab will have a break up of 2.5% charged as CGST and 2.5% charged as SGST.

SGST

SGST refers to the State GST that is levied by the State Government on any intra-state transaction of goods and services. The State Government is the sole claimer of the revenue earned under SGST. It is levied by the state where the goods are being sold or purchased.

IGST

IGST stands for Integrated GST is applicable on the interstate transaction of goods and services, as well as on import transactions. IGST is charged when a product or a service is moved from one state to another. 

HSN Code

Harmonized System of Nomenclature, was developed by World Customs Organisation with a vision of classifying goods from all over the world in a logical and organised manner. It is a six digit uniform code that classifies more than 5,000 products and is accepted worldwide. It helps analyse the movement of goods, helps identify the rate of tax applicable to a product.

SAC Code

SAC stands for Services Accounting Code, which serves the same purpose as HSN does for goods. SAC has been adopted specifically to classify services under the GST regime.

How To Apply GST Rates For A Particular Good/Service While Invoicing

Any person who is registered under the GST regime must provide GST-compliant invoices for the sale of goods/services provided by them. There are a few specific fields that a GST invoice must have. They include:-

  • GSTIN of Buyer and Supplier
  • Address
  • Date
  • Description of Goods
  • Value
  • Rate
  • Amount
  • HSN/SAC Code

However, the tricky part here is the application of the GST rate. The question that will be boring a hole in one’s head is whether to charge CGST and SGST or IGST to a particular invoice and the rate to be applied.

The rule of thumb is that whenever it comes to intra-state supplies, the invoice always attracts CGST and SGST, whereas inter-state supplies will attract IGST. The place of supply component also plays a vital role in determining whether a particular transaction or sale is an intra-state supply or an inter-state supply. 

Once the nature of place of supply is understood, then the applicable rate is applied as per the Schedules under the GST regime. The applicable rates, whether, 0%, 5%, 12%, 18% or 28% shall be applied for as the case may be.

How To Deal With GST Rate Changes

Revision of tax invoices can take place in numerous ways. One such situation is the change in the rate of tax under GST. Through the issue of a supplementary invoice, all deficiencies related to the original tax invoice can be rectified. There can be situations where, as the rate of tax has changed, the amount of tax charged is less.

In such a case, the supplier can issue a supplementary invoice to accommodate those changes, be it an upward revision or a downward revision. At the time of preparing the supplementary invoice, all the usual invoice fields have to present, along with one additional field, which is the differential amount of tax to be charged.

Supplementary invoices include debit notes and credit notes as well. If the return has already been filed, the only way to incorporate the changes is through the issue of supplementary invoices. The original invoice will have to be supplemented within a period of one month from the date of issue of the original invoice.

Anti-Profiteering Under GST

The term “profiteering” means to make unreasonably high profits in the course of ordinary trade or business. The government of India is committed towards protecting the consumers from profiteering, especially since the advent of GST.

Under the anti-profiteering clause, the Central Government is authorised to examine if ITC claimed by any registered taxable person result in a significant reduction in the price of goods and services sold by that person. The authority is given to the Central Government to impose penalties in the event such price reductions are not implemented. With the help of this clause, the government will quickly address complaints that have an adverse effect on competition and market forces.

Consequences of Not Passing on the Rate Cuts

  • The National Anti-Profiteering Authority (NAA) will scrutinise the complaints received via the application form within two months
  •  If prima facie evidence of profiteering is found, the matter is referred to the Director General of Safeguards
  • The DGS will then conduct an investigation and collect evidence to confirm the same within 3 months
  • Opportunity of hearing shall be granted to interested parties
  • The Authority may then order
  • Reduction in price
  • Return of the amount to the recipient
  • Impose a penalty
  • Cancel the GST Registration

Stay tuned for more in the next chapter.