The Goods and Service Tax (GST) came into effect in India on July 1, 2017. The GST tax regime is a comprehensive system that replaced the multiple tax rates that were earlier levied at every level of production.
It is an indirect tax and paid by the final consumer of the goods. This has positively impacted the final cost of goods by eliminating the “tax on tax” conundrum that was earlier prevalent. As it is a single tax, it has added transparency and uniformity to the taxation system.
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GST structure in India has different slab rates that are applicable for different types of goods. There are predominantly four different slabs – 5 percent, 12 percent, 18 percent, and 28 percent for diversifying commodities.
5 percent slab
Some goods and services that fall under this category include tea, coffee, fertilizers, restaurant food, newspaper advertisement, LPG, apparel under ₹1000, etc.
12 percent slab
Dry fruits, fruit juices, ghee, pen ink, milk beverages, hotels within ₹1001-7,500 range, hats, candles, calendars, etc are taxed according to this slab rate.
18 percent slab
Goods like tampons, notebooks, instant food mixes, wires, rods, fans, beauty & make-up products, furniture, shampoos, etc fall under this rate.
28 percent slab
Certain goods that include automobiles, vending machines, private aircraft, air conditioners, toothpaste, cinema tickets, printers, etc are taxed under this slab rate.
The tax levied on the goods increases as the utility of goods changes from necessity to luxury on the elasticity tangent. Necessary goods such as fresh fruits, vegetables, milk, chicken, eggs, sanitary napkins, etc are exempted from GST — i.e. no tax is applicable on these items.
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Gold and precious stones are also taxed differently from the mentioned slab rates. GST on gold is 3 percent and rough precious and semi-precious stones are taxed at a rate of 0.25 percent. In addition, petroleum products, liquor, and electricity are taxed separately by respective state governments.
GST has facilitated a smooth tax mechanism in the country ever since it has been introduced. It has also reduced double taxation and the tax burden on consumers by drawing fixed lines along which taxes have to be paid. It is an optimal system that has brought about uniformity and transparency in terms of taxes throughout the country.