The highest Goods and Services Tax (GST) bracket was slashed three-quarters Friday with only 50 items being retained in the 28 per cent slab. The GST Council, at its 23rd meeting, moved 178 items out from the list of 228. It also decided to reduce the tax rate for all restaurants, barring those in luxury hotels, to 5 per cent, without any input tax credit.
These measures are expected to cost the exchequer around Rs 20,000 crore, government officials said. Additionally, the Council decided to reduce the compliance burden for businesses through easing procedures for filing of returns, along with an increase in the annual turnover threshold for the composition scheme to Rs 1.5 crore from the recently revised Rs 1 crore.
The tax rate for manufacturers under the composition scheme was also reduced to 1 per cent from the earlier rate of 2 per cent, bringing it at par with the tax rate for traders. The composition scheme for restaurants will continue unchanged with a tax rate of 5 per cent. The hike in threshold for the composition scheme would require an amendment in the CGST Act — there was agreement to increase it to Rs 2 crore from Rs 1 crore at present.
Items for which the GST rate has been cut from 28 per cent to 18 per cent include common use items such as chocolates, chewing gums, detergents, shampoos, hair creams, henna powder/paste, deodorants, fans, pumps, lamps, sanitaryware, marble, granite, glass, wires, cables, electrical boards/panels, furniture, fire extinguishers, rubber tubes and all musical instruments and their parts.
Tanks and armoured fighting vehicles have been now placed in the 12 per cent tax slab instead of the earlier 28 per cent.
In first remarks after the Council’s decisions, Prime Minister Narendra Modi tweeted that “jan bhagidari” was “at the core” of the government’s functioning and all its decisions were “people-inspired, people-friendly and people-centric”.
“The recommendations made by the GST Council today will further benefit our citizens and add strength to the GST. These recommendations are in spirit of the continuous feedback we are getting from various stakeholders on GST,” he said.
In Guwahati, speaking to reporters, Finance Minister Arun Jaitley said items were fitted into tax slabs based on equivalence principle as per their pre-GST incidence, but in the last three meetings, they had been looking at reducing the items in the 28 per cent tax bracket.
“In the last few meetings, as part of our efforts to rationalise the tax structure, the Council has been reviewing rates from time to time… in the last three meetings, we have been systematically looking at the 28 per cent tax bracket and rationalising certain items out of that bracket into the lesser categories, mostly 18 per cent, and in some cases even less.”
“We were reducing items from 28 per cent category because optically some of them should not have been there in the first place. Secondly, some items were being made by small businesses who used to get excise exemption… out of total 228 items which were in the 28 per cent category, fitment committee had recommended rationalising these after the last meeting,” Jaitley said.
The proposed rate changes, Revenue Secretary Hasmukh Adhia said, will be effective from November 15 prospectively.
The GST Council also decided to reduce rates from 18 per cent to 12 per cent for 13 items including condensed milk, refined sugar, pasta, diabetic food; from 18 per cent to 5 per cent for six items such as fly ash, chikki, chutney powder; from 12 per cent to 5 per cent for idli/dosa batter, finished leather; and 5 per cent to nil from for items such as guar meal, frozen/dried fish.
GST rates on aircraft engines have been cut from 28/18 per cent 5 per cent and on lac/shellac bangles from 3 per cent to nil.
Jaitley said restaurants were not passing the benefits of input tax credit via reduction in prices to consumers and so, it was an “additional burden” for consumers and was resulting in “unjust enrichment”.
“Since they did not pass on the benefit of input tax credit to the consumer, they are not entitled to the benefit themselves,” he said.
GST rate on takeaways have also been reduced to 5 per cent without input tax credit, while rate on outdoor catering will continue to be 18 per cent with full input tax credit, an official release said.
Restaurants in hotels with room tariff of Rs 7,500 and above per day will attract 18 per cent GST with full input tax credit.
The Council also provided relief to businesses by easing requirements for return filing as well as lowering the penalty for late filing. Now, businesses will have to file simplified Initial GSTR-3B returns till March. Also, monthly matching of sales and purchase invoice has been kept in abeyance until March 2018.
The Council decided to give a simplified GSTR-3B form to those businesses which have nil-tax liability or have no transactions to file in invoice. As many as 40 per cent of the businesses filing returns on GST Network portal have nil tax.
The timeline for filing of initial returns GSTR-3B for all businesses has been extended to March from December. GSTR-3B of a month is to be filed by the 20th of the succeeding month.
The Council lowered late return filing fees for businesses from Rs 200 at present. Businesses with nil-tax liability will now have to pay only Rs 20 as late fee for delayed filing of returns, while for the rest the fee is Rs 50.
A committee under GSTN chairman Ajay Bhushan Pandey has been set up to look into making filing of GSTR-2 and GSTR-3 business friendly.
GSTR-2 is the purchase invoice and GSTR-3 is to be generated by businesses by matching GSTR-1 and 2.
“The time period for filing GSTR-2 and GSTR-3 for the months of July 2017 to March 2018 would be worked out by a committee of officers,” an official statement said.
Until March, businesses with turnover of over Rs 1.5 crore will have to file only GSTR-1 or sales returns by the 40th day. This will be in addition to initial GSTR-3B returns. For the July-October period, businesses will have to file GSTR-1 by December 31.
Goods and Services Tax was rolled out from July 1. November onward, the GSTR-1 is to be filed on the 40th day which is January 10. Similarly, GSTR-1 for December will be filed by February 10.