GST – Classification of Goods – A real game

GST – Classification of Goods – A real game to be played nowThe joy that the Central Government may have experienced after getting the GST (Goods and Services Tax) council to agree to the rates and slabs for the new tax may be short lived as the focus now moves to the biggest hurdle is yet to be crossed: choosing the goods that will fall into these slabs. It has been decided that a committee of top officials of all states will work on this, but this could become a flash point in the run-up to the implementation of this new indirect tax.

Essential items such as food grains, one of the main reasons for rising inflation, will be taxed at zero rates. The lowest rate of 5% will be on items of common use, followed by the standard rates of 12% and 18% and the highest rate is 28%. Additionally, a cess will be added to the top 28% GST rate on luxury cars and harmful products like tobacco and fizzy drinks.

Classification of goods into categories and applying different tax rates on them has the potential of leading to litigation. Of course officials feel that once the essential items and luxury goods are classified and perhaps defined by the GSTC before this exercise; the left over will fall in to the standard category. But it is easily said and done.

The industry demand is “Goods fully exempted from the levy of excise duty and VAT by all the states be categorised as exempted goods in the GST regime as well.

As per current indications and reports, goods will be categorised as being subject to merit rates (12 per cent), standard rates (18 per cent) and de-merit rates (40 per cent). Certain goods will be exempt from GST while bullion and jewellery would be charged to 1 per cent/2 per cent,

After zero category; the next tax slab will be 5%, wherein items of mass consumption like spices, tea and mustard oil will be taxed. There will be two standard rates of 12% and 18% where a majority of the items used by the common man will be taxed. There will be a higher slab of 28% where items currently attracting a tax of 27-31% will be taxed. However, items used by the middle class such as toothpastes, soaps and refrigerators, which currently have a high tax incidence of more than 27%, will be brought down into the lower slab of 18%.

The action will start now when “rate baset” will decide whcih goods and services fall in what tax rate slab. This is the real game that has to be played now and GST My Take exppects not a smooth ride between the Centre and the States.

HSN CODES

Taxpayers below 1.5 crores shall not use HSN codes. Tax payers whose turnover is between 1.5 to 5 crores shall two digits HSN Code. Tax payers with turnover over 5 corres shall used 4 digit codes.