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ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Companies must comprehend and follow GST rates to conform to the laws and implement strategies that are financially manageable and helpful to society and the country’s economy.
Goods and Services Tax (GST) is commonly known as an indirect tax structure implemented on the supply of goods and services in India. Launched on July 1, 2017, GST replaced several other indirect taxes, simplifying the taxation process and improving the economic union. It works on the concept of using taxes to make additions of values within the chain supply so that the taxes will only be charged upon the values added. GST is designed to simplify the tax system, unify the national market, improve the business environment, and eliminate tax-on-tax, all to boost the nation’s economic growth.
Understanding Goods and Service Tax rates is crucial as they impact the public and businesses. GST rates are important because they can balance economic growth, business efficiency, and consumer welfare. Standardized GST rates reduce the tax system’s complexity, replacing multiple indirect taxes and promoting a unified market across the country.
Companies must adhere to the GST tax rate to support their financial goals and ensure compliance. Detailed categorization ensures a fair and efficient tax system, aligning with economic objectives.
India GST rates are implemented according to the type and nature of products and services in an attempt to make the tax base inclusive of all types of food and services. For most taxpayers, the following GST tax slabs have been passed by the Indian Government: Nil, 5%, 12%, 18% and 28%. Additionally, there are some specialized rates, such as 3% and 0.25% for specific items. For businesses under the composition scheme, GST is levied at nominal rates like 1.5%, 5%, or 6% on their turnover.
Here is a breakdown of the GST rate structure:
| GST Rate |
Category |
Items |
| 0% (Nil-rated) |
Essential items |
Milk, eggs, curd, unpacked food grains, unbranded atta, natural honey, fresh vegetables, certain educational and health services |
| 5% |
Basic necessities and commonly used items |
Sugar, tea, edible oils, domestic LPG, cashew nuts, packed paneer, life-saving drugs |
| 12% |
Various goods |
Butter, ghee, almonds, fruit juices, mobile phones, processed foods |
| 18% |
Standard goods |
Hair oil, toothpaste, soap, cornflakes, soups, industrial intermediaries |
| 28% |
Luxury and sin goods |
Small cars with additional cess, high-end motorcycles also with additional cess, ACs, and refrigerators which fall under the category of consumer durables hence attract cess, and luxuries like BMWs, cigarettes, and aerated drinks also attract up to 15 % cess. |
For inter-state transactions, the IGST is equivalent to the combination of the CGST and SGST charge for intra-state processes and is close to 2.5 percent.
However, to support the specific infrastructure development undertaking, the GST law additionally provides for a special cess on some commodities, including cigarettes and tobacco products, aerated water, petroleum, and motorcars, with rates ranging from 1 percent to 204 percent. This helps ensure that those goods with higher externality or luxury factors were charged higher taxes.
Businesses, manufacturers, wholesalers, and retailers can effortlessly calculate GST using the following formulas:
GST Amount = (Value of supply x GST%) / 100
Price to be charged = Value of supply + GST Amount
GST Amount = Value of supply – [Value of supply x {100 / (100 + GST%)}
Nil-rated or 0% GST products refer to goods or services that have been zero-rated for GST. These products are exempt from tax and consist of relief goods offered to the public in general.
Some common examples of nil-rated GST products in India are:
The 5% GST rate is generally applied to items of mass consumption and essential goods. This lower tax rate ensures that these goods are well within the reach of the general public. Examples of goods that attract a 5% GST rate in India include:
The 12% GST rate is charged on products classified as intermediate or non-crucial necessities or those that undergo some production before reaching the final user.
The 18% GST rate is the most commonly applied and includes many goods and services. This rate is applied to those items that are not categorized as necessity items but are commonly used by the public.
The 28% is at the highest end as this is applied to luxury items, sinus goods, and non-essential goods as they are referred to. They consist of goods that are exposed to high tax rates in a bid to discourage their use. Examples of goods that fall under the 28% GST category include:
Goods and services sold in India are classified under the HSN code or the SAC code used for the GST. The HSN stands for the Harmonized System of Nomenclature, which uses the code for goods, while the SAC uses a Service Accounting Code for services.
HSN stands for Harmonized System of Nomenclature and Coding, a globally accepted description of products used invented by the World Customs Organization. Customs cooperate in more than 200 countries, offering information on tariffs within more than 98% of Merchandise traded between countries. The HSN code eliminates barriers to the internationalization of commodities and helps in the simplified implementation of GST norms.
India uses the HSN Code 2017 Edition for GST classification and levy. The HSN codes are divided into sections and chapters, each containing six-digit codes that provide detailed product information. This universal classification system helps ensure consistency and accuracy in tax administration.
The Service Tax Department of India developed the SAC code system to classify services. The SAC codes are essential for determining the applicable GST rates, which are fixed in five slabs: 0%, 5%, 12%, 18%, and 28%. If a service is not GST-exempt or if specific rates are not provided, the default GST rate of 18% applies.
SAC codes ensure a uniform tax system nationwide, facilitating efficient tax collection, transparency, and compliance. They also help avoid ambiguity in service classification and make it easier for businesses to invoice, account for, and report their services accurately.
The HSN and SAC systems are very important in the GST structure since they enhance the proper registration of the right classification of goods and services. Standardizing tax policies leads to equal tax rates for all citizens; hence, standardization helps in compliance and accountability in tax collection and administration. To businesses, these codes are beneficial in aspects such as invoicing, meeting the laws, and minimizing the chances of falling out with the authorities on tax matters.
The GST rates for various categories have been updated in 2024, reflecting changes aimed at aligning tax structures with economic priorities. Below is a summary of the changes:
| Item |
Old GST Rates |
New GST Rates |
| Pens |
12% |
18% |
| Railway Goods and Parts (Chapter 86) |
12% |
18% |
| Recorded Media Reproduction and Print |
12% |
18% |
| Metal Concentrates and Ores |
5% |
18% |
| Certain Renewable Energy Devices |
5% |
12% |
| Printed Material |
12% |
18% |
| Broadcasting, Sound Recordings, Licensing |
12% |
18% |
| Packing Containers and Boxes |
12% |
18% |
| Scrap and Polyurethanes |
5% |
18% |
These adjustments ensure fair taxation while supporting economic growth and development in various sectors.
1
If you pay GST, you do not have to pay VAT. VAT was one of the taxes subsumed by the Goods and Services Tax or GST, which comprises GST, Service Tax and Central Excise Tax and eliminates numerous other indirect taxes.
2
India has different GST rates to categorize goods and services based on necessity and consumption. Essential items like food and healthcare are taxed at lower rates or exempt, while luxury and sin goods attract higher rates to discourage consumption and generate higher revenue.
3
GST rates impact businesses by altering their tax liabilities and compliance requirements. For consumers, GST affects the final price of goods and services. Lower rates make essential items more affordable, while higher rates increase the cost of luxury goods.
4
India has multiple GST rates:
5
To register for GST in India, visit the GST portal (gst.gov.in), complete the application form, and submit the required documents, like PAN, proof of business, and bank account details. Once verified, you will receive a GSTIN (GST Identification Number).
6
Penalties for filing incorrect GST returns include a fine of ₹10,000 or 10% of the tax due, whichever is higher, for genuine errors. For deliberate tax evasion, penalties can be as high as 100% of the tax due.
7
Yes, GST-compliant businesses benefit from smoother input tax credit claims, improved cash flow, and reduced cascading tax effects. Compliance also ensures legal adherence and enhances the business’s credibility and market reputation, underscoring the importance and benefits of GST compliance.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
