On July 1st, 2017, the Indian Government Implemented the Goods and Service Tax (GST) with the plan of replacing the existing multiple tax system and making it a “One Nation. One Tax”. However, ever since its implementation, a major chunk of people are yet to discern exactly what these taxes are and how these work.
Allow us to take you through a brief look at what exactly GST is, along with how it is calculated.
What is Goods and Services Tax in India?
The goods and service tax (GST) is a common value-added tax (VAT) which is applicable in India. This tax is levied on almost all the goods and services sold for domestic purposes. The GST is paid by the consumers, but it is transferred to the government by businesses for selling goods and services, so it is an indirect tax.
This is the reason why whatever product you buy these days will have an added GST charge included. It is a destination-based, multi-stage comprehensive tax and was conceptualised to replace the multiple indirect taxes that people initially used to pay in India.
There are five different tax slabs for collecting GST- 0%, 5%, 12%, 18%, and 28%. On that note, petroleum, alcoholic beverages, and electricity are excluded from GST but are rather taxed differently by the state governments.
But this is not the ultimate indirect tax that a customer pays. There are items like luxury cars, aerated drinks, and tobacco where you need to pay an additional 22% cess on top of their determined GST slab. Hence, it’s fair to say that it is not the only tax that a buyer has to pay in order to access services or goods.
Elaboration of GST Brackets
In order to keep track of the potential expenses of products, it is crucial to learn the latest GST rates in India.
Let’s take a quick look at the different GST slabs and what goods come under which slab according to the 2023 update.
| GST Slabs | Items That Fall Under It |
| 0% (nil-rated) | Some food items (eggs, curd, lassi, unpacked food grains, unpacked paneer, gur, unbranded natural honey, unbranded atta, unbranded maida, beans, fresh vegetables, salt)
Services like educational services, health services, children's drawing, or colouring books. |
| 5% | Food items like sugar, tea, edible oil, paneer, raisins, roasted coffee beans, skimmed milk powder, cashew nuts, milk products for babies, fabric, spices, life-saving drugs, coffee (excluding instant coffee)
Products like: domestic LPG, coal, footwear (<500), apparel (<1000), mats and floor coverings, agarbatti, etc. |
| 12% | Food items: butter, ghee, almonds, fruit juice, packed coconut water, processed food.
Nonedible items: computers, mobiles, umbrellas, etc. |
| 18% | Hair oils, capital goods, toothpaste, industrial intermediaries, soap, ice cream, pasta, toiletries, cornflakes, computers, printers, |
| 28% | Small cars, high-end motorcycles, consumer durables like AC and fridges, luxury branded items, cigarettes, and aerated drinks.* |
*An additional cess of 1% to 15% applies for items like cars and superbikes.
How is GST Calculated?
It is very simple to calculate the GST. Simply take the price of the good or service and multiply it with its respective tax slab percentage.
For example, if you buy clothing worth INR 800, you will be paying a 5% GST on it, which makes its price:
= 800* 5%
=800*0.05
= INR 40
The total price after adding the 5% GST would be INR 840.
Why is GST Important?
Whether you own a business or manage the accounts for a business, you should be aware of why GST plays a crucial role in the Indian economy.
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Saves you from the snowball effect of tax:
The aim of GST was to bring indirect taxation under one umbrella and save the citizens from its cascading effect. Therefore, it saves you from tax over tax, which is something common in the VAT structure.
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Increased the registration threshold
Before the implementation of GST in India, businesses with a turnover of more than INR 5 lakhs (which might differ across different states) were liable to pay VAT. After GST, the limit was increased to INR 20 lakhs, which saved many small traders and service providers.
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Made the compliances simpler
Before GST, VAT and service tax both had their separate returns and compliances, which were too complicated to follow. After GST, people have to file only one unified return.
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Streamlining the E-commerce operations
Pre-GST, there were variable VAT laws for e-commerce operators. In some states, they were treated as separate businesses, while in others, they were more of facilitators or mediators. Such varying treatment was eliminated after the implementation of GST.
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