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Changing rates: Impact of GST recast on industries


In its 23rd meeting on 10 November at Guwahati, the Goods and Services Tax (GST) Council eased tax rates for a variety of goods and services — a welcome announcement for businesses and consumers alike. Let’s take a look at some of the new rates.

Eat more, pay less?

One major rate cut pertains to restaurants. Previously, the GST rate was 18 percent for restaurants with air conditioning, and 12 percent for those without. All restaurants will now levy 5 percent GST, with no input tax credit (ITC) benefits.

While this may seem to make eating out cheaper for customers, the practical reality of the rate cut, noticed within hours of implementation, appears to quite different.

Social media has been flooded with restaurant bills showing that prices actually went up, at least for some items, under the new rates, compared to previous ones. This is because some restaurants increased menu prices to offset the loss of ITC. 

ITC allows businesses to claim an offset on the tax paid on inputs against the tax paid to the government on final sales. According to the Federation of Hotels and Restaurants Association of India President Garish Oberoi, ITC can account for 3-4 percent of a restaurant’s profits. That’s especially true for large restaurants that spend more on rentals, capital expenditure, and advertisements. 

Some experts hold that, from a policy perspective, it is not a good idea to deny ITC as it may promote a cash economy. Without ITC, businesses are tempted to buy from vendors who don’t charge tax, given that they can no longer offset any tax they pay to a vendor.

Further, outdoor catering and five-star restaurants within starred hotels with rooms costing above Rs. 7,500 will now attract 18 percent GST. These businesses can continue to avail ITC.

Luxury gets more affordable

Providing major relief to consumers, the GST Council cut down the list of items in the highest tax rate tier from 228 to just 50. Now, only items considered to be luxury goods and sin goods remain in the highest bracket, with 178 items considered to be daily use shifting to the 18 percent bracket. 

The top tax rate of 28 percent will now be levied on goods like pan masala, aerated water and beverages, cigars and cigarettes, tobacco products, cement, paints, perfumes, air conditioners, dishwashing machines, clothes washing machines, refrigerators, vacuum cleaners, cars and two-wheelers, aircraft, and yachts.

Industry experts anticipate that this rate revision will reduce prices and increase consumption, thereby bringing growth for the consumer products industry and retailers. 

Now let’s look at some of the changes in other tax tiers.

18 percent tier

The GST Council reduced rates of the following products from 28 to 18 percent:

  • Wire, cables, insulated conductors, electrical insulators, electrical plugs, switches, sockets, fuses, relays, electrical connectors
  • Electrical boards, panels, consoles, cabinets, etc. for electric control or distribution
  • Particle/fibre boards and plywood
  • Articles of wood, wooden frames, paving blocks
  • Furniture, mattresses, bedding, and similar furnishing
  • Trunks, suitcases, vanity cases, briefcases, travelling bags and other handbags, cases
  • Detergents, washing and cleaning preparations
  • Liquid or cream for washing the skin
  • Shampoos; hair cream, hair dyes (natural, herbal, or synthetic) and similar other goods; henna powder or paste, not mixed with any other ingredient
  • Pre-shave, shaving, or after-shave preparations, personal deodorants, bath preparations, perfumery, cosmetic or toilet preparations, room deodoriser
  • Perfumes and toilet waters
  • Beauty or makeup preparations
  • Fans, pumps, compressors
  • Lamps and light fittings
  • Primary cell and primary batteries
  • Sanitary ware and parts thereof of all kind
  • Articles of plastic, floor covering, baths, showers, sinks, washbasins, seats, sanitary wares of plastic
  • Slabs of marble and granite
  • Goods of marble and granite such as tiles
  • Ceramic tile of all kinds
  • Miscellaneous articles such as vacuum flasks and lighters
  • Wristwatches, clocks, watch movement, watch cases, straps, parts
  • Article of apparel and clothing accessories of leather, guts, furskin, artificial fur, and other articles such as saddlery and harnesses for any animal
  • Articles of cutlery, stoves, cookers, and similar nonelectric domestic appliances
  • Razor and razor blades
  • Multi-functional printers and cartridges
  • Office or desk equipment
  • Doors, windows, and frames of aluminium
  • Articles of plaster such as board, sheet
  • Articles of cement or concrete, or stone and artificial stone
  • Articles of asphalt or slate
  • Articles of mica
  • Ceramic flooring blocks, pipes, conduit, pipe fitting
  • Wallpaper and wall covering
  • Glass of all kinds and articles thereof such as mirrors, safety glass, sheets, glassware
  • Electrical, electronic weighing machinery
  • Fire extinguishers and fire extinguishing charge
  • Forklifts, lifting, and handling equipment
  • Bulldozers, excavators, loaders, road rollers 
  • Earthmoving and levelling machinery
  • Escalators
  • Cooling towers, pressure vessels, reactors
  • Crankshaft for sewing machines, tailor's dummies, bearing housings, gears and gearing; ball or roller screws; gaskets
  • Electrical apparatus for radio and television broadcasting
  • Sound recording or reproducing apparatus
  • Signalling, safety, or traffic control equipment for transports
  • Physical exercise equipment, festival and carnival equipment, swings, shooting galleries, roundabouts, gymnastic and athletic equipment
  • All musical instruments and their parts
  • Artificial flowers, foliage, and artificial fruits
  • Explosive, anti-knocking preparation, fireworks
  • Cocoa butter, fat, oil powder
  • Extract, essence, and concentrates of coffee, miscellaneous food preparations
  • Chocolates, chewing gum, bubblegum 
  • Malt extract and food preparations of flour, groats, meal, starch, or malt extract
  • Waffles and wafers coated with chocolate or containing chocolate
  • Rubber tubes and miscellaneous articles of rubber
  • Goggles, binoculars, telescopes
  • Cinematographic cameras and projectors, image projectors
  • Microscope, specified laboratory equipment, specified scientific equipment such as for meteorology, hydrology, oceanography, geology
  • Solvent, thinners, hydraulic fluids, anti-freezing preparations

12 percent tier

The council reduced rates of the following from 18 to 12 percent:

  • Condensed milk
  • Refined sugar and sugar cubes
  • Pasta
  • Curry paste, mayonnaise and salad dressings, mixed condiments, and mixed seasoning
  • Diabetic food
  • Medicinal grade oxygen
  • Printing ink
  • Handbags and shopping bags of jute and cotton
  • Hats (knitted or crocheted)
  • Parts of specified agricultural, horticultural, forestry, harvesting, or threshing machinery
  • Specified parts of sewing machine
  • Spectacles frames
  • Furniture wholly made of bamboo or cane

The council reduced rates of the following from 28 to 12 percent: 

  • Wet grinders consisting of stone as grinder
  • Tanks and other armoured fighting vehicles

5 percent tier

The council reduced rates of the following from 18 to 5 percent:

  • Puffed rice chikki, peanut chikki, sesame chikki, revdi, tilrevdi, khaza, kazuali, groundnut sweets gatta, kuliya
  • Flour of potatoes put up in unit container bearing a brand name
  • Chutney powder
  • Fly ash
  • Sulphur recovered in refining of crude·      
  • Fly ash aggregate with 90 percent or more fly ash content

The council reduced rates of the following from 12 to 5 percent:

  • Desiccated coconut
  • Narrow woven fabric including cotton newar (with no refund of unutilised ITC)
  • Idli, dosa batter
  • Finished leather, chamois, and composition leather
  • Coir cordage and ropes, jute twine, coir products
  • Fishing net and fishing hooks
  • Worn clothing
  • Fly ash brick

0 percent tier

The council reduced rates of the following from 5 percent to nil:

  • Guar meal
  • Hop cone (other than grounded, powdered, or pellet form)
  • Certain dried vegetables such as sweet potatoes, maniace
  • Unworked coconut shell
  • Fish frozen or dried (not put up in unit container bearing a brand name)
  • Khandsari sugar

Only time will tell how these rate cuts — the biggest since GST kicked in — actually benefit the common person. For the government, they represent an expected revenue loss of about Rs. 20,000 crore a year.

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Avalara Author
CA Priya Madrecha (CA,CS)
Avalara Author CA Priya Madrecha (CA,CS)
Priya is a Chartered Accountant by profession and also a qualified Company Secretary. She is a Partner at Madrecha & Co. in Mumbai. She is a moderator for gstindia.net, a forum on Goods and Services Tax. An ex-consultant at KPMG, she specializes in taxation. Priya is an avid reader and has a flair for writing.