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Reduced Tax Liabilities under GST regime in comparison to present combined Indirect Tax rates

Reduced Tax Liabilities under GST regime in comparison to present combined Indirect Tax rates

The new indirect tax regime in the country is to come into effect from 01.07.2017, wherein fixation of GST rates on the supplies is joint responsibility of the Central and State governments after the approval from the GST Council. In a majority of supplies of goods, the tax incidence approved by the GST Council is much lower than the present combined indirect tax rates levied [on account of central excise duty rates / embedded central excise duty rates / service tax post-clearance embedding, VAT rates or weighted average VAT rates, cascading of VAT over excise duty and tax incidence on account of CST, Octroi, Entry Tax, etc.] by the Centre and States.

            A list of such supplies, where the GST incidence is lower than the present combined indirect tax rates are reflected as under:

S. 

No.

Chapter / Heading / Sub-heading / Tariff item

Description of goods

1

4

Milk powder

2

4

Curd, Lassi, Butter milk put up in unit container

3

4

Unbranded Natural Honey

4

0401

Ultra High Temperature (UHT) Milk

5

0405

Dairy spreads

6

0406

Cheese

7

801

Cashew nut

8

806

Raisin

9

9

Spices

10

9

Tea

11

10

Wheat

12

10

Rice

13

11

Flour

14

15

Soyabean oil

15

15

Groundnut oil

16

15

Palm oil

17

15

Sunflower oil

18

15

Coconut oil

19

15

Mustard Oil

20

15

Sunflower oil

21

15

Other vegetable edible oils

22

17

Sugar

23

1702

Palmyra jaggery

24

1704

Sugar confectionery

25

1902

Pasta, spaghetti, macaroni, noodles

26

20

Fruit and vegetable items and other food products

27

2001, 2004

Pickle, Murabba, Chutney

28

21

Sweetmeats

29

2103

Ketchup & Sauces

30

2103 30 00

Mustard Sauce

31

2103 90 90

Toppings, spreads and sauces

32

2106

Instant Food Mixes

33

2106

Other pulses bari (mungodi)

34

22

Mineral water

35

2201 90 10

Ice and snow

36

25

Cement

37

27

Coal

38

27

Kerosene PDS

39

27

LPG Domestic

40

30

Insulin

41

33

Agarbatti

42

33

Tooth powder

43

33

Hair oil

44

33

Toothpaste

45

3304 20 00

Kajal [other than kajal pencil sticks]

46

34

Soap

47

37

X ray films for medical use

48

3822

Diagnostic kits and reagents

49

3926 90 99

Plastic Tarpaulin

50

4202

School Bag

51

4820

Exercise books and note books

52

4823

Kites

53

4903

Childrens’ picture, drawing or colouring books

54

50

Silk fabrics

55

51

Woollen fabrics

56

52

Cotton fabrics not containing any other textile material

57

53

Other Vegetable yarn fabrics

58

54, 55

Manmade filament/fibre fabrics

59

61, 62, 63

Readymade garments and made up articles of textiles of sale value not exceeding Rs. 1000 per piece

60

61, 62, 63

Readymade garments and made up articles of textiles  of sale value exceeding Rs. 1000 per piece

61

64

Footwear of RSP upto Rs. 500 per pair

62

64

Other footwear

63

65

Helmet

64

65

Headgear and parts thereof

65

68

Fly ash bricks and fly ash blocks

66

701510

Glasses for corrective spectacles and flint buttons

67

73

LPG Stove

68

76

Aluminium foils

69

8215

Spoons, forks, ladles, skimmers, cake servers, fish knives, tongs

70

84

Fixed Speed Diesel Engines of power not exceeding 15HP

71

4011

Tractor rear tyres and tractor rear tyre tubes

72

8423 & 9016

Weighing Machinery [other than electric and electronic]

73

8443

Printers [other than multifunction printers]

74

8521

Recorder

75

8525

CCTV

76

8452

Sewing Machine

77

8472

Staplers

78

8703

Car for Physically handicapped person

79

8715

Baby carriages

80

900140, 900150

Spectacles Lenses

81

9002

Intraocular lens

82

9004

Spectacles, corrective

83

91

Braille Watches

84

94

Medical furniture

85

94

LED

86

94

Kerosene pressure lantern

87

9403

Bamboo furniture

88

9506

Sports goods other than articles and equipments for general physical exercise

89

96031000

Phul-jahroo

 Reduced Liability of Tax on complex, building, flat etc. under GST

The CBEC and States have received several complaints that in view of the works contract service tax rate under GST at 12% in respect of under construction flats, complex etc, the people who have booked flats and made part payment are being asked to make entire payment before 1st July 2017 or to face higher tax incidence for payment made after 1st July 2017. This is against the GST law. The issue is clarified as below:-

Construction of flats, complex, buildings will have a lower incidence of GST as compared to a plethora of central and state indirect taxes suffered by them under the existing regime.

  1. Central Excise duty is payable on most construction material @12.5%. It is higher in case of cement. In addition, VAT is also payable on construction material @12.5% to 14.5% in most of the States. In addition, construction material also presently suffer Entry Tax levied by the States. Input Tax Credit of the above taxes is not currently allowed for payment of Service Tax. Credit of these taxes is also not available for payment of VAT on construction of flats etc. under composition scheme. Thus, there is cascading of input taxes on constructed flats, etc.
  2. As a result, incidence of Central Excise duty, VAT, Entry Tax, etc. on construction material is also currently borne by the builders, which they pass on to the customers as part of the price charged from them. This is not visible to the customer as it forms a part of the cost of the flat.
  3. The current headline rate of service tax on construction of flats, residences, offices etc. is 4.5%. Over and above this, VAT @1% under composition scheme is also charged. The buyer only looks at the headline rate of 5.5%.  In other cities/states, where VAT is levied under the composition scheme @2% or above, the headline rate visible to the customer is above 6.5%. What the customer does not see is the embedded taxes on account of cascading and sticking of input taxes in the cost of the flat, etc.
  4. This will change under GST. Under GST, full input credit would be available for offsetting the headline rate of 12%. As a result, the input taxes embedded in the flat will not (& should not) form a part of the cost of the flat. The input credits should take care of the headline rate of 12% and it is for this reason that refund of overflow of input tax credits to the builder has been disallowed.
  5. The builders are expected to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/ installments. It is, therefore, advised to all builders / construction companies that in the flats under construction, they should not ask customers to pay higher tax rate on instalments to be received after imposition of GST.
  6. Despite this clarity on law position, if any builder resorts to such practice, the same can be deemed to be profiteering under section 171 of GST law.

 

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