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4 Tier GST Tax Structure

There are four different rates in the four tier GST tax structure:

  1. Zero Rate,
  2. Lower Rate,
  3. Standard Rate
  4. Higher Rate.

Let’s understand them in detail.

Zero Rate

A nil tax rate is applied to products and services under the zero rate tax. The price of the product is unaffected by this, which is equivalent to a tax exemption. The government chooses which items qualify for a zero rate of tax.

The consumer price index (CPI) basket, an index that continuously tracks prices of frequently purchased consumer goods and services to measure inflation, applies the zero rate tax to 50% of the items in the basket.

Food goods including grains, milk, curd, and other food items like eggs, cereal, and meat are among the zero-rate items. Additionally, the GST is not applied to healthcare, education, or subway transit.

Lower Rate

A lower rate of 5% is applied on the rest of the items in the CPI basket and other items of mass consumption, which also covers food goods like tea, sugar, coffee, oil, and PDS kerosene and LPG as well as other necessities.

The GST system has reduced the tax assessment on coal from 11.69% to 5%, making electricity more affordable. The GST council has classified transport services as 5%, which applies to Ola and Uber aggregators. AC train tickets are charged at a rate of 5%, while non-AC train tickets are excluded from GST. This, combined with the zero rate charge, prevents inflation from affecting zero-rated goods and lower rate goods and services, keeping the costs of all basic goods and services under control.

Higher Rate

As of now, a higher rate of 28% is levied on white goods such as washing machines, air conditioners, refrigerators, small cars, etc. This grade also includes cement and aerated beverages.

Prior to the cascading effect, the tax on white goods was approximately 27% (including an excise of 12.5% and VAT of 14.5%), but the tax was raised to 30-31%. The new, higher rate of 28% reduces this.

Standard Rate

The standard rates are 12% and 18%.

Consider a product that was previously subject to a 13% GST rate. This would result in a 5% price increase for the good, which would cause inflation.

The GST Council agreed to impose a uniform 12% tax on all commodities and services that were subject to a 9–15% rate of taxation in order to avoid this. The tax rate for processed goods is 12%.

The second standard rate of 18% is applied to the remaining products and services. Toiletries including toothpaste, soap, and hair oil are subject to an 18% tax. Additionally, this sector includes capital goods, industrial intermediates, iron and steel, financial, and communications services.