Merging of 12 % and 18% GST slab rates

Last Updated On: Feb. 17, 2021, 9:37 p.m.
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Merging of 12% and 18% tax slab rates

Under GST, all goods and services transacted in India are classified under the HSN code system or SAC Code system. Goods are classified under HSN Code and services are classified under SAC Code. Based on the HSN or SAC code, GST rates have been fixed in five slabs, namely NIL, 5%, 12%, 18%, and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess. The Finance Minister, Nirmala Sitharaman said that the GST Council now would examine the recommendations of reducing four tax slabs to three

Recommendations of the 15th Finance Commission for 2020-21

The Finance Commission is a constitutional body formed by the President of India to give suggestions on center-state financial relations.  The 15th Finance Commission was required to submit a report which will consist of recommendations for FY 2020-21.

The 15th Finance Commission, headed by N K Singh, has suggested that the 12% and 18% slabs under the Goods and Services Tax (GST) be merged into one standard rate, and GST is rationalized to a three-rate structure, complemented by the 5% merit rate and 28-30% de-merit rate.

This has been a long-standing demand from economists and the Opposition and has found a way in the Commission’s recommendations.

 

What is proposed by the Finance Minister regarding the reduction of slab rates?

Minister Nirmala Sitharaman on the Recommendations of the 15th Finance Commission said that they would definitely be talking about it, whenever the council found it fit. Whether it would be in the next meeting itself, the Finance Minister could not speak for the Council as yet.

The proposal is to reduce GST slabs from the current four i.e., 5%, 12%, 18%, and 28%, to three slabs with the rates of 8%, 18%, and 28%.

The Goods and Services Tax (GST) Council may choose to consider the proposal to reduce the number of tax slabs to three.

 

What would be the impact of such reduction?

The impact on the consumer will depend on the Council’s decision but reducing the tax rate will make the GST regime simpler for the states and, the government would hope, improve compliance.

Current GST Slab Rates

Proposed GST Slab Rates
5% Merged to 8% tax slab
12%

Merged to 8% tax slab

18% 18%
28% 28%

 

Products that are likely to be affected after GST slab merger:

Goods under 12% GST Goods under 18% GST
Cell phones

hair oil, hair shampoo, oil powder

Sewing machine video games
Frozen meat lithium-ion batteries
Butter television screen
Ghee stationery items
Beverages Furniture
Sauces, ketchup, and mustard sauce Wristwatches
Umbrella artificial flowers
Jewellery box Binoculars
Branded Cereals Cutlery
Air travel tickets oil powder
Railway coaches Pasta

 

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