What are the GST rate slabs?

India’s Goods and Services Tax (GST) system features four main tax slabs for levying tax on goods and services. These slabs are established to categorize items based on their essentiality, luxury status, and consumption patterns. The GST Council, which is composed of both the Central and State Finance Ministers, periodically decides on the rates based on consultations and recommendations. Here’s an overview of the GST rate slabs:

1. 0% GST (Exemptions)

• This rate applies to:
  • Essential goods and services.
  • Key items:
    • Basic food items (such as fresh fruits, vegetables, milk, eggs, and other unprocessed foodstuffs).
    • Books (both printed and digital).
    • Healthcare services (e.g., hospital and medical services).
    • Educational services (provided by educational institutions).
    • Export of goods and services (zero-rated; exporters can claim refunds on taxes paid).
    • Public transportation services (buses, railways).

2. 5% GST

• This rate applies to:
  • Mass consumption goods and services that are essential but not basic.
  • Key items:
    • Packaged food items (such as food grains, pulses, and packaged fruits).
    • Footwear (below ₹1000).
    • Non-alcoholic beverages (juices, etc.).
    • Restaurants and catering services (except for high-end or luxury restaurants).
    • Transport services (rail and air travel in economy class).

3. 12% GST

• This rate applies to:
  • Goods and services considered as semi-luxury or standard, with moderate consumption.
  • Key items:
    • Processed food (like ghee, butter, and other processed dairy products).
    • Shampoos, soaps, and cosmetics.
    • Cell phones (above ₹10,000).
    • Construction materials (e.g., bricks, tiles).
    • Certain digital and IT services.
    • Certain forms of entertainment services, like media content.

4. 18% GST

• This rate applies to:
  • Standard goods and services that are commonly consumed but not classified as luxury or essential.
  • Key items:
    • Consumer electronics (like televisions, refrigerators, air conditioners).
    • Clothing (except for garments under ₹1,000).
    • Beauty and personal care services (spa, beauty parlors).
    • Work contracts (for construction and real estate).
    • Professional services (e.g., legal, consulting).
    • Business-related software.

5. 28% GST (Highest Slab)

• This rate applies to:
  • Luxury goods and services that are considered to have high value or are non-essential.
  • Key items:
    • Luxury cars (including large cars and high-end vehicles).
    • Motorcycles (premium and expensive brands).
    • Cigarettes and tobacco products.
    • Aerated beverages (soft drinks).
    • High-end watches and jewelry.
    • Certain high-end entertainment services, including casinos.

Special Rates

1. 3% GST for gold and precious metals.
2. Zero-rated GST for exports, meaning no tax is levied, but exporters can claim refunds for input taxes.

Provisions in the Indian Constitution

The introduction of GST in India was a landmark constitutional amendment, and the GST rate slabs were formulated under the provisions of the Constitution of India after the Constitution (One Hundred and First Amendment) Act, 2016.

Key Constitutional Provisions related to GST include:

1. Article 246A:
   • Provides the Union and State legislatures with the authority to make laws for levy and collection of GST on goods and services.
2. Article 279A:
   • Establishes the GST Council which is responsible for making recommendations on matters relating to GST rates, tax policies, and other aspects of GST.
3. Article 269A:
   • Deals with the inter-state trade and commerce and empowers the Union Government to levy and collect GST on goods and services involved in inter-state trade.
4. Article 286:
   • Provides the constitutional restriction for the levy of taxes on goods and services in relation to imports and exports, including inter-state transactions.
5. Article 300A:
   • Guarantees the right to property, indirectly allowing for a regulatory framework under GST to ensure compliance and accountability regarding goods and services.

Landmark Cases and Judgments Relating to GST Rate Slabs

1. Union of India v. Retailers Association of India (2011):
   • The case examined the constitutional validity of GST in India. The Supreme Court upheld the introduction of GST as part of the constitutional amendments, thus setting the foundation for the GST rate structure.
2. M/s. Arvind Ltd. v. Union of India (2018):
   • This case focused on the classification of textiles and related GST slabs. It clarified that textiles and garments should fall under the appropriate GST slab based on their value and type (e.g., garments under ₹1,000 versus those over ₹1,000).
3. Federation of Hotel & Restaurant Association of India (FHRAI) v. Union of India (2020):
   • This case dealt with GST on hotel accommodation services. The Court ruled on the classification of services and tax slabs applicable to the hotel industry, and addressed whether restaurants should be taxed at 5% or 18% GST.
4. Jindal Stainless Ltd. v. Union of India (2020):
   • This case examined the classification of stainless steel under the GST slabs and whether it should fall under the 18% rate. The ruling emphasized the importance of accurate classification in determining the correct GST rate.
5. M/s. Bharat Forge Ltd. v. Union of India (2019):
   • The case focused on GST on goods and clarified how the GST rates apply to items used in industrial manufacturing and whether they are eligible for a reduced rate under the 18% slab.

Conclusion

The GST rate slabs in India are designed to create a progressive tax structure where basic goods and services are taxed at lower rates, while luxury or non-essential items are taxed at higher rates. The introduction of GST has streamlined the indirect tax system by consolidating multiple taxes and ensuring a uniform rate structure.

The GST Council is responsible for finalizing and revising these rate slabs based on economic conditions, consumer needs, and recommendations from various stakeholders. The Indian Constitution provides the legal foundation for the GST system and the decision-making powers of the GST Council, which play a critical role in determining the tax rates applicable to different goods and services.

For businesses and consumers alike, understanding these GST rate slabs is crucial for compliance and proper tax planning.