Year Before Polls, Centre's GST Olive Branch For Middle Class

Finance Minister Piyush Goyal said 46 amendments had been cleared by the the GST Council

The powerful GST council on Saturday cut tax rates on over 60 products including washing machines and refrigerators and simplified compliance norms for most businesses. The new tax rates will be applicable from July 27.

The move is seen as part of an effort by the NDA government to counter resentment before the 2019 general elections over the way GST was hurriedly implemented last year, hitting businesses and the public.

The government has been frequently criticised by the opposition for the large number of returns that businesses have to file and the long list of goods in the 28 per cent bracket that was initially meant for a handful of luxury goods to be taxed at the highest rate. Manish Sisodia, Deputy Chief Minister of Delhi, said he supported abolishing the 28 per cent bracket or reserving it only for sin goods.

The centre also gave in to demands that sanitary napkins should be in the 0 per cent tax bracket to promote menstrual hygiene among women, not 12 per cent. The government had resisted the demands for a year with former finance minister Arun Jaitley even defending the 12 per cent tax. The Congress attributes the change in tax rate to the campaign the party had launched.

"The exercise is to ensure simplification and rationalisation of Goods and Services Tax, or GST and extend relief to the common man," Finance Minister Piyush Goyal said on Saturday evening after the council's nine-hour-long meeting.

Mr Goyal heads the GST council, which has as members, state finance ministers and officials from both states and the Centre.

Officials say 19 products including refrigerators, washing machines, vacuum cleaners, paints, storage water heaters, food grinders, mixers and television sets up to 27 inches have been moved out of the 28 per cent tax slab. These will be taxed at 18 per cent.

Many other items such as handbags, jewellery box, ornamental framed mirrors and handmade lamps will be taxed at 18 per cent, instead of 12 per cent. Ethanol blended with petrol, footwear costing up to Rs 1,000 and fertilizer grade phosphoric acid will be taxed at 5 per cent.

The tax rate on lithium ion batteries used to power mobile phones and electric vehicles was cut from 28 percent to 18 percent.

Tax rate for fuel cell vehicles has been slashed from 28 per cent to 12.

The decline in the consumption tax rate come ahead of the festive season when the government hopes, cheaper prices would drive demand and more than make up for the loss of revenue due to lower rates.

As part of easing the compliance norms, the court has decided that businesses with annual turnover of up to Rs 5 crore would not have to file monthly returns any longer would have to file quarterly returns instead of the current monthly returns. They would, however, have to pay tax on a monthly basis. More than 90 per cent of registered businesses have a turnover of less than Rs 5 crore.

Mr Goyal said these decisions will increase compliance and the revenue impact on total tax collections will be marginal.

In the services sector, the hotel industry too has been given major relief as tax rate will be based on the room tariff paid, and not the published tariff.

GST at the rate of 28 per cent in levied if hotel room rent exceeds Rs 7,500. Between Rs 2,500 to below Rs 7,500 GST is levied at 18 per cent and that of Rs 1,000 and below Rs 2,500 it is 12 per cent.

Also, the tax rate on supply of e-books has been cut to 5 per cent from 18 per cent.