How the New GST Structure Works

The new system is based on seven rate schedules. Each schedule has a different tax rate. This replaces the simpler, but often confusing, four-slab system. The new framework allows for more specific tax rates on different types of goods.

1. Schedule I: The 2.5% Slab In short: This schedule covers essential goods like food products, animal products, and agricultural items.

   This is the lowest rate and applies to a wide range of everyday essentials. It includes pre-packaged and labeled goods like flour, rice, and dried nuts. It also covers agricultural machinery and medical devices, making them more affordable for farmers and the public.

2. Schedule II: The 9% Slab In short: This schedule applies to many industrial goods, building materials, and consumer durables.

   The 9% slab acts as a standard rate for many common products. It includes goods like petroleum coke, various metals, and certain electrical appliances. This rate also applies to many types of footwear and apparel with a sale value exceeding ₹2500 per piece.

3. Schedule III: The 20% Slab In short: This schedule is for high-end or non-essential goods, including luxury items and certain motor vehicles.

   Items like motor cars with large engine capacities, private aircrafts, and yachts fall under this category. This is a higher tax bracket aimed at luxury consumption. The notification also includes items like betting and gambling under this rate.

Three Pillars of the New GST Framework

The new framework is built on three key ideas. These ideas are designed to simplify and improve the tax system. This new structure is meant to be more transparent.

1. Simpler Classification The new system groups goods into schedules. This is based on their classification under the Customs Tariff Act, 1975. This approach is meant to reduce confusion. Businesses can more easily find the correct tax rate for their products. This makes compliance simpler.

2. Lowering the Tax Burden The new rates are designed to lower costs for consumers. Many essential goods have been moved to lower tax brackets. For example, some dairy products, dry fruits, and processed foods have seen their GST rates drop significantly. This change is a big win for the average household. It is expected to save families money on their weekly grocery bills.

3. Boosting Industries By reducing GST rates on certain raw materials and finished goods, the government aims to help domestic industries. For example, rates on agricultural machinery, certain textiles, and some medical devices have been reduced. This correction of the inverted duty structure will help manufacturers and exporters. It supports the “Make in India” initiative.

Tools & Resources for Businesses

The transition to the new GST rates requires careful planning. Businesses can use several tools to manage the change. A good tax professional can help with this. You can also use official GST portals. The government is also planning to introduce auto-refunds and pre-filled returns for some businesses. This will reduce administrative work.

• Official GST Portal: Check the official CBIC website for all notifications and FAQs.

• ERP System Updates: Make sure your accounting software is updated to reflect the new rates.

• Professional Tax Advisors: A tax expert can help you correctly classify your goods and avoid errors.

  • For a detailed analysis, consider reaching out to a tax advisory firm.

Common Mistakes Businesses Make

• Not updating billing systems: Failing to change your point-of-sale or accounting software can lead to incorrect invoicing.

• Misclassifying goods: Just because a product is similar to one on a list doesn’t mean it has the same rate. Check the HSN code carefully.

• Not passing on the benefits: A failure to reduce prices after a tax cut can lead to consumer backlash and legal issues. The National Anti-profiteering Authority (NAA) monitors this.

• Ignoring new rules: The new notification supersedes the old one. This means you must follow the new rules, not the old ones.