Read about the recent changes in GST rates, their impact on businesses, and consumer behaviour. Learn key strategies for adapting, managing costs, and ensuring compliance amid evolving tax laws.
Understanding the Recent GST Rate Changes
GST rate, in simple words, are percentage rates of tax levied on the sale of goods and services under the CGST, SGST, and IGST Acts. According to the GST law, a registered business must raise its invoices with the GST amount charged on the value of supply.
The GST rates in CGST and SGST (In case of intrastate transaction) are around the same. However, the GST rate in case of IGST (In case of inter state transactions) is around the summation of CGST and SGST rate.
The CBIC has categorised the slabs of GST rates in India into five categories, which include 0%, 5%, 12%, 18%, and 28%. Apart from the above five percentages of GST rates, certain goods and services are charged along with a cess, which is a surcharge collected over and above the GST rate. This CESS is collected to compensate the state for the loss of revenue in any event of the rule on GST.
The slabs GST regularly liable to pay a regular taxpayer are 0%, 5%, 12%, 18%, and 28%. The lesser-used rates, however, are 3% and 0.25%. More importantly, taxable composition persons have to pay General Service Tax at the lowest or nominal rates between 1.5% and 6% of their turnover.
Latest GST Rate Revisions from the 53rd GST Council Meeting
The 53rd GST Council meet was held on 22nd June 2024, which was presided over by Union Finance Minister Nirmala Sitharaman. There are some key proposals forwarded for the amendment of the GST structure in its current version. Highlights of the 53rd GST Council Meeting:
- All sorts of milk cans made of steel, iron, and aluminium are to be charged with a uniform 12% GST rate
- A 12% GST rate will now be levied on all solar cookers, single as well as dual energy sources.
- A 12% GST rate is now being levied on all kinds of sprinklers, which may be fire and water
- 5% IGST will be levied on import of aircraft parts, components, testing equipment, tools, and toolkits without any HS classification
- Indian Railways offers certain services that are exempted from GST. These include sales of platform tickets, access to retiring rooms/waiting rooms, cloakroom service, and battery-operated car service
- All intra-railway transactions are also exempt from GST.
- The accommodation service of a hostel, provided that some conditions are fulfilled, is exempt from GST
- These include: Students or working professionals staying continuously for at least 90 days in an off-campus hostel whose monthly rent is ₹20,000 or less per person will be exempt.
New GST Rates List in India for 2024
Between 2023 and 2024, GST tax rates for several products and services were revised. Below is a summary of these changes:
| Category | Old GST Rates | New GST Rates |
| Railways Goods and Parts (Chapter 86) | 12% | 18% |
| Pens | 12% | 18% |
| Metal Concentrates and Ores | 5% | 18% |
| Certain Renewable Energy Devices | 5% | 12% |
| Recorded Media Reproduction and Print | 12% | 18% |
| Broadcasting, Sound Recordings, and Licensing | 12% | 18% |
| Printed Material | 12% | 18% |
| Packing Containers and Boxes | 12% | 18% |
| Scrap and Polyurethanes | 5% | 18% |
GST Rate Recommendations from the 53rd GST Council Meeting (June 2024)
| Items | Old Rate | New Rate |
| A uniform rate for all types of milk cans | – | 12% |
| A uniform IGST rate applies to imports of aircraft toolkits | – | 5% |
| Carton boxes and cases | 18% | 12% |
| All types of solar cookers | 5% | 12% |
| A uniform rate for all types of sprinklers | – | 12% |
| Indian Railways – Platform tickets | – | Exempt |
| Indian Railways – Retiring rooms/waiting rooms | – | Exempt |
| Indian Railways – Cloakroom services | – | Exempt |
| Indian Railways – Battery-operated car services | – | Exempt |
| Hostel accommodation services (under specific conditions) | – | Exempt |
Implications On Businesses
All the more important for businesses, since it directly affects the pricing strategy, profit margins, and absolutely so in compliance matters, are GST rates. Now, here are a few implications of the same:
- Increased competitiveness: If GST is reduced, the products or services may become cheaper, thereby increasing demand and ultimately sales.
- Stimulated economic activity: The more a low rate of GST is, the more it gives impetus for consumer spending and business investment, which can lead to economic activity. This will decrease the input cost for the business firms, ultimately decreasing their overall cost, and hence profitability.
- Tax compliance becomes easy: The structure of GST reduces the complexity. Such a move can also decrease the burden on businesses to comply and enhance compliance
- Revenue of governments decreases: Lower GST rates decrease revenue for governments, which is further subject to changing public services
- Increased costs to some businesses: If, for example, the GST rate on inputs used by a business increases, then so will the total cost to the business and profit decreases
- Uncertainty and dislocation: Changes in the GST rates too frequently would lead to uncertainty and dislocate business plans
- Proportionate likelihood of price hike: Businesses might absorb the increased cost or raise their prices.
Strategies for Adapting to GST Rate Changes
Businesses should regularly monitor GST updates and adjust their pricing strategies to reflect the new rates. They should also streamline their accounting and tax filing processes to ensure compliance. Effective communication with customers and suppliers is essential to manage expectations and maintain transparency about any price adjustments due to GST changes. Here are some ways businesses can adapt for GST rate changes:
Pricing Adjustments
- To effectively adapt to GST rate changes in pricing adjustments, businesses should conduct a thorough analysis of the impact of the rate change on product costs, revenue, and profitability
- Re-evaluate pricing structures to ensure they remain competitive and profitable.
- Communicate changes transparently to customers and suppliers to maintain trust and relationships
- Consider alternative strategies such as cost reduction or value-added services to mitigate the impact of increased costs
- Monitor market trends and competitor pricing to stay informed and adjust pricing accordingly.
Cost-Cutting Measures:
- GST rate changes through cost-cutting measures, businesses should Review supply chain for opportunities to negotiate better deals or find more cost-effective suppliers
- Optimise inventory management to reduce holding costs and avoid unnecessary stockpiling
- Identify non-essential expenses and explore ways to reduce or eliminate them. Implement energy-efficient practices to lower utility costs
- Invest in technology to streamline processes and improve efficiency
- Consider outsourcing non-core activities to reduce overhead costs
- Continuously monitor and evaluate the effectiveness of cost-cutting measures to ensure they align with business objectives.
Inventory Management:
The inventory management, thus, plays a very important role under the GST regime, as it affects the entire quantum of input tax credit and compliance. Thus, it would be imperative for a retailer to have inventory management systems that are tied in with their GST software in order to maintain an accurate stock record.
Long-Term Effects on Consumer Behavior
Over time, GST rate changes can significantly influence consumer behaviour, as price adjustments may affect purchasing decisions. Higher tax rates could lead to reduced demand for certain products, while lower rates may encourage increased consumption. Consumers may also become more price-sensitive, favouring goods and services with lower GST rates. Here are some long term effects on consumer behaviour:
Shift in Consumption Patterns
The implementation of GST has dramatically reshaped consumer behaviour, driving a substantial growth in online shopping as consumers seek the convenience and simplified tax structure it offers. Moreover, heightened awareness of health and hygiene has led to a significant increase in demand for essential products like sanitizers, masks, and health supplements. Amidst the economic uncertainty created by GST, consumers have become more cautious about their spending, prioritising essential goods and services over luxury items. These shifts in consumer behaviour have forced businesses across various industries to adapt their strategies to meet the evolving needs of the market, emphasising the profound impact of GST on the overall consumption landscape
Impact on Local Businesses
Other sectors, such as food, hospitality, textiles, and consumer goods, will incur higher costs on some products and services considering the recent revisions in GST rates. Otherwise, it could negatively impact profit margins unless it is passed to customers. This requires updating of SMEs so that they comply with the said changes and do not incur penalties. They may be required to change their pricing strategy, revisit agreements with the vendors and update their accounting systems according to the new rates in an appropriate manner.
Seeking Professional Advice
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GST Consultants
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Tax Planning
Tax planning is the study of financial situations to derive maximum tax savings in a totality compliant manner with tax laws. It involves using professional tax planners guiding individuals and businesses on available eligible deductions, credits, as well as strategic investments available to them in order to minimise the tax liabilities. They also assist in positioning the operations to minimise taxes and creating projections for long-term taxes so that all financial goals are covered with efficiency while remaining within the legality of the issue at hand.
The Future of GST in India
Integration With Digital Platforms
During the last few years, digital platforms have significantly supported the right of living. In all likelihood, an integrated GST system would work to its full potential with Digital Platforms, making the processes easy for taxpayers in taxpayers’ compliance with tax regulations. To facilitate easy return filing under GST and make the process easier and more convenient for taxpayers, more digital tools should be brought forward by the government. This would also reduce compliance burdens on taxpayers and increase tax return accuracy.
Implement GST on e-commerce
E-commerce is one of the fastest-emerging sectors in India. Still, the present GST framework does not cover all the transactions related to e-commerce transactions, thereby propelling a major chunk of tax evasion. In the future, the government is likely to implement GST on e-commerce transactions, which will enhance the compliance rate and deter tax evasion.
Improvement in GST Revenue
The government earned revenue by raising tax due to the imposition of GST. However, low compliance rate and mismatch in input tax credit claims by taxpayers have been major loss revenue for the government. Hence, the prospect of GST revenue would brighten in the future as more and more taxpayers get registered under the GST system and enjoy tax compliance. Another area where the government is supposed to take more steps in addition to improving the GST revenue is by increasing the tax base and reducing tax evasion.
Improved GST Compensation To The States
The other objective of GST has to be that the businesses ought to function seamlessly and, in turn, compensate the states for any loss of revenue. However, low compliance rate and mismatch of the input tax credits claimed by the taxpayers have resulted in significant loss of revenue to the government and the states. Thus, we can see improvement in GST compensation to the states with rising compliance rates and a decrease in the mismatch of the input tax credits.
Conclusion
The recent GST rate changes present both opportunities and challenges for businesses. While lower rates may boost competitiveness and economic activity, higher input costs and frequent adjustments can create uncertainty. To navigate these changes, businesses must stay agile by adjusting pricing, optimising costs, and seeking professional advice.
The future of GST in India promises integration with digital platforms and improved compliance, but businesses must remain proactive in adapting to tax reforms to sustain profitability and growth. As GST evolves with digital integration and new regulations, Zolvit ensures your business stays compliant, efficient, and ahead of the curve. Register your GST here with Zolvit. Let the experts simplify your GST needs, so you can focus on growth and profitability.
