What Multiple GST Rates Could Mean For Indian Businesses Before the arduous task of implementation, business houses will have to deal with certain important issues.

By Aashika Jain

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Shutterstock

The multiple tax structure announced as part of the Goods and Services tax regime that the Indian government intends to implement as of April 1, 2017, may have serious implications on businesses.

The GST Council backed by Finance Minister Arun Jaitley has finalized a four-slab tax structure of varied taxes from 5 percent, 12 percent, 18 percent to 28 percent depending on the goods and services involved.

Two additional taxes – estimated demerit rate of 40 percent on aerated drinks, pan masala and luxury cars and a second 65 percent rate for tobacco products – will be imposed as cess upon a 28 percent rate. The cess along with the clean energy cess is expected to be used to compensate states for loss of revenue for the first five years of GST implementation as promised by the government.

Essential commodities will be taxed at zero percent; goods of common use are expected to fall under the 5 percent tax slab while high-end products will attract a 28 percent tax and above. Most services are expected to fall under the 12 percent and 18 percent bracket.

Besides the arduous task of implementing this complex tax structure from April 2017 onwards, business houses will have to deal with certain important issues before GST becomes a reality.

  • Businesses will have to ensure goods are fitted into the most appropriate tax rate. Keeping in mind the purpose of GST is to reduce taxes, goods are likely to be categorized such that they attract taxes lower than the current tax. However, states and the Centre may differ in their categorization leading to further complicating the process.
  • Companies would want clarity on whether securities would finally fall under the definition of goods as proposed and hence attract additional tax. Currently, securities are levied with stamp duty, securities transaction tax of 0.1 per cent on delivery-based trades, Krishi Kalyan and Swachh Bharat cess, exchange transaction charges along with clearing member charges.
  • Small and medium sized business will have to invest in digitizing their businesses and ensure e-filing of taxes is put in place.
  • Companies involved in the business of demerit goods that would attract heavy cess will have to access their total taxation. Will the GST end up being higher than taxes levied until now will need to be accessed.
  • Banking and financial services may need clarity on whether GST will be imposed on net interest income. If applicable, GST would end up increasing transaction cost which may have a cascading effect.
Aashika Jain

Entrepreneur Staff

Former Associate Editor, Entrepreneur India

Journalist in the making since 2006! My fastest fingers have worked for India's business news channel CNBC-TV18, global news wire Thomson Reuters, the digital arm of India’s biggest newspaper The Economic Times and Entrepreneur India as the Digital Head. 
Business Ideas

70 Small Business Ideas to Start in 2025

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2025.

Leadership

How a Mindfulness Practice Can Help You Beat Tech Overwhelm

This article explores how mindfulness can transform your tech choices, ensuring technology serves your business goals without adding unnecessary complexity.

Business News

Instagram Is Offering TikTok Creators Up to $50,000 Per Month For Exclusive Content

Leaked deals show that there are strict terms to receiving the money.

Branding

How to Build a Strong Brand Identity for Your Early-Stage Startup

Branding might not be your first priority, but neglecting it can hurt your startup. A strong brand identity early on sets the stage for marketing success.

News and Trends

Recur Club Announces Credit Offerings for Startups Beyond Series A and SMEs

In FY 24–25, the platform also plans to deploy an additional INR 2000 crores through its Recur Swift program for startups.

Franchise

This Travel Franchise Turns Your Passion for Vacations Into a Money-Making Opportunity

Whether you're working from home, traveling or connecting with clients at their convenience, this franchise adapts to your lifestyle.