Tax classification under GST

July 2, 2022
Posted by: OptimizeIAS Team
Category: DPN Topics

Tax classification under GST

Subject :Economy

Section: Fiscal Policy

With the introduction of GST, the goods and services have been classified into Nil Rated, Exempted, Zero Rated and Non-GST supplies.

Nil Rated
- This type of supply attracts a GST of 0%.
- Input tax credit cannot be claimed on such supplies.
- Example-grains, salt, jaggery, etc.

Exempted
- This supply includes items which are used for everyday purposes.
- They are basic essentials, and do not attract any GST at all.
- Input tax credit cannot be claimed on such supplies.
- Some examples include bread, fresh fruits, milk, curd, etc.

Zero-Rated
- Supplies made overseas and to Special Economic Zones (SEZs) or SEZ Developers come under the zero-rated supplies.
- This supply attracts a GST of 0%.
- Input tax credit can be claimed on such supplies.

Non-GST
- Supplies which don’t come under the scope of the GST are termed as Non-GST supplies.
- These supplies can attract taxes other than the GST as per the jurisdiction of the state or the country.
- Some examples of such supplies include alcohol for human consumption, Petroleum products such as petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel etc., electricity has been kept outside the purview of GST at present.

Tips:

What is Input Credit?

“Input Tax Credit” is an aggregate total amount of tax paid by a registered dealer on the total purchases made by him within the State from other dealers.

Salient features of Input tax credit:

It can be adjusted against the tax payable by the purchasing dealer on his sales.
It is available for the purchase of goods made within the state by a registered dealer from another registered dealer.
It is allowed for both manufacturers and traders
Even for stock transfer/consignment transfer/branch transfer of goods out of the State, input tax paid in excess of 2% will be eligible for a tax credit
In the case of common goods used for taxable goods and tax-free goods, ITC is allowed proportionately to the extent the purchases are used for the purpose of taxable goods.
Thus, credit relating to the goods used in the manufacture of exempted goods has to be reversed.

Miscellaneous -GST:

It is a dual GST with the Centre and the States simultaneously levying tax on a common base. The GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
Import of goods or services is treated as inter-state supplies and is subject to Integrated Goods & Services Tax (IGST) in addition to the applicable customs duties.
GST rates to be mutually decided: CGST, SGST & IGST are levied at rates to be mutually agreed upon by the Centre and the States. The rates are notified on the recommendation of the GST Council.
Multiple Rates: GST is levied at four rates viz. 5%, 12%, 18% and 28%. The schedule or list of items that would fall under these multiple slabs are worked out by the GST council.
This is aside from the tax on gold that is kept at 3% and rough precious and semi-precious stones that are placed at a special rate of 0.25% under GST.
An additional cess is imposed on certain items and this cess is used to pay compensation. The items are pan masala, cigarettes and tobacco products, aerated water, caffeinated beverages, coal and certain passenger motor vehicles.