India Decides on Four GST Rates for Services

Finance and defence minister Arun Jaitley attends a two-day meeting of the Goods and Services Tax (GST) Council, comprising federal and state finance ministers, in Srinagar May 18, 2017. Credit: Reuters/Danish Ismail

New Delhi: India has finalised four tax rates that will apply to services including telecoms, insurance, hotels and restaurants under the new Goods and Services Tax (GST) which should be rolled out on July 1, finance minister Arun Jaitley said on Friday (May 19).

The tax rates for services will be 5, 12, 18 and 28% – in line with those applying to goods.

Telecoms and financial services will be taxed at a standard rate of 18% while transport services will be taxed at 5%, Jaitley said.

“The net effect of Goods and Services Tax will not be inflationary,” Jaitley told reporters after a meeting of the GST council in Srinagar, summer capital of Jammu and Kashmir state.

The council, comprising federal and state finance ministers, fixed rates on Thursday for more than 1,200 items under the GST, amid demands by some states to keep essential items under the lower tax category.

The new tax is likely to be non-inflationary as the government has kept a majority of food items, with a combined weighting of nearly 50% in the consumer price index, out of the tax net.

Basic food items like cereals, eggs and meat will attract zero tax while processed food items will be charged between 12-28%.

The long-awaited GST has been hailed as India‘s biggest tax overhaul since independence in 1947. It will replace a slew of federal and state levies, transforming Asia’s third largest economy into a single market.

GST regime will usher in lower taxes, seamless input tax credit, logistics savings and market share swings from unorganised to organised players,” said Aditya Narain, research head at Edelweiss Securities Ltd.

Prime Minister Narendra Modi, who completes three years of his term this month, had said the new tax will not cause price rises, while aiming to bring down tax leakages in the complex tax system.

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