GST Council lowers tax rates but tries to protect fiscal health

The tax rate cuts on a diversified set of items are meant to support small and medium enterprises, promote exports and boost economic growth. The Council, however, rejected proposals for tax cuts on automobiles and biscuits as it wanted to focus more on the unorganised sector in giving tax relief. Officials said the revenue impact on account of the tax cut has not been estimated as the tax cuts applied to several industries.

Finance minister Nirmala Sitharaman, who chaired the GST Council meeting, said that the tax rates as well as slabs applying to hotel accommodation has been changed.

Those hotels charging daily tariff of upto ₹1000 will continue to be exempted from GST, while that charging ₹1,000 to ₹7,500 per night will be taxed at 12% and those charging above that will be taxed at 18% under the new slabs.

As per the existing slab, hotels charging between ₹1,000-Rs2,500 are taxed at 12%, those levying between ₹2,500 – ₹7,500 are taxed at 18% and those charging above are taxed at ₹28%.

The Council announced a relief for a specific period for passenger vehicles carrying 10-13 persons by bringing the cess applicable on them down from 15% to 1%, the same rate applicable on vehicles of comparable engine and length specifications carrying upto nine people.

The Council also decided to slash rate on outdoor catering services from present 18% with the benefit of input tax credit to 5% without the benefit of input tax credit. Catering in premises with daily tariff more than ₹7,500 will continue to be taxed at 18% with input tax credit.

All rate changes will apply from 1 October. The Council exempted small businesses from having to file annual returns for FY18 and FY19. Sitharaman said rules will be simplified further to encourage compliance.

The Council also reduced tax rates on a host of services including on job work related to diamonds, which has been lowered from 5% to 1.5%.

According to Abhishek Jain, tax partner, EY, the rate rationalization for the hotel industry could bolster demand for this sector. “With the upcoming vacation and festive season, this was a much sought for relief by this industry especially for the premium segment hotels," said Jain.

As part of the government’s agenda of nudging individuals to adopting a healthy lifestyle, the Council decided to increase the tax rate on caffeinated drinks and excluded aerated drinks makers from the concessional flat tax scheme meant for small businesses. Caffeinated drinks will now be taxed at par with aerated beverages, one of the highly taxed items.