GST exemption list likely to be kept approx hundred items

The Center and states are likely expect to keep the exemption list small —approx hundred — under the proposed goods and services tax regime, even as the North Block is flooded with requests from industry associations to keep their products out of tax net or in the lowest slab.

The Centre currently out of the tax net 299 items while states keep 99 exempts . “Some items will remain exempted,” said a top government official.

Goods of common use and consumed largely by the masses will be spared in the final list. Salt, primary produce, fruits and vegetables, flour, salt, milk, eggs, tea, coffee and prasad sold near or at the temples could figure on the exemption list.

“It’s near finalisation, ultimately, it will be a political call,” said a government official.

Services above a certain threshold, exempt under differential taxation, may bring  into the tax net to broaden the base. For instance, budget hotels with tariff below Rs 1,000 do not face service tax while others do.

Similar differentiation exists in luxury tax as well. Essential services such as healthcare and education are expected to be kept out. The GST Council will take a final call on Thursday or Friday.

Finance minister Arun Jaitley has been in conversation with his state counterparts for deciding on rates. The idea behind this to broaden the tax base and not burden the new tax with exemptions. Exemption also means that these items will not be eligible for input tax credit and thus may ultimately not benefit the target group.

“The decision is to provide exemptions to specific sectors and below a threshold — especially in case of services — should be based on whether exemptions really benefit the target group, given that input GST would be a cost,”

Exemptions in an ideal GST should be few and the sectors who deserve benefit should be zero rated, he added. India has adopted a four­ tier tax structure of 5%, 12%, 18% and 28%. Most of the products will be tax applicable at 18%. The highest rate has been pegged in the GST law at 40%. The government proposes to roll out the new tax regime, which seeks to replace multiple state and central taxes with a single levy, on 1st July 17.

GST Council will be take up the final set of rules in their proposed meeting.

Limit/Exemptions

A short of exemption list makes sense. The reason is simple. Exemptions can be break the GST chain, increase the chances of evasion,failures the goal of GST. Moreover, industry’s demand for a lower rate can be met only when all indirect taxes get convered under GST, and exemptions are minimum.