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India GST rate consolidation delay on inflation worries

Proposals to consolidate from 4 rates to 3 likely to go hold due to inflationary fears

Long waited plans from the Goods and Services Tax Council to rationalise the GST rates from 4 to 3 slabs look certain to be delayed as inflation in April reached 7.8% in April 2028. This compares to 7% in March.  Food inflation at 8.4% in particular is causing worries about the risks of bringing many items into the GST net.

The Council is also due to review the split of GST revenues allocated between the Centre and states.  A 5-year agreement in July 2017 on the inception of Indian GST agreed that the states would receive at least 14% growth in revenues. A reorganisation of GST rates could easily achieve this extra revenue growth.

Four GST rates into three ?

The current rates are:

  • 28% – vehicles; fizzy drinks; air conditioners; nightclub entrance; luxury hotels and restaurants, and gambling
  • 18% main rate applying to over 450 defined goods and services, including luxury restaurants and hotels
  • 12% second main rate applying to over 250 defined goods and services including other hotels and restaurants; non-dwelling construction
  • 5% – passenger air travel; construction of dwellings; restaurants

There are also a precious stones (0.25%) and metals (3%) rates. Sign-up for VAT Calc’s FREE global VAT and GST news e-mail updates.

This is likely to be cut to three rates, as follows:

  • 28% luxuries
  • 18% main rate
  • 5% reduced rate

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