The Centre and states are expected to keep the exemption list up to 100 items — under the proposed goods and services tax structure. The North Block of the revenue department is overloaded with requests from industry associations to keep their products out of tax net or in the lowest slab.
Majorly the Goods of common use or which are consumed largely by the masses will be exempted in the final list. Some of the items such as Salt, primary produce, fruits and vegetables, flour, salt, milk, eggs, tea, coffee and prasad sold at temples could be part of the exemption list.
The Centre currently exempts 299 items while states keep 99 out of the tax net. One of the top government officials said, “Some items will remain exempted,” “The exemption list is final and ultimately it will be a political call,” said a government official.
Services over and above the threshold, exempted under differential taxation, may be brought into the tax net to broaden the base. For example, hotels with tariff below Rs 1,000 do not face services tax while others do.
Similarly, the different limits exist in luxury tax as well. Essential services such as healthcare and education are expected to be kept out of the purview of the tax rates. But ultimately, the GST Council will take a final call on this Thursday or Friday.
Finance Minister is in talks with his state counterparts for taking a call on rates. The main idea behind this is to broaden the tax base and not burden the new tax with exemptions. The exemption also means that these items will not be eligible for input tax credit and thus may ultimately not benefit the target group.
Exemptions in an ideal GST law should be few and the sectors who deserve benefit should be zero rated or nil rated. At present, India has adopted a four-tier tax structure of 5%, 12%, 18% and 28%.
The neutral rate or rate applicable on most products will be 18%. The highest rate has been pegged in the GST law at 40%. The government proposes to roll out the new indirect tax regime, which will replace multiple state and central taxes with a single a single tax structure on July 1.
The proposed GST Council meeting which is expected to take place on 18-19th May will also take up the final set of rules and will try to finalize the same.