Next-Gen GST Reforms for Small Businesses & MSMEs in India

Introduction:

GST (Goods and Services Tax), also the backbone of India’s indirect tax framework, made a uniform tax system for all goods and services across states. To strengthen the nation’s growth, the GST Council has now simplified its tax rate structure, sector-wise rate reduction and other compliance measures while focusing on both common man and businesses benefits. In this article, you’ll understand the core aspects of the new reforms, sector-wise GST rates, benefits of small businesses and for MSMEs.

7 Pillars of Next-Gen GST Reforms

The Next-Gen Reforms, a restructured GST system has simplified into 2-tier structure, fair taxation and even made the digital filing easier for returns and refunds. It mainly focusses on empowering all MSMEs and small businesses while leveraging consumer benefits with rate reduction. The Seven pillars of the new GST reforms are as follows

1. Building on the Success of GST

2. Rationalising rates for fair taxation

3. Simplifying filing through technology

4. Putting consumers first

5. Empowering MSMEs & manufactures

6. Stronger states, stronger Bharat 

7. Lower taxes = Higher spending

Simple Tax – A Two-tier rate structure

Currently the GST Council operates with 4 different tax rate structure (5%, 12%, 18%, 28%) which complicates on GST filings and affects the small-scale businesses. Effective September 22, there will be only 2 rates (5% & 18%) and a special de-merit rate of 40% applied on luxury and sin goods such as pan masala, aerated drinks, yachts, and private aircraft.

On the Other hand, the GST registration and return filings has been enhanced with quicker refunds, lowered its compliance costs and simplified the tax structure to promote the small-scale and MSMEs businesses

Sector-wise GST rates

A) Goods:

1. Food Sector

I. Nil rated:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Ultra-High Temperature (UHT) milk	0401	5%	0%
Prepackaged and labelled chena or paneer	0406	5%	0%
Chapati, roti or khakhra	1905 or 2106	5%	0%
Indian Breads, paratha & parotta	2106	18%	0%

II. I. 5% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Ice cream and other edible ice	2105 00 00	18%	5%
Pastry, cakes, biscuits, chocolates	1905/1806	18%	5%
Cheese, Butter, Ghe	0405/0406	12%	5%
Dates (soft or hard)	0804	12%	5%
Prepared or preserved Meat & Fish	1602/1604	12%	5%
Packaged namkeens, bhujia, mixture, chabena	2106 90	12%	5%

III. I. 40% rated:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Other non-alcoholic beverages	2202 91 00/ 2202 99	18%	40%
Pan masala	2106 90 20	28%	40%
Aerated waters	2202 10	28%	40%
Caffeinated & carbonated Beverages	2106 90 20/ 2202	28%	40%

2. Agriculture & Fertilizer Sector

 I. 5% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Sprinklers & drip irrigation like sprayers	8424	12%	5%
Agricultural, horticultural, harvesting machinery	8432/ 8433	12%	5%
Ammonia & certain micronutrients	2814, 28 or 38	12%	5%
Tractors (except road tractors above 1800 cc)	8701	12%	5%
Hand carts, rickshaws & animal drawn vehicles	8716 80	12%	5%
Tractors & its parts	4011,4011 70 00, so on	18%	5%

3. Renewable Energy & Coal Sector

 I. 5% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Solar cookers	7321 or 8516	12%	5%
Solar water heater and system	8419 12	12%	5%
Renewable energy devices (like Bio-gas plant, WOEG)	84, 85 or 94	12%	5%
Fuel Cell Motor Vehicles	87	12%	5%

II. 18% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Coal and solid fuels manufactured from coal	2701	5%	18%
Lignite & peat (agglomerated or not)	2702/2703	5%	18%
Renewable energy devices (like Bio-gas plant, WOEG)	84, 85 or 94	5%	18%

4. Textile Sector

 I. 5% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Sewing thread of manmade filaments/ staple fibres	5401/5508	12%	5%
Carpets and other textile floor & wall coverings	5701/5905	12%	5%
Textile caps	6501	12%	5%
Staple fibres & filament tow (both Synthetic and artificial)	5501, 5502, 5503, 5504, 5506, 5507	18%	5%
Waste of manmade fibres	5505	18%	5%

II. 18% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Sale of apparels & clothing accessories above Rs. 2500 per piece (knitted or crocheted)	61	12%	18%
Sale of apparels & clothing accessories above Rs. 2500 per piece (not knitted or crocheted)	62	12%	18%
Sale of cotton quilts above Rs. 2500 per piece	9404	12%	18%

5. Health Sector

 I. Nil rated:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Imiglucerase	30	5%	0%
Laronidase	30	12%	0%
CI-Inhibitor injection	30	12%	0%

II. 5% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Thermometers	9025	18%	5%
Anaesthetics	28	12%	5%
Medical grade oxygen	2804 40 10	12%	5%
Wadding, gauze, bandages, dressings, adhesive plasters	3005	12%	5%
All diagnostic kits and reagents	3822	12%	5%
Glucometer, test strips	90 or any other Chapter	12%	5%
Surgical rubber gloves or medical examination rubber gloves	4015	12%	5%
Spectacles & goggles for correcting vision	9004	12%	5%

6. Education Sector

 I. Nil rated:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Eraser	4016	5%	0%
Pencils, crayons, pastels, drawing charcoals and tailor’s chalk	9608, 9609	12%	0%
Pencil sharpeners	8214	12%	0%
Maps, atlases, wall maps	4905	12%	0%
Exercise book, graph book, & note book	4820	12%	0%

II. 5% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Mathematical boxes, geometry boxes and colour boxes	7310 or 7326	12%	5%

7.Common Man Items

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Tooth powder, candles, Sewing needles, combs, hair-slides, hair-curlers	33061010,3406, 7319, 9615	12%	5%
Feeding bottles & its nipples	3926/4014	12%	5%
Umbrellas & sun umbrellas	6601	12%	5%
Kitchen Utensils	3605 00 10	12%	5%
Hand bags and shopping bags (both cotton & jute)	4202 22 20/ 4202 22 30	12%	5%
All goods- napkins and napkin liners for babies, clinical diapers	9619 00 30, 9619 00 40, or 9619 00 90	12%	5%
Footwear sale (below Rs.2500 per pair)	64	12%	5%
Hair oil, Tooth brushes, shampoo, Talcum & face powder	3305/96032100/3304	18%	5%
Shaving cream & lotion	3307	18%	5%

8. Electronics

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Air-conditioning, dish washing machines	8415/8422	28%	18%
Monitors & projectors	8528	28%	18%
Television sets (including LCD and LED)	8528	28%	18%

9. Automobiles

 I. 18% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Petrol or petrol hybrid, LPG or CNG Cars (not exceeding 1200cc and of length 4000 mm)	8703	28%	18%
Diesel or diesel hybrid Cars (not exceeding 1500cc and of length 4000 mm)	8703	28%	18%
Motor cycles (350cc or below)	8711	28%	18%
Road tractors (more than 1800 cc)	8701	28%	18%
Three wheeled vehicles	8703	28%	18%
Motor vehicle parts	8706, 8707, 8708	28%	18%
Rowing boats & canoes	8903	28%	18%

II. 40% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Petrol or petrol hybrid, LPG or CNG Cars (above 1200cc and 4000 mm in length)	870340, 870360	28%	40%
Diesel or diesel hybrid Cars (above 1500cc and 4000 mm in length)	870350, 870370	28%	40%
Motor cycles (Above 350cc)	8711	28%	40%
Aircraft, Yacht and other vessels (for pleasure or sports)	8802/8903	28%	40%

10. Miscellaneous Items

 I. 5% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Sand lime bricks	68	12%	5%
Granite, marble, travertine blocks	2516/2515 12 10	12%	5%
Milk cans	7310, 7323, 7612, or 7615	12%	5%
Contact & spectacle lenses	9001	12%	5%
Coir products (except coir mattresses)	9404	12%	5%

II. 18% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Biodiesel	3826	12%	18%
Other than natural menthol	29061190	12%	18%

III. 40% rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Revolvers and pistols	9302	28%	40%
Smoking pipes (including pipe bowls), cigar or cigarette holders	9614	28%	40%

Services

 Certain services have been included for rate reduction, and the masterstroke decision came from Health & Life Insurance, where their 18% GST (old) was transformed into an exemption. Likewise, Hotel stays, physical wellbeing, and Air passengers (not economy) have also been revised with new rates in this new reform.

I. Exempted:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Individual health insurance	9971	18% with ITC	Exemption
Individual life insurance	9971	18% with ITC	Exemption

II. 5% Rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Hotel accommodation (Rs.7500 or below per day)	9963	12% with ITC	5% without ITC
Beauty and physical wellbeing services	9997	12% with ITC	5% without ITC
Service of third-party insurance of goods carriage	9971	12% with ITC	5% with ITC
Goods carriage rentals (fuel cost included)	9966	12% with ITC	5% with ITC of input services

III. 18% Rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Local delivery services	9968	18% with ITC	18% with ITC
Air transport of passengers (other than economy)	9964	12% with ITC	18% without ITC
Professional & business services on petroleum crude or natural gas or both	9983	12% with ITC	18% with ITC
Multimodal transport of goods within India	9965	12% with ITC	18% with ITC

IV. 40% Rate:

Description	Tariff item	GST rate (Old)	GST rate (Revised)
Admission to casinos, race clubs, or sporting events like IPL	9996	28% with ITC	40% with ITC
Licensing of bookmakers by race club	9996	28% with ITC	40% with ITC
Specified Actionable Claims (betting, casinos, gambling)	Any  chapter	28% with ITC	40% with ITC
Leasing or rental services without operator (goods with 40% GST)	9973	28% with ITC	40% with ITC

Benefits of GST 2.0

• Lowers the prices for goods/services

• Simplifies legal compliance while filing

• Increased revenue on low-cost utilities

• Correcting inverted duty structures for exports

• Tax rate reduced on day-to-day utilities and so on

• GST Exemption on live savers (like insurance & essential medicine)

Why businesses need this matter?

As the Next-Gen Reforms brings tax reduction, the businesses need to strategize a new price for both goods and services. It’s a competitive situation for all MSMEs, Manufactures, and small businesses to create a demand for their materials in the market. Even a small tax reduction would boost their economy and brings opportunity in all sectors. At PNPC Global, our tax experts handle all the compliance filings and manages your financial operations seamlessly.