GST Council May Scrap 12% Slab What It Means for You
The GST Council may eliminate the 12% tax slab, according to reports. If approved, goods and services under 12% GST could shift to either 5% or 18% rates. This possible overhaul aims to streamline India’s GST structure and reduce classification disputes.
Let’s break down what this move means for Indian taxpayers, business owners, and consultants.
Why Remove the 12% GST Slab?
India’s current GST regime has four primary tax slabs: 5%, 12%, 18%, and 28%. Over time, the 12% slab has become contentious due to overlaps in classification and frequent litigation.
Key reasons for scrapping the slab:
- Reduce classification confusion between 12% and 18%
- Streamline the GST structure to resemble a 3-rate system
- Improve tax compliance and revenue predictability
- Simplify the return filing process for businesses
Items Currently Under 12% GST Slab
Some common items taxed at 12% include:
- Mobile phones
- Packaged food items like fruit juices
- Sewing machines
- Ice cream
- Cellulose and chemical-based sanitary napkins
- Solar PV modules
A reassignment of these to 5% or 18% could lead to price shifts for end consumers.
Impact on Business and Consumers
| Impact Area | If moved to 5% | If moved to 18% |
|---|---|---|
| Consumer Prices | Likely decrease | Likely increase |
| Input Tax Credit | May create ITC accumulation | Smoother ITC flow |
| Compliance Burden | May rise for suppliers with mixed rates | Higher rates may reduce classification issues |
| Sector Examples | F&B, low-cost electronics | Solar, industrial equipment |
Legal & Policy Angle
- This move may require notifications under Section 9 of CGST Act, 2017 and updates to Schedule I to III of GST Rate Notifications.
- Previous discussions on GST slab restructuring were also held during the 47th GST Council Meeting.
- The Rationalisation Committee, set up by the Council, has been evaluating slab merging since 2021.
If approved, changes will be notified under appropriate rate notifications, such as Notification No. 1/2017-CT (Rate) and its updates.
Expert View
CA K. Ramesh, GST consultant:
“Merging the 12% slab could reduce litigation and rate ambiguity. But policymakers must balance inflation concerns, especially for essentials like food items or daily use goods.”
What Businesses Should Prepare For
- Reprice goods or services: Shift in slab may alter MRP or base pricing.
- Update billing systems: New tax rates must be configured in software.
- Train staff: Sales and accounting teams must understand new rate impact.
- Review contracts: Update tax clauses in ongoing B2B or B2C agreements.
Summary
The GST Council may eliminate the 12% slab and shift items to 5% or 18%, aiming to simplify the tax system. This could impact prices, ITC claims, and compliance for businesses across India.
Frequently Asked Questions (FAQ)
Q1. Will my product’s GST rate change?
If your product currently falls under 12%, yes. It could shift to 5% or 18%, depending on classification.
Q2. When will the new rates be implemented?
As of now, the Council is considering the change. Official notifications will confirm the date.
Q3. Will this impact return filing?
Yes, businesses will need to update their GST returns to reflect the new rate and HSN codes.