The Goods and Services Tax (GST) in India has replaced several taxes charged earlier. It has replaced VAT, service tax and taxes of excise. For a common man, GST means a lot different than to a businessperson. While the common man (no service providers) does not have to do GST registration or pay GST via input credits, he/she will still be affected directly under the new tax regime in many ways because as GST is an indirect tax, which will be ultimately borne by the end consumers.
Before we discuss the impact of GST on the common man in India, it is essential to understand types of GST implementation and the GST rates.
Types of GST Implemented in India
- The GST collected by Centre: CGST
- The GST collected by State: SGST
- The GST applicable on inter-state sales to facilitate smooth transfer between the Centre and the State: IGST
GST Rates range over 5%, 12%, 18% and 28% plus luxury cess:
| GST Rate Slabs | Current GST rates | Previous Rates | Products |
| 1 | 5% | Up to 9% | Coffee, tea, edible oil, spices |
| 2 | 12% | 9% to 15% | Processed food, computers, electronic items |
| 3 | 18% | 15% to 21% | Shaving sticks, oil, soaps |
| 4 | 28% | 21% | Luxury goods such as tobacco, high-end cars, aerated drinks etc. |
How Does GST Impact You?
After adjustment in several taxes before Goods and Services Tax, the aftermath holds tax relief especially because there will be a reduction in prices for FMCG products such as chocolates, shampoos, also small cars, booking air tickets, DTH etc. Eating out may also become cheaper, as earlier the service tax and VAT together made dining out experiences quite heavy on the pocket. Now VAT is applicable only to places that allow alcoholic drinks. Otherwise, GST has replaced service tax.
On the other hand, there will be an increase in prices for luxury cars, gold, textiles, aerated beverages, and tobacco. In terms of prices, services would be more expensive at the onset of GST. However, in the long run, the benefits of GST will kick in terms of reduction in inflation and higher input credits, thus, bringing down most of the prices for goods and services.
The tax rate for services has increased from 15% to 18%. Thus, in short-run, the common man will encounter 3% rise in service prices, but also benefit from GST in the following ways:
- Real Estate: Tiyasha purchases an under-construction property of Rs. 1 crore. The earlier tax regime would have asked for 5.5% tax levy (both service tax and VAT). However, variation in taxes was seen from state to state. Post-GST, the tax rate is 12%, resulting in inflation at the start. If Tiyasha purchases a ready-to-move-in property, which has a completion certificate, the taxation will remain steady; as these properties do not come under GST.
- Banking and Insurance: There is an increase in service tax by 3%. The service tax on banking service and insurance was pegged at 15%, which is now replaced by GST of 18%.
- Cab Expenses: Rizwan takes Uber or OLA rides, which costs him Rs. 100. The service tax otherwise pre-GST applicable on the fare would have been 6%, but after GST it is 5%. A marginal difference in cab expenses is seen.
- Holidays: Mitali stays in a hotel, and then stays for day-night costs her Rs. 8000. The pre-GST period would have included service tax + luxury tax, ranging between 19% and 25% as per the state luxury tax. Thus, the total tax amount would have ranged between Rs. 1520 and Rs. 2000. After GST, any tariff over Rs. 7,500 will attract 28% tax, thus causing the tax amount to be Rs. 2,100. Thus, higher-tier hotels would be more expensive for people. Post GST, hotels charging tariff between Rs. 1,000 and Rs. 2,500 will attract 12% GST and tariff between Rs. 2,500 and Rs. 7,500 will attract 18% GST. Thus, lower-tier hotels would be cheaper for customers.
- Restaurant Bills: Before GST was applicable, Prateek visited a restaurant and bought a meal of Rs. 1000, with an applicable VAT of 12.5%, service tax as 6%, thus the total excess to be paid over 1000 rupees, was Rs. 185. But, after GST implementation, the tax on the bill accounts for 18%, which means, the tax amount on Rs. 1000 bill would be Rs. 180. Thus, there is no substantial difference in pricing here.
- Air Travel: Balwinder travels in domestic economy class on airfare of Rs. 1,000. Under the previous tax regime, the service tax would have been 6%, thus raising the ticket cost to 60 additional rupees. But, under GST, there is a 1% reduction, thus the tax will amount to 5%, creating a minor difference in air travel costs. But, for those travelling in business class, the tax has been increased to GST 12% from earlier 9% of service tax.
- Household Expenses: Under the GST regime in India, food prices fall within 0% to 5% tax, thus food prices are not likely to increase. FMCG products (toothpaste, soaps, tissue papers, shampoos, packaged food, pharmaceutical items, coolers, television etc.), have the potential to become cheaper. However, services such as dry cleaning, saloon, and telecommunication can witness a rise in prices due to increased taxation.
The above examples will help you understand the impact of GST on the common man in a simpler manner. The impact on pricing due to additional credits and reduced cost of supply are two separate aspects. Goods and services tax shall bring greater transparency to the taxation regime in India and enhance compliance levels for creating a common playing field for businesses and levelling the central and local taxes accountably.
GST has definitely changed the earlier tax regime taxation, which was production-based, to now- a consumption-based system. The common man, in the long run, would be benefited from GST in terms of infrastructure and economic growth of the country, and a lot more.
