Removal of GST on Railway services

Removal of GST on Railway services

Context: Goods and Services Tax (GST) Council approved measures to ease compliance for small businesses, exempted hostel accommodation worth up to ₹20,000 a month and railway services.

GST Council

• GST Council is a constitutional body established under Article 279A.
• It is responsible for making recommendations to the Union and State govts on issues related to GST.
• The Council consists of the Union Finance Minister (as Chairperson), the Union Minister of State for Finance, and the Finance Ministers of all the states and Union territories with legislatures
• Decisions in the GST Council are made by a majority of not less than three-fourths of the weighted votes of the members present and voting.
• The Central Government’s vote has a weightage of one-third, while the votes of all the State Governments combined have a weightage of two-thirds.
• The primary role of the GST Council is to make recommendations on:
• The taxes, cesses, and surcharges that may be subsumed under GST.
• The goods and services that may be subjected to or exempted from GST.
• Model GST laws, principles of levy, apportionment of IGST & principles governing the place of supply.
• The rates, including floor rates with bands of GST.
• Any special rate for a specified period to raise additional resources during a natural calamity/disaster.
• Special provisions with respect to the North-East States, J&K, Himachal Pradesh, and Uttarakhand.

Exemptions under GST

Services Exempted Under GST:

• Healthcare Services: Services provided by clinics, hospitals, and nursing homes.
• Educational Services: Services provided by educational institutions up to higher secondary or equivalent and approved vocational education courses.
• Government Services: Services provided by the Central Government, State Government, or local authority except for some specific services such as speed post, life insurance, and services provided to business entities.
• Religious Services: Services by a person by way of conduct of any religious ceremony.
• Charitable Services: Services by an entity registered under Section 12AA of the Income-tax Act, 1961, by way of charitable activities.
• Agricultural Services: Services related to the cultivation of plants and rearing of animals.
• Public Transportation: Services of transportation of passengers by non-air-conditioned railways or metro, transport by road except for radio-taxi, motorcab, maxicab, and motorcycle.
• Financial Services: Services provided by banks such as savings bank accounts and loan services.
• Cultural and Sports Services: Services provided by recognised sports bodies, cultural activities, and admission to events organised by recognised bodies.
• Housing Services: Renting of residential dwelling for use as a residence.

Goods Exempted Under GST:

• Agricultural Products: Fresh fruits, vegetables, milk, eggs, and meat (not frozen), grains, and pulses.
• Education Material: Books and printed material.
• Healthcare Products: Human blood and its derivatives, contraceptives.
• Basic Food Items: Fresh meat, fish, chicken, mutton, pork, cereals, bread, etc.
• Cultural and Religious Items: Items used in puja (worship) like idols, bangles, and khadi products.
• Unprocessed Food: Items like fresh fruits and vegetables, unbranded atta, maida, besan, and paneer.
• Animal Feed: Livestock feed, poultry feed, and fish feed.
• Other Essential Goods: Handloom products, stamps, judicial papers, newspapers.
• Recently, hostel accommodation worth up to ₹20,000 a month and railway services are also exempted.

What is GST?

• GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. It is a single indirect tax for the whole nation, which makes India one unified common market.

Key Features of GST

• Comprehensive Tax: GST subsumes multiple indirect taxes like Central Excise Duty, Services Tax, Additional Customs Duty, and State-level Value Added Tax (VAT).
• Multi-Stage Tax: GST is levied at each stage of the production process but is designed to be ultimately borne by the consumer.
• Destination-Based Tax: GST is collected at the point of consumption. If goods are manufactured in one state and sold in another, the tax revenue goes to the state where the goods are consumed.
• Value Addition: GST is charged on the value addition at each stage of production or service provision. The value addition is the increase in value of a product at each stage of production or service

Components of GST

• Central Goods and Services Tax (CGST): Collected by the Central Government on an intra-state sale (e.g., a transaction happening within a state).
• State Goods and Services Tax (SGST): Collected by the State Government on an intra-state sale.
• Integrated Goods and Services Tax (IGST): Collected by the Central Government for inter-state sales (e.g., a transaction from one state to another).

Four-tier rate structure of GST

• 5%: Essential commodities and goods of mass consumption.
• 12%: Standard rate for certain goods and services.
• 18%: Standard rate for most goods and services.
• 28%: Luxury items and sin goods.

Benefits of GST

• Elimination of Cascading Effect: GST eliminates the cascading effect of taxes, reducing the tax burden on consumers.
• Increased Compliance: With a simplified and transparent tax system, compliance rates are expected to increase.
• Uniform Tax Structure: GST creates a unified tax system across India, reducing the complexity of tax laws and increasing the ease of doing business.
• Boost to Economy: By reducing the tax burden, GST increases consumption and economic growth.
• Greater Transparency: It has a robust IT infrastructure that enhances transparency and accountability.

Challenges of GST

• Implementation Issues: The transition to GST faced initial hurdles, including technical glitches in the GSTN portal and resistance from some business sectors.
• Multiple Tax Rates: The multiple tax slabs complicate the tax structure, which can be cumbersome for businesses to manage.
• Compliance Costs: Small businesses often find it challenging to comply with the complex GST rules, leading to increased operational costs.
• Revenue Shortfall: Some states have experienced revenue shortfalls and have been dependent on compensation from the Central Government.