Chapter 7: Levy and Rates of GST

The levy of GST is governed by Section 9 of the CGST Act, 2017, Section 5 of the IGST Act, and Section 7 of the UTGST Act. GST is a destination-based consumption tax levied on the supply of goods and services.

Core Principles:

Dual Levy: Both Central (CGST) and State (SGST/UTGST) taxes are levied on intra-State supplies, while IGST is levied on inter-State supplies.

Destination-Based: The tax accrues to the State where the goods or services are consumed.

Comprehensive Coverage: Levy applies to all supplies except those specifically exempted or excluded (e.g., alcoholic liquor for human consumption).

GST Rate Structure (Four-Tier System):

India follows a multi-rate GST structure to balance revenue needs with consumer affordability.

Cess: A Compensation Cess (under the GST (Compensation to States) Act, 2017) is levied on select goods such as pan masala, coal, and motor vehicles to compensate States for revenue loss due to GST implementation.

GST is levied on the “transaction value”, i.e., the price actually paid or payable for the supply, provided the supplier and recipient are not related and the price is the sole consideration.

Legal Reference: Section 15 of the CGST Act, 2017 and Rules 27–35 of the CGST Rules.

Inclusions in Taxable Value:

Any taxes (other than GST) charged by supplier.

Incidental expenses (packing, commission, etc.).

Interest, late fee, or penalty for delayed payment.

Subsidies directly linked to price (other than Government subsidies).

Exclusions from Taxable Value:

Discounts given before or at the time of supply, and recorded in invoice.

Post-supply discounts agreed before supply and linked to specific invoices (subject to recipient reversing ITC proportionately).

Special Valuation Cases:

Illustration: If goods worth ₹1,00,000 are sold with a ₹5,000 packing charge and ₹2,000 late fee — Taxable value = ₹1,07,000 (1,00,000 + 5,000 + 2,000).

The GST Rate Schedule is notified under:

Notification No. 1/2017 – Central Tax (Rate) for goods, and

Notification No. 11/2017 – Central Tax (Rate) for services.

Rates and classifications are harmonized with the HSN (Harmonised System of Nomenclature) for goods and the SAC (Services Accounting Code) for services.

Illustrative GST Rate Summary

HSN/SAC Code Requirement

B2B Invoices: Mandatory HSN/SAC up to 6 digits.

B2C Invoices: 4-digit requirement (if turnover > ₹5 crore). This ensures uniform classification and rate determination nationwide.

(a) Exempt Supplies

As per Section 2(47), “Exempt supply” includes:

Supplies attracting nil rate of tax,

Supplies wholly exempted by notification under Section 11, and

Non-taxable supplies (e.g., alcohol, petrol, electricity).

Key Exemption Notifications:

Notification No. 2/2017-CT (Rate): Exempted goods.

Notification No. 12/2017-CT (Rate): Exempted services.

Examples of Exempt Supplies:

Unbranded cereals, fruits, and vegetables.

Health care services by clinical establishments.

Educational services by recognized institutions.

Charitable activities of registered trusts.

(b) Zero-Rated Supplies

As per Section 16 of the IGST Act, 2017, “Zero-rated supplies” include:

Export of goods or services, and

Supply to SEZ developer or SEZ unit.

Distinct Features:

Supplies are taxable but taxed at 0% rate.

Eligible for ITC refund or refund of unutilized credit.

Ensures competitiveness of exports in international markets.

Two Routes for Exporters:

Note: Zero-rated ≠ exempt. ITC is allowed for zero-rated supplies but not for exempt supplies.

Category of Goods/Services	GST Rate	Examples
Essential items	0%	Fresh fruits, vegetables, milk, curd
Common-use goods/services	5%	Railways, cab services, edible oil
Standard goods/services (lower slab)	12%	Processed food, computers, hotels (₹1,000–₹7,500 tariff)
Standard goods/services (higher slab)	18%	Mobile phones, electronics, banking services
Luxury and sin goods	28% + Cess	Automobiles, air conditioners, tobacco, aerated drinks

Type of Supply	Valuation Method (Rule Reference)
Open market / Related parties	Rule 28 – Value of similar goods/services
Supplies through agents	Rule 29 – Open market value or 90% of recipient’s sale price
Pure agent	Rule 33 – Exclude reimbursed expenses
Foreign currency services	Rule 32(2) – Value as per RBI reference rate
Lottery, betting, gambling	Rule 31A – Specific valuation percentages

Rate	Examples of Goods	Examples of Services
0%	Fresh milk, fruits, newspapers	Healthcare, education
5%	Edible oil, sugar, footwear (<₹1,000)	Transportation, small restaurants
12%	Processed foods, mobile handsets	Hotel accommodation (₹1,000–₹7,500)
18%	Consumer durables, steel, computers	Financial, telecom, software services
28% + Cess	Luxury cars, tobacco, air conditioners	Cinema halls, luxury clubs

Option	Condition
Export under LUT/Bond	Without payment of IGST; claim refund of ITC.
Export on payment of IGST	Claim refund of tax paid on exports.

Concept	Legal Reference	Essence
Levy of GST	Sec. 9, CGST Act	Tax on supply of goods/services
Taxable Value	Sec. 15	Transaction value plus incidental expenses
GST Slabs	Notifications 1/2017 & 11/2017	Multi-rate structure: 0%, 5%, 12%, 18%, 28%
Exempt Supply	Sec. 2(47), Notif. 2/2017, 12/2017	Supplies wholly exempt or nil-rated
Zero-Rated Supply	Sec. 16, IGST Act	Exports and SEZ supplies eligible for ITC refunds