Top 4 Types of GST Percentage – Best Guide – 2024

Have you been told that there are four main tax bands of Goods and Services Tax (GST) in India? Do you know how much GST is included in the cost of food and medicines compared to luxury items like cars or air conditioners?

After its launch in 2017, GST single-handedly changed the entire dynamics of the Indian taxation structure, but figuring out the different GST rates can be confusing.

In this blog, the different types of GST percentages: 5%, 12%, 18%, and 28% are discussed in terms of the goods and services included in the brackets. What about the exemption categories and special rates on gold and diamonds? Here is everything a beginner needs to know in an easily digestible format.=

If you are a business owner and want to learn how to comply with tax laws or someone simply interested in reading this guide, this post is for you!

What is the Goods and Services Tax (GST) and Why is it Important?

The Goods and Services Tax (GST) is a single, harmonized, value-added, direct tax on the supply of goods and services from production to consumption. It means the integration of multiple state and central taxes, including VAT, excise duty, service tax, and all others.

Understanding the types of GST percentage is crucial as they vary based on the nature of goods and services. The types of GST percentage include 0%, 5%, 12%, 18%, and 28%, depending on the product or service category.

Businesses must stay informed about the types of GST percentage to ensure compliance and accurate tax calculation. Awareness of the types of GST percentage helps streamline operations and avoid unnecessary penalties.

Key Features of GST

1. Unified Tax System: An alternative to multiple cross-benefit taxes.
2. Destination-Based Tax: Taxes related to goods go to the state which is the buyer/user of particular goods/services.
3. Four-Tier Structure: These result in different proportions depending on the classification of goods and services.
4. Transparency: Increases accountability and reduces cases of tax credit crunch: evasion.

How Many Types of GST In India?

Before diving into the percentages, it’s essential to understand the types of GST:

1. CGST (Central Goods and Services Tax)
2. SGST (State Goods and Services Tax)
3. IGST (Integrated Goods and Services Tax)
4. UTGST (Union Territory Goods and Services Tax)

These components work together to ensure seamless taxation across the country.

If you want to get more about the types of GST then you will get a complete guide of types of GST by just clicking here

How Many Types of GST Percentage?

The GST regime is structured into 4 main tax percentages:

• 5%
• 12%
• 18%
• 28%

Additionally, certain items are exempt from GST, while others have special rates. Let’s explore each category in detail.

0% GST – Exempted Goods and Services

However, there are some products and services for which GST is lower as it is at a 0% rate. These are either essential products or raw needs or basic food items and other products.

Examples of Exempted Goods:

• Fresh fruits and vegetables
• Milk and dairy products (unprocessed)
• Grains like rice and wheat
• Educational services
• Healthcare services
• Books and newspaper

5% GST – Essential Goods and Services

They come from the essential goods and services slab and thus, though they face a nominal GST rate of 5%, they are included in the current rate of taxation. These are mostly items that are consumed in large quantities.

Examples of 5% GST Items:

• Edible oils and sugar
• Tea and coffee (not instant coffee)
• Medicines and pharmaceuticals
• Railway tickets (passenger travel)
• Domestic LPG (Liquefied Petroleum Gas)
• Footwear (below ₹1000)
• Packaged food items

Significance of the 5% GST Slab: The 5% slab prevents inflation of daily basic necessities that are important and essential for the daily use of the consumer.

Services Under the 5% Slab:

• Rail and economy air travel
• Transport of goods by road (non-GST registered entities)
• Small restaurants (non-AC)

Impact: Lower prices of essential products provide protection to consumers’ pockets.

12% GST – Standard Goods and Services

The 12% GST is levied on all classified products that are considered semi-necessities of life. Among the types of GST percentage, the 12% rate is applied to items that are accessible but not always affordable, creating a unique marketing edge.

Understanding the types of GST percentage helps businesses position their products effectively in the market. Many of these items, falling under the 12% category, highlight the significance of types of GST percentage in determining pricing strategies and consumer affordability.

Examples of 12% GST Items:

• Processed food items like butter, cheese, and ghee
• Mobile phones
• Cooking stoves
• Hotels (rooms with tariffs between ₹1000–₹7500)
• Textiles and apparel (above ₹1000)
• Industrial machinery

Significance of the 12% GST Slab: The 12% rate correctly strikes a balance to generate revenue while also not making the essential item too expensive.

Services Under the 12% Slab:

• Business-class air travel
• Work contracts
• Hotel rooms costing between Rs. 1,000 and Rs. 2,500 per night

Impact: It ensures that an average tax is levied on items that are relatively more important than basic needs.

18% GST Rate

Currently, the 18% margin of GST is the highest and most widely used tax margin as it covers most of the products and services traded in the market. When understanding the types of GST percentage, the 18% slab is crucial as it includes goods that are not considered indispensable but are used in daily life.

Among the various types of GST percentage, this category applies to items like electronic appliances, restaurant services, and other essential yet non-luxury goods.

Knowing the types of GST percentage helps businesses and consumers better navigate tax compliance and expenses. For most products, this widely applicable type of GST percentage remains significant:

• Consumer goods: Refrigerators, washing machines, vacuum cleaners, and air conditioners.
• Restaurants: AC restaurants or restaurants serving alcohol.
• Services: Telecom services, financial services, and IT services.
• Packaged goods: Instant food mixes, cakes, pastries, and chocolates.
• Household items: Plastic products, paints, and furniture.

Significance of the 18% GST Slab: The 18% slab makes up a large collection percentage of GST. It is also in line with the limitation of taxing unnecessary products and the need to raise government revenue.

Services Under the 18% Slab:

• Restaurants (AC and those serving alcohol)
• Telecom services
• IT services
• Financial and consulting services

Impact: The rate of 18% enables the generation of taxes while also ensuring that consumers’ spending is regulated.

28% GST Rate

The GST rate set at 28% is on luxury items and items that have been deemed harmful to health or the environment. When understanding the types of GST percentage, this category mainly focuses on items that are not essential or items that a person cannot live without.

The types of GST percentage include rates like 5%, 12%, 18%, and 28%, with the highest rate applied to luxury or sin goods. Some examples under the 28% slab, one of the types of GST percentage, include luxury cars, tobacco products, and aerated drinks.

By analyzing the types of GST percentage, businesses and consumers can better understand how tax rates apply to different goods.

• Luxury goods: High-end cars, and motorcycles with engine capacity above 350cc.
• Cess-prone items: Cigarettes, tobacco products, and aerated drinks.
• Entertainment services: Cinemas, amusement parks, and gaming services.
• Household items: Dishwashers, large refrigerators, and water heaters.
• Construction materials: Cement and paints.

Significance of the 28% GST Slab: The 28% slab can be described as creating more turnover on luxury and sin products. It orients consumers against unhealthy products and is in line with the government’s efforts to reduce the use of products.

Services Under the 28% Slab:

• Entertainment services (movie tickets above Rs. 100)
• Gambling and betting

Impact: This rate becomes a huge source of revenue for the government as well as helps reduce the demand for goods and services that are bad for their health or are unnecessary luxuries.

What are the GST-Exempt Items?

Certain types of goods and services are partially exempted from GST to provide relief to the poor and to boost production and consumption.

Examples of Exempt Goods:

• Fresh fruits and vegetables
• Unpackaged food grains
• Unprocessed milk
• Books and educational materials
• Basic healthcare items

Examples of Exempt Services:

• Educational services (schools and colleges)
• Healthcare services
• Services provided by charitable organizations

Impact: The provision of excluding certain goods and services prevents economic access for all.

What are the Special GST Rates?

Certain products attract special rates under GST:

• Gold and Jewelry: 3%
• Rough Diamonds: 0.25%
• Lottery Tickets: 12% or 28%, depending on state-run or private lotteries
• Alcohol and Petroleum Products: Excluded from GST; taxed under state laws

What is the GST Composition Scheme Rates?

The GST Composition Scheme is designed to simplify taxation for small businesses. Under this scheme, companies pay a fixed percentage of their turnover as GST.

Composition Scheme GST Rates:

1. 1% GST: Manufacturers and traders
2. 5% GST: Restaurants not serving alcohol
3. 6% GST: Service providers (optional for small service-based businesses)

Eligibility Criteria: Any commercial enterprise having an annual turnover of up to ₹1.5 crore can avail of this scheme.

What is the Reverse Charge Mechanism (RCM) in GST?

In RCM, it is the responsibility of the recipient of supplies to pay GST for those supplies.

Applicable in Cases Like:

• This cost includes goods and services purchased from unregistered dealers.
• Import of services
• Supply of specific products such as tobacco leaves and cashew nuts.

Applicable GST Rates: Under the contingent RCM, the rates are fixed at 5%, 12%, 18%, or 28% depending on the goods or services received.

What is the Tax Rate of GST on Import and Export?

We have explained all the GST rates applicable on export and import for all of you in a very brief manner below:

Exports:

• Exports are considered zero-rated supplies, and hence supplies of goods and services falling under this category are not subject to GST and exporters are also allowed to get credit for the input taxes paid by them.

Imports:

• IGST levied on import transactions is the standard rate which can vary from 5%, 12%, 18%, or 28% depending on the goods imported.

What is the Comparison of Goods and Services Tax?

For a simpler understanding, here is a comparison of gas components for goods and services across different slabs:

How GST Percentages Impact Businesses and Consumers?

Here are the ways that GST percentages impact all businesses and consumers:

Impact on Businesses

• Simplified Taxation: GST is a comprehensive tax that subsumes several indirect taxes and has reduced compliance issues for businesses. 
• Input Tax Credit: Business enterprises get to recover GST paid on inputs such as raw materials and are allowed to adjust it against their production costs. 
• Transparent Pricing: Since the GST percentage is also the same across slabs, the price gets standardized and the purpose of the tax becomes clear.

Impact on Consumers

• Cost of Essentials: The 5% slab is still a means of keeping the price of daily-use items affordable for consumers.
• Luxury Goods: This means spending on non-essential goods will be less as people know they will have to bear the additional cost in the form of taxes.
• Savings on Services: GST has been introduced with standardised rates for services, reviews by a range of consumer groups show this is having a positive impact.

What is the Impact of GST on the Indian Economy?

The different slabs of GST have far-reaching effects on the Indian economy: 

1. Inflation Control: Lower rates on essential commodities guarantee people’s ability to buy them. 
2. Revenue Generation: Revenue for development is largely derived from higher slabs. 
3. Simplified Taxation: It is to integrate the existing tax structure before GST with new and simpler rates. 
4. Consumer Behavior: Higher rates of taxes prevent excessive use of goods that harm people’s health or are not needed at all.

In Conclusion

For companies and customers, it is important to know the multiple rates of GST applicable to several services and products. The types of GST percentage include 5%, 6%, 12%, 18%, and 28%, ensuring a fair tax structure to be paid by every individual.

Even from standard products used in our daily lives to luxury products, GST has simplified taxation and made India more transparent. Understanding the types of GST percentage helps businesses and consumers plan taxes effectively and promote a strong economy, thereby serving the public interest.

For businessmen, knowing the types of GST percentage and GST slabs will aid in compliance with the prescribed laws as well as determine fair price operations for the products you offer. Staying informed about the types of GST percentage ensures smooth operations and better financial management.

Stay informed, and stay tax-savvy!

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