While GST simplifies taxation, many find themselves in a problem regarding understanding the rates and structure of GST. GST rates are divided into four distinct slabs: 5%, 12%, 18%, and 28%. In addition to this, some of the very vital goods and services are exempted or charged at a rate of 0%. On the other hand, luxury items and demerit goods have an additional cess of 28% GST.
Such rates must be understood by firms and consumers alike, especially if you plan for small business loan options. The proper use of such rates by a firm would prevent the potential imposition of penalties given by law. A consumer will make more informed decisions while buying as they know the GST rates.
Let’s discuss on;
1) Importance of HSN Codes Under GST
2) Calculating GST Amount
3) Recent Updates and Changes
Importance of HSN Codes Under GST
HSN codes are an important part of the GST scheme, as they are the standardized code for classifying goods. GST requires all vendors to use HSN codes for specifying their products with their tax rate.
The HSN codes ensure uniformity and ease the filing of taxes. If you are a furniture seller, you would know whether that item is under 12% or 18% GST by using the correct HSN code. The government compulsorily asks for HSN codes based on the turnover of the business in the following categories:
● Business with a turnover of up to ₹5 crores: Compelled to follow 2-digit HSN codes.
● Turnover of more than ₹5 crore: Businesses will be required to use 4-digit HSN codes.
● Exports and imports: Shall use 8-digit HSN codes.
For services, SAC (Services Accounting Code) is used. Proper HSN or SAC classification ensures that businesses apply the right GST rates and avoid disputes with tax authorities.
Calculation of GST Amount
Once the GST rate is known, calculating the amount of GST is quite simple. GST can be calculated through the following formula:
GST Amount = (Original Price × GST Rate) ÷ 100
Final Price = Original Price + GST Amount
Suppose a product is selling at ₹1,000 and carries an 18% GST rate:
GST Amount = (₹ 1000 x 18) ÷ 100 = ₹ 180
Final Price = ₹ 1000 + ₹ 180 = ₹ 1,180
This calculation helps businesses and customers understand the component of tax paid in the final price. ITC (Input Tax Credit) is highly important for businesses; they need to understand the mechanism of ITC under which the businesses can claim credit against the GST paid on purchases used for business operations to reduce their tax liability.
New Developments and Changes
GST rates are not time-bound; they are reviewed periodically. The council of GST consists of members from the central and state governments, who decide on changes in the rates based on the conditions of the economy and the feedback received from the industry.
Some of the recent examples of changes are as follows;
● Reduction of GST on Essential Items: To make fertilizers and medicines cheaper, the GST Council has reduced their GST rates.
● Luxury and Sin Goods: In those products and services, the GST rate is higher along with the cess to deter those goods and services from consumption.
● Simplification for Small Businesses: The Government of India has made schemes like the Composition Scheme, through which small enterprises can gain an easy grip over compliance with different GST rates on turnover up to ₹1.5 crores.
● Automation and E-Invoicing: E-invoicing has been made mandatory for all businesses whose turnover crosses ₹5 crores. In this manner, a reflection of all transactions is done in real-time, which increases transparency.
The government updates the GST law on a regular basis so that the system remains quite effective in operation and also business-friendly.
Conclusion
GST has streamlined the Indian taxation system by substituting hundreds of indirect taxes with one simple, uniform structure. With the understanding of the HSN codes and changes in GST, it becomes quite easy for businesses to comply without penalty and reduced tax liabilities. Consumers also are in better positions to understand the final cost of goods and services while being aware of GST rates.
Additionally, NBFCs provide MSMEs with working capital and msme loan, and some NBFCs also educate small business owners on business loans and loan applications. Traditional banks cannot offer quicker processing of loans with minimal documentation or flexibility in the repayment options like NBFCs; hence, it makes them one of the best options for MSMEs looking at growth and compliance support.
