Businesses fret over ITC pile-up, litigations

The move to reduce the Goods and Services Tax (GST) rate to just 5% or nil for a vast categories of products ranging from education supplies and critical medicines to man-made fibres and bicycles, may ironically prove to be costly for many businesses.

- FE BUREAU

THE MOVE TO REDUCE the Goods and Services Tax (GST) rate to just 5% or nil for a vast categories of products ranging from education supplies and critical medicines to man-made fibres and bicycles, may ironically prove to be costly for many businesses. This is because their key inputs (goods and services), and even capital goods would attract a significantly higher GST of 18%. With the output tax being just 5%, the input taxes can't be fully offset; as a result, the final tax costs of these businesses will rise, rather than reduce.

As per the GST Council decision last week, the tax rate would be cut from 5% to nil for food items like UTH milk, pre-packaged and labelled paneer, pizza bread, khakra etc. Tax on paratha, parotta, butter, cheese, etc. are cut to be "nil" from 18%. The tax has been reduced to "nil" from 5% on 33 lifesaving drugs. In all these cases, the ITC will accumulate.