A four –tier tax structure of 5 , 12 , 18 and 28 percent with lower rates for essential items and highest rate for luxury and de-merits goods that will also attract cess , was decided by the GST Council in its meeting on 3rd Nov. 2016 .
With a view to keeping inflation under check , essential items including food , which presently constitute roughly half of the consumer inflation basket , will be taxed at zero rate .
The lowest rate of 5% would be for common use items while there would be two standard rates of 12% and 18% under the GST regime .
Announcing the decision arrived at the first day of the two-day GST Council meeting , Finance Minister Sri Arun Jaitley said that highest tax slab will be applicable to items which are currently taxed at 30-31 percent ( excise duty plus VAT )
Luxury cars , tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate .
The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating the States for any loss of revenue during the first five years of implementation of GST .
The cess he said , would be lapsable after 5 years . Mr. Jaitley said that about Rs. 50,000 Crores would be needed to compensate the States for loss of revenue from roll out of GST , which is to subsume a host of Central and States’ taxes like excise duty , service tax and VAT in the first year .
While Centre proposed to levy 4% GST on gold , a final decision was put off.