Module 5: Classification and Rate of
GST – 6 Hour Class Notes
1. Classification under GST (1 Hour)
Classification is the process of identifying the correct rate of GST applicable to a particular
good or service. The classification of goods is based on the Harmonized System of
Nomenclature (HSN) while services are classified under Service Accounting Code (SAC).
Correct classification ensures proper tax compliance, correct invoicing, and accurate GST
returns.
1.1 HSN and SAC Code Structure:
- HSN (for Goods): Based on the international system for goods.
- Up to ₹5 crore turnover: 4-digit HSN mandatory.
- Above ₹5 crore turnover: 6 or 8-digit HSN mandatory.
- SAC (for Services): Developed by CBIC for classifying services.
1.2 Importance of Correct Classification:
- Ensures proper GST rate application.
- Helps in availing exemptions correctly.
- Required for filing GST returns and e-invoicing.
- Prevents litigation and penalties.
2. Types of Goods and Services (1 Hour)
Goods and services under GST are categorized for taxation and compliance purposes.
2.1 Categories of Goods:
- Taxable Goods
- Exempt Goods
- Nil-Rated Goods
- Non-GST Goods
- Zero-Rated Goods (Exports and SEZs)
2.2 Categories of Services:
- Taxable Services
- Exempt Services (education, healthcare)
- Composite and Mixed Services
3. GST Rate Structure (1 Hour)
GST is charged at five primary rates – 0%, 5%, 12%, 18%, and 28%. Rates are notified by
the GST Council.
3.1 Rate on Goods:
- 0%: Fresh fruits, milk, salt.
- 5%: Edible oils, sugar, footwear (up to ₹1,000).
- 12%: Butter, ghee, processed food.
- 18%: Toothpaste, hair oil, electronic items.
- 28%: ACs, cars, cigarettes.
3.2 Rate on Services:
- 0%: Education, health care.
- 5%: Transportation, railways.
- 18%: Telecom, consultancy, hotel services.
4. Change in Rate of Tax or Exchange Rate (1 Hour)
Changes in the GST rate or exchange rate affect ongoing transactions. Section 14 of the CGST
Act governs such scenarios.
4.1 Three Important Dates:
- Date of Supply
- Date of Invoice
- Date of Payment
4.2 Treatment:
If supply occurs after a rate change, the applicable rate depends on the sequence of these
three dates.
5. Calculation of GST (1 Hour)
GST = (Transaction Value × GST Rate)
Intra-State Supply = CGST + SGST
Inter-State Supply = IGST
5.1 Examples:
Example 1: Goods worth ₹1,00,000 supplied within state, 12% GST.
CGST = ₹6,000, SGST = ₹6,000, Total = ₹1,12,000
Example 2: Service worth ₹50,000 supplied interstate, 18% GST.
IGST = ₹9,000, Total = ₹59,000
6. Worksheets and Case Studies (1 Hour)
Worksheet 1: Identify the Correct Rate of GST
Q1. Classify the following with applicable GST rate:
(a) Air Conditioner – ________%
(b) Milk – ________%
(c) Restaurant Service – ________%
(d) Private tuition – ________%
Answers:
(a) 28% (b) 0% (c) 5%/18% (d) Exempt
Worksheet 2: Calculate GST Payable
Q2. Mr. A sold goods worth ₹2,50,000 (interstate) at 18% GST. Calculate IGST.
Answer: ₹2,50,000 × 18% = ₹45,000
Q3. Ms. B provided services worth ₹1,00,000 (within state) at 12% GST.
Answer: CGST = ₹6,000, SGST = ₹6,000, Total = ₹1,12,000
Worksheet 3: Exchange Rate Change Case
Q4. Invoice date: 2nd July; Payment date: 10th July; Rate changed on 5th July.
If supply is on 6th July, what rate to apply? – New Rate
7. Diagrams and Flowcharts
7.1 Flowchart: Classification under GST
HSN Code/SAC Code Identification → Determine Taxability → Check GST Rate Notification →
Apply Correct Rate → Invoice → File GST Return
7.2 Flowchart: GST Calculation
Identify Supply Type → Determine Transaction Value → Apply GST Rate → Add CGST+SGST
or IGST → Total Invoice Value
7.3 Diagram: GST Rate Slab Summary
-------------------------------------
| Rate | Goods/Services Category |
|------|-----------------------------|
| 0% | Milk, Fruits, Vegetables |
| 5% | Edible Oil, Footwear |
| 12% | Processed Food, Garments |
| 18% | Electronics, Telecom |
| 28% | Luxury Cars, AC, Cigarettes |
-------------------------------------
8. Assessment Questions with Answers
8.1 Multiple Choice Questions (MCQ)
Q1. What is the GST rate on air conditioners?
A. 5% B. 12% C. 18% D. 28%
Answer: D
Q2. SAC codes are applicable for:
A. Goods B. Services C. Both A and B D. None
Answer: B
Q3. What is the tax structure for inter-state supply?
A. Only CGST B. CGST + SGST C. Only SGST D. IGST
Answer: D
8.2 Short Answer Questions
Q1. Explain the difference between composite and mixed supply.
Answer: Composite supply includes two or more supplies naturally bundled (e.g., AC +
installation), taxed at the rate of principal supply. Mixed supply is two or more individual
supplies bundled, taxed at the highest rate.
Q2. What is the significance of HSN codes in GST?
Answer: HSN codes help in correct classification of goods and application of appropriate
GST rate. It ensures standardization across international trade.
8.3 Practical Calculation Questions
Q1. A dealer sells goods worth ₹1,50,000 within the same state at 18% GST. Calculate total
invoice value.
Answer: CGST = ₹13,500, SGST = ₹13,500, Total = ₹1,77,000
Q2. A consultant provides service worth ₹2,00,000 inter-state at 18% GST. Calculate IGST.
Answer: IGST = ₹36,000, Total Invoice Value = ₹2,36,000