UNIT 2: KEY CONCEPTS AND PROVISIONS

UNDER GST

2.1 GST RATES AND CLASSIFICATION SYSTEM

2.1.1 Overview of GST Rate Structure
The Goods and Services Tax (GST) in India operates on a multi-tier rate structure designed to ensure equity
in taxation. Essential goods attract lower rates, while luxury and demerit goods face higher taxation.
Historical Context (Pre-September 2025)
Before the GST 2.0 reforms, India had a five-tier rate structure:
• 0% (Nil-rated)
• 5%
• 12%
• 18%
• 28% + Compensation Cess (on select goods)
Current GST Rate Structure (Effective from September 22, 2025)
As per the 56th GST Council meeting held in September 2025, India transitioned to a simplified two-tier
structure with special rates:

GST Rate Category Examples

Fresh vegetables, milk, salt, fresh fish, unbranded rice, unbranded

0% (Nil-rated) Essential goods
flour

Priority goods & Packaged foods, sugar, tea, coffee, edible oils, life-saving drugs,
5%
everyday necessities agricultural equipment

Standard goods & Mobile phones, electronics, cosmetics, telecom services, IT

18%
most services services, air conditioners, small cars

High-end cars, tobacco products, pan masala, premium

40% Luxury & sin goods
motorcycles, luxury SUVs

Precious metals &

Special Rates Gold & gold jewellery (3%), Diamonds (0.25%)
stones

Key Changes from 55th & 56th GST Council Meetings

55th GST Council (December 21, 2024) - Key Rate Changes:
1. Fortified Rice Kernels (FRK): Reduced from 18% to 5%
 2. Old and used vehicles (including EVs): Increased from 12% to 18% (applicable only on margin)
3. Autoclaved Aerated Concrete (ACC) blocks with >50% fly ash: 12% GST
4. Gene therapy: Full GST exemption applied
5. Ready-to-eat popcorn: 12% if pre-packed and labelled; 18% if caramelised
56th GST Council (September 3, 2025) - Major Reforms:
The GST Council approved a two-tier tax system effective from September 22, 2025, shifting items from 12%
and 28% slabs to either 5% or 18%
• Daily-use items (soaps, shampoos, butter, cheese): Reduced to 5% (previously 12%/18%)
• Kitchen appliances, ACs, small cars, TVs, motorcycles <350cc: Reduced to 18% (previously 28%)
• Introduction of 40% rate for luxury and sin goods (replacing 28% + cess structure)

2.1.2 GST Compensation Cess

What is Compensation Cess?
The GST Compensation Cess is an additional levy over and above the standard GST rate, primarily imposed on
luxury and demerit goods to compensate states for revenue losses during the GST transition period.
Legal Basis: Section 8 of the GST (Compensation to States) Act, 2017
Current Status (January 2026):
Tobacco, pan masala, and related products continue under 28% GST plus compensation cess until GST
compensation loan dues to states are fully settled. These will eventually transition to the 40% slab.
Goods Subject to Compensation Cess:

Product Category GST Rate Compensation Cess

Luxury cars (>4m length, >1500cc engine) 28% 15%-22%

SUVs with certain specifications 28% 22%

Tobacco products 28% 5%-290% (ad valorem + specific)

Aerated beverages 28% 12%

Coal and lignite 5% ₹400 per tonne

Example: A luxury SUV worth ₹30,00,000:

• GST @ 28% = ₹8,40,000
• Compensation Cess @ 22% = ₹6,60,000
• Total Tax = ₹15,00,000
• Final Price = ₹45,00,000
2.1.3 Classification of Goods and Services
Classification is the systematic categorization of goods and services to determine the applicable tax rate.
Proper classification is critical for tax compliance.
Why Classification Matters:
1. Determines the applicable GST rate
2. Affects eligibility for Input Tax Credit (ITC)
3. Impacts customs duty (for imports)
4. Required for statutory reporting
General Rules for Interpretation (GRI):
The classification of goods follows the General Rules for Interpretation as per the GST Tariff:
1. GRI 1: Classification determined by headings and section/chapter notes
2. GRI 2: Incomplete/unfinished goods classified as complete goods
3. GRI 3: Goods classifiable under two or more headings - most specific heading prevails
4. GRI 4: Goods not classifiable under above rules - classified under similar goods
5. GRI 5: Packing materials classified with goods
6. GRI 6: Sub-heading classification follows similar principles

2.1.4 Rate Determination for Common Products

Example 1: Laptop Computer
• Description: Portable computer with screen
• HSN Code: 8471 30 00
• GST Rate: 18%
• Nature: IGST for inter-state; CGST + SGST for intra-state
Example 2: Packaged Atta (Wheat Flour)
• Description: Pre-packaged and labelled wheat flour
• HSN Code: 1101
• GST Rate: 5% (reduced under GST 2.0)
• Previously: Could vary based on branding
Example 3: Restaurant Service (Stand-alone)
• Description: Restaurant service without AC
• SAC Code: 9963
• GST Rate: 5% without ITC
• Note: Hotel restaurants now taxed based on room tariff from April 1, 2025

2.2 HSN AND SAC CODES

2.2.1 Introduction to HSN (Harmonized System of Nomenclature)
Definition: HSN is an internationally standardized system of names and numbers developed by the World
Customs Organization (WCO) for classifying traded products.
Structure of HSN:
Example: Tea (HSN 0902)

Mandatory HSN Digits Based on Turnover:

Minimum HSN Digits

Annual Turnover
Required

Up to ₹5 Crore 4 digits

Above ₹5 Crore 6 digits

Importers/Exporters 8 digits (mandatory)

Legal Provision:
• Notification No. 78/2020-Central Tax dated 15.10.2020
• Rule 46 of CGST Rules, 2017
2.2.2 Introduction to SAC (Services Accounting Code)
Definition: SAC is a classification system for services under GST, enabling uniform identification and
taxation of services across India.
Structure of SAC (6-digit code):

Major SAC Sections:

SAC Range Service Category

9951-9963 Accommodation & Food Services

9971-9973 Transport Services

9981-9983 Financial Services

9991-9993 Education Services

9961-9967 Construction Services

Example: SAC 9963 (Food & Beverage Services)

2.2.3 Importance and Application of HSN/SAC Codes

Key Benefits:
1. Uniformity: Ensures consistent tax treatment across India
2. International Trade: Facilitates customs clearance and documentation
3. Data Analytics: Helps government track sector-wise revenue
4. Compliance: Mandatory for filing GST returns (GSTR-1, GSTR-3B)
5. Audit Trail: Enables easy verification during tax audits
Where HSN/SAC Codes Must be Mentioned:
2.2.4 Finding HSN/SAC Codes for Common Items
Method 1: Use CBIC Official Website
• Visit: [Link]
• Navigate to "GST Rates" section
• Search by product/service name
Method 2: GST Rate Finder Tools
• ClearTax HSN Code Finder
• MasterIndia HSN Search
• GSTN Portal Search
Method 3: Check Similar Products
• Review invoices from suppliers
• Industry standards
• Trade associations
Practical Example:
Scenario: A trader sells smartphones. Find the HSN code.
Solution:
1. Product: Mobile phones
 2. Category: Electronic equipment
3. HSN Code: 8517 12 00
4. Description: "Telephones for cellular networks or for other wireless networks"
5. GST Rate: 18%
Common Mistakes to Avoid:

2.3 TAXABLE AND NON-TAXABLE GOODS AND SERVICES

2.3.1 Concept of "Supply" under GST
Legal Definition: Section 7 of the CGST Act, 2017 defines "supply" as the core taxable event under GST.
What Constitutes Supply?
Supply includes:
1. Sale - Transfer of ownership for consideration
2. Transfer - Without sale (e.g., branch transfers)
3. Barter/Exchange - Goods/services exchanged without money
4. Lease - Temporary transfer of right to use
5. Disposal - Permanent parting with goods
6. Supply of services - All forms of services for consideration
Essential Elements for Supply:
Deemed Supply (Schedule I):
Even without consideration, following are treated as supply:
1. Permanent transfer of business assets
2. Goods sent to another state for sale (same person)
3. Goods/services to related persons
4. Gifts exceeding ₹50,000 per person per year
5. Goods distributed as free samples
Non-Supply Transactions (Schedule III):
Following are NOT treated as supply:
1. Services by employees to employer
2. Transfer of business as going concern
3. Sale of land and buildings (except in construction)
4. Actionable claims (except lottery, betting, gambling)
Example:
ABC Ltd. transfers ₹5,00,000 worth of goods to its branch in another state.
Analysis:
• Transfer of goods: YES
• Between distinct persons (different states): YES
• In course of business: YES
• Conclusion: This is a deemed supply under Schedule I, taxable under IGST

2.3.2 Composite Supply and Mixed Supply

These concepts are crucial for determining the correct GST rate when multiple goods/services are supplied
together.
COMPOSITE SUPPLY
Definition (Section 2(30)): A supply consisting of two or more goods/services that are naturally bundled and
supplied in conjunction with each other in the ordinary course of business, where one is the principal supply.
Characteristics:
1. Two or more goods/services
2. Naturally bundled together
3. One principal supply
4. Taxed at the rate of principal supply

Example 1: Laptop with Pre-loaded Software and Bag

Components:
o Laptop (Principal) - 18%
o Pre-loaded software - 18%
o Laptop bag - 18%
o Mouse - 18%
Analysis:
• All components naturally bundled
• Principal supply: Laptop
• GST Rate: 18% (rate of laptop)
Example 2: Hotel Stay with Breakfast
Components:
o Room accommodation
o Breakfast
o Wi-Fi
o Newspaper
Analysis:
 • Principal supply: Accommodation
• All ancillary services naturally bundled
• GST Rate: Rate applicable to hotel accommodation
MIXED SUPPLY
Definition (Section 2(74)): A supply consisting of two or more goods/services that are NOT naturally
bundled, supplied together for a single price.
Characteristics:
1. Two or more goods/services
2. NOT naturally bundled
3. Can be sold separately
4. Taxed at highest rate among components

Example 1: Gift Hamper

A festival gift hamper contains:
• Dry fruits (HSN 0801) - 5%
• Chocolate box (HSN 1806) - 28%
• Decorative items (HSN 8306) - 18%
• Greeting card (HSN 4909) - 12%
Analysis:
• Items NOT naturally bundled
• Sold together for convenience
• GST Rate: 28% (highest rate - chocolates)
• Total value: ₹5,000
• GST: ₹5,000 × 28% = ₹1,400
Example 2: Combo Offer - Mixer Grinder with Cookware Set
 • Mixer grinder - 18%
• Cookware set - 18%
• Recipe book - 12%
Analysis:
• Items can be sold separately
• Not naturally bundled
• GST Rate: 18% (highest rate)
Key Differences:

Aspect Composite Supply Mixed Supply

Bundling Naturally bundled NOT naturally bundled

Principal Supply Has one principal supply No principal supply

Tax Rate Rate of principal supply Highest rate among items

Example Courier with insurance Gift hamper

2.3.3 Taxable Supply vs Exempt Supply

TAXABLE SUPPLY:
Supply of goods/services which is liable to tax (including zero-rated supply).
Types:
1. Fully taxable - Standard rate applicable (5%, 18%, 40%)
2. Zero-rated - 0% tax but ITC available (exports, SEZ supplies)
EXEMPT SUPPLY:
Supply of goods/services which is not liable to tax and NO Input Tax Credit is available.
Comparison:

Parameter Taxable Supply Exempt Supply

Tax Rate 5%, 18%, 40% etc. Not liable to tax

ITC Fully available NOT available

Examples Mobile phones, AC Education, healthcare

Output tax Must be paid No output tax

Key Exempt Services (as of January 2026):

1. Healthcare Services
a. Clinical services
 b. Diagnostic services
c. Blood bank services
2. Educational Services
a. Pre-school to higher education (recognized institutions)
b. Skill development courses by approved partners
3. Agricultural Services
a. Services by agriculturists
b. Pepper and raisins by farmers (exempt from Dec 2024)
4. Financial Services (Selective)
a. Life insurance services (under review)
b. Micro-finance services
5. Transportation
a. Passenger transport by non-AC stage carriage
b. Transport of goods by road (GTA under certain conditions)

2.3.4 Intra-State Supply vs Inter-State Supply

This distinction determines whether CGST+SGST or IGST applies.
1. INTRA-STATE SUPPLY
Definition (Section 8): Supply where the location of supplier and place of supply are in the same state/UT.
Tax Components:
• CGST (Central GST) - Goes to Central Government
• SGST (State GST) - Goes to State Government
• Total Rate = CGST + SGST
Example:
• Supplier: Mumbai, Maharashtra
• Place of Supply: Pune, Maharashtra
• Nature: Intra-state supply
• GST: CGST 9% + SGST 9% = 18%
 2. INTER-STATE SUPPLY
Definition (Section 7 of IGST Act): Supply where the location of supplier and place of supply are in
different states/UTs.
Tax Component:
• IGST (Integrated GST) - Initially goes to Central Government, later apportioned
Example:
• Supplier: Mumbai, Maharashtra
• Place of Supply: Delhi
• Nature: Inter-state supply
• GST: IGST 18%
Place of Supply Rules (Section 10-13, IGST Act):
1. Goods: Location where movement terminates for delivery
2. Services: Location of service recipient (generally)
3. Immovable property services: Location of property
4. Restaurant/event services: Location where service performed
Special Cases:

Type Treatment

Bill-to-Ship-to Inter-state if shipped to different state

Import of goods Inter-state (IGST applicable)

Export of goods Inter-state (Zero-rated)

Supply to SEZ Inter-state (Zero-rated)

Example: Complex Scenario

XYZ Ltd. (Bangalore) sells goods to ABC Ltd. (Chennai). Goods are delivered to ABC's branch in Hyderabad.
Analysis:
• Location of supplier: Karnataka (Bangalore)
• Location of recipient: Tamil Nadu (Chennai)
• Place of Supply: Telangana (Hyderabad) - where goods delivered
• Nature: Inter-state supply
 • Tax: IGST

2.4 EXEMPTIONS AND SPECIAL PROVISIONS

2.4.1 Goods and Services Exempt from GST
Legal Basis:
• Section 11 of CGST Act, 2017 empowers government to exempt goods/services via notification
• Notification No. 12/2017-Central Tax (Rate) for services
• Notification No. 2/2017-Central Tax (Rate) for goods
Key Exempt Goods:
1. Agricultural Products (Fresh)
• Fresh vegetables
• Fresh fruits
• Fresh milk
• Fresh fish and meat
• Unprocessed cereals
• Note: Processing/packaging may attract GST
2. Essential Food Items
• Salt
• Jaggery (unbranded)
• Fresh ginger, garlic
• Turmeric, coriander (unbranded)
3. Healthcare Items
• Human blood and blood products
• Contraceptives
• Hearing aids
• Braille paper, watches, typewriters
4. Educational Materials (Selective)
• Printed books, newspapers, journals
• Maps and charts
• Slate and slate pencils
5. Cultural/Religious Items
• Sindoor, bindi
• Kumkum, kajal
• Prasad distributed by religious institutions
Key Exempt Services:
1. Healthcare & Medical
 • Services by clinical establishments
• Diagnostic laboratories (up to ₹5,000 turnover)
• Veterinary services
• Ambulance services
2. Educational Services
• Pre-school to higher secondary education
• Services by recognized educational institutions
• Skill development by approved partners (added Dec 2024)
3. Agricultural Services
• Ploughing, harvesting
• Agricultural extension services
• Pepper and raisins supplied by agriculturists (exempt from Dec 2024)
4. Religious Services
• Services by religious trusts/institutions
• Renting of precincts by religious bodies
5. Financial Services (Selective)
• Services by RBI
• Arbitral tribunal services (turnover <₹20 lakhs)
• Payment aggregators for transactions <₹2,000 (exempt from Dec 2024)

2.4.2 Nil-Rated and Zero-Rated Supplies

This is one of the most important concepts for ITC eligibility.
NIL-RATED SUPPLIES
Definition: Supplies on which GST rate is 0% but are NOT considered zero-rated in technical terms.
Characteristics:
• Tax rate: 0%
• ITC: NOT available
• Examples: Fresh vegetables, milk, salt
Impact:
• No output tax liability
• Cannot claim ITC on inputs used
• Pro-rata reversal of ITC required
ZERO-RATED SUPPLIES
Definition (Section 16 of IGST Act): Supplies which are:
1. Export of goods/services
2. Supply to SEZ developer/unit
Characteristics:
 • Tax rate: 0%
• ITC: Fully available (can be claimed/refunded)
• Export benefits available
Comparison Table:

Aspect Nil-Rated Zero-Rated

Tax Rate 0% 0%

ITC Availability Not available Fully available

Refund Not applicable Can claim refund

Examples Milk, vegetables Exports, SEZ supplies

Business Impact Cost increases Cost neutral

Example: Exporter's Benefit

ABC Exports Ltd. manufactures garments for export.
Inputs purchased:
• Fabric: ₹10,00,000 + GST @5% = ₹50,000
• Packing materials: ₹2,00,000 + GST @18% = ₹36,000
• Total ITC: ₹86,000
Output:
• Export value: ₹20,00,000
• Export GST: 0% (zero-rated)
Refund Available: ₹86,000 (full ITC)
Conclusion: Exporter pays no GST on exports and gets refund of all input GST, making exports competitive.

2.4.3 Threshold Limits for GST Registration

Legal Provision: Section 22 of CGST Act, 2017
Registration under GST becomes mandatory when aggregate turnover exceeds prescribed threshold limits in a
financial year.
Current Threshold Limits (January 2026)
Normal Category States:

Type of Supply Threshold Limit

Goods only ₹40 lakhs

Services only ₹20 lakhs

Goods + Services (mixed) ₹20 lakhs

Special Category States (Northeastern states, Himachal Pradesh, Uttarakhand, J&K):

Type of Supply Threshold Limit

Goods only ₹20 lakhs

Services only ₹10 lakhs

Goods + Services (mixed) ₹10 lakhs

Special Category States Include:

• Arunachal Pradesh, Assam, Manipur, Meghalaya
• Mizoram, Nagaland, Sikkim, Tripura
• Himachal Pradesh, Uttarakhand
• Jammu & Kashmir, Ladakh
Important Notes on Threshold:
1. Aggregate Turnover includes:
a. Taxable supplies
b. Exempt supplies
c. Exports
d. Inter-state supplies
e. Excludes: GST, goods returned, discounts before supply
2. All India Basis:
a. Threshold calculated on PAN-India basis
b. Even if operations in multiple states
3. Time Limit for Registration:
a. Within 30 days from the date threshold is crossed
b. Penalty for late registration
4. Voluntary Registration:
a. Businesses below threshold can register voluntarily
b. Useful for ITC benefits and credibility
Persons Mandatorily Required to Register (Regardless of Turnover):
1. Inter-state suppliers
2. E-commerce operators
3. Casual taxable persons
4. Non-resident taxable persons
5. Reverse charge mechanism recipients
6. Input service distributors
7. TDS deductors
 8. E-commerce aggregators
9. Online information database access providers (OIDAR)
Example 1: Threshold Calculation
Mr. Sharma runs a grocery store in Maharashtra:
Financial Year 2025-26:
• April-Nov 2025: Turnover = ₹32 lakhs
• December 2025: Turnover = ₹5 lakhs
• Aggregate Turnover as on Dec 31, 2025: ₹37 lakhs
Analysis:
• Type: Goods supply
• State: Maharashtra (Normal category)
• Threshold: ₹40 lakhs
• Registration Required: NO (below threshold)
If January 2026 turnover is ₹4 lakhs:
• Aggregate turnover = ₹37 + ₹4 = ₹41 lakhs
• Registration Required: YES
• Deadline: Within 30 days from Jan 31, 2026
Example 2: Service Provider in Special Category State
Ms. Patel provides consulting services in Sikkim:
Turnover for FY 2025-26:
• Total turnover: ₹12 lakhs
Analysis:
• Type: Services
• State: Sikkim (Special category)
• Threshold: ₹10 lakhs
• Registration Required: YES (crossed ₹10 lakhs)

2.4.4 Special Provisions for Specific Sectors

GST provides sector-specific provisions to address unique business models and operational challenges.
1. Composition Scheme (Section 10)
A simplified tax payment scheme for small taxpayers.
Eligibility Criteria (as of January 2026):
• Aggregate turnover up to ₹1.5 crore (₹75 lakhs for special category states)
• Engaged in supply of goods (manufacturers, traders)
• Restaurant services allowed
• NOT engaged in inter-state supply
• NOT supplying through e-commerce operator
Tax Rates under Composition:

Type of Business Tax Rate

Manufacturers 1% (0.5% CGST + 0.5% SGST)

Restaurant service 5% (2.5% CGST + 2.5% SGST)

Other suppliers 1% (0.5% CGST + 0.5% SGST)

Restrictions:

Example:
Mr. Kumar runs a small retail shop in Delhi:
• Annual turnover: ₹80 lakhs
• Opts for composition scheme
• Tax liability: ₹80,00,000 × 1% = ₹80,000 per year
• ITC: Cannot claim
• Compliance: Quarterly return (CMP-08), Annual return
Benefits:
• Lower tax rate
• Simplified compliance
 • Reduced bookkeeping
2. Real Estate Sector
GST on Construction Services:

Type GST Rate Conditions

Carpet area ≤60 sqm (metro), ≤90 sqm (non-metro); Value ≤ ₹45
Affordable housing 1% (without ITC)
lakhs

Other than
5% (without ITC) Residential property under construction
affordable

Commercial
12% (with ITC) Offices, shops, etc.
properties

Important Points:
• Sale of completed properties (after Completion Certificate): NO GST
• Sale of land: NO GST
• Land value abated at 1/3rd of total value for determining taxable value
Example:
Builder ABC constructs affordable housing:
• Carpet area: 55 sqm
• Sale price: ₹40 lakhs
• Location: Mumbai (metro city)
Analysis:
• Qualifies as affordable housing
• GST: 1% without ITC
• Tax: ₹40,00,000 × 1% = ₹40,000
3. E-commerce Sector
Tax Collection at Source (TCS) - Section 52:
E-commerce operators must collect tax at 1% (0.5% CGST + 0.5% SGST or 1% IGST) on net value of taxable
supplies.
Applicable to:
• Operators facilitating supply through their platform
• Suppliers registered under composition scheme cannot supply through e-commerce
Example:
Seller X sells goods worth ₹1,00,000 through Amazon:
• Amazon's commission: ₹10,000
• Net taxable value: ₹90,000
 • TCS by Amazon: ₹90,000 × 1% = ₹900
• Seller can claim this ₹900 as credit in GSTR-3B
4. Banking and Financial Services
Exemptions and Special Rates:
• Interest on loans: Exempt
• Credit card services: 18%
• Merchant discount fees (below ₹2,000 via payment aggregators): Exempt (from Dec 2024)
• ATM operations: 18%
Input Tax Credit Restrictions:
Banks and financial institutions face ITC restrictions on:
• Motor vehicles
• Food and beverages
• Membership of clubs
• Health services
5. Telecommunication Services
Current Provisions:
• Telecom services: 18% (reduced from previous structure)
• Prepaid vs Postpaid: Both taxed at same rate
• Bundled services (data + voice): Treated as composite supply @ 18%
6. Textile Sector
Recent Changes:
• Man-made fiber and yarn: GST continues
• Readymade garments: 18% (under GST 2.0)
• Cotton textile products: Rate based on value and type
7. Healthcare Sector
Exempt Services:
• Clinical establishment services
• Blood bank services
• Veterinary services
• Diagnostic lab services (for entities with turnover <₹5 lakhs)
Taxable at 5%:
• Room rent >₹5,000/day (excluding ICU)
Taxable at 18%:
• Cosmetic/plastic surgery
• Hair transplant
• IVF services (under consideration)
8. Hospitality Sector (Hotels & Restaurants)
Effective from April 1, 2025:

Room Tariff (per day) GST Rate

Less than ₹1,000 NIL

₹1,000 to ₹2,499 12%

₹2,500 to ₹7,499 18%

₹7,500 and above 28%

Restaurant Services:
• Standalone (non-AC): 5% without ITC
• Standalone (AC/liquor license): 5% without ITC
• Hotel restaurant: Rate based on room tariff
Example:
Hotel Taj offers room at ₹8,000/night:
• GST on accommodation: 28%
• Amount: ₹8,000 × 28% = ₹2,240
• Total: ₹10,240
Food served in hotel restaurant: Same rate as room (28%)
9. Media and Entertainment
Cinema tickets:
• Ticket price up to ₹100: 0% or low rate
• Ticket price above ₹100: 18%
OTT platforms:
• Subscription services: 18%
• Advertisement services: 18%
Newspapers and periodicals:
• Printed books/newspapers: Exempt
• E-newspapers: 0% (under review)
10. Agriculture and Allied Sectors
New Exemptions (55th GST Council - Dec 2024):
• Pepper supplied by agriculturists: Exempt
• Raisins supplied by agriculturists: Exempt
• Agricultural services by farmers: Exempt
• Gene therapy: Fully exempt
Equipment:
• Tractors: 12%
• Agricultural implements: 5-12%
• Drip irrigation equipment: 12%

SUMMARY AND QUICK REVISION

2.1 GST Rates:
• India now follows a two-tier system (5% and 18%) with special rates for luxury (40%) and precious
metals
• Compensation cess continues on tobacco and luxury vehicles until state dues are cleared
• Classification follows GRI rules; always verify latest rate notifications
2.2 HSN/SAC:
• HSN for goods (4/6/8 digits based on turnover)
• SAC for services (6 digits)
• Mandatory on invoices and returns
2.3 Supply Concepts:
• Composite supply: Natural bundle, taxed at principal supply rate
• Mixed supply: Unnatural bundle, taxed at highest rate
• Intra-state: CGST + SGST
• Inter-state: IGST
2.4 Exemptions:
• Nil-rated: 0% tax, NO ITC
• Zero-rated: 0% tax, ITC available (exports, SEZ)
• Thresholds: ₹40L (goods), ₹20L (services) in normal states
• Composition: Available up to ₹1.5 crore turnover

Recent Amendments Summary (2025-2026)

55th GST Council (December 21, 2024):
1. FRK: 18% → 5%
2. Old vehicles: 12% → 18% (on margin)
3. Pepper & raisins by farmers: Exempt
4. Gene therapy: Exempt
5. Payment aggregators (< ₹2,000): Exempt
56th GST Council (September 3, 2025):
1. Two-tier structure: 5% and 18% (replacing 12% and 28%)
2. Luxury rate: New 40% slab
3. Daily essentials: Reduced to 5%
4. Consumer durables: Reduced to 18%
Important Formulas

PRACTICE QUESTIONS
Question 1: A hotel in Bangalore charges ₹6,000 per night. A customer books for 3 nights and also avails
restaurant services worth ₹5,000. Calculate total GST payable.
Solution:
• Room tariff: ₹6,000 (₹2,500-₹7,499 slab)
• GST on rooms: 18%
• Room charges: ₹6,000 × 3 = ₹18,000
• GST on rooms: ₹18,000 × 18% = ₹3,240
• Restaurant (based on room tariff): ₹5,000 × 18% = ₹900
• Total GST: ₹3,240 + ₹900 = ₹4,140
Question 2: Classify the following as composite or mixed supply: a) Air ticket with meal and baggage b) Gift
hamper with chocolates, dry fruits, and toys
Solution: a) Composite supply - naturally bundled for air travel b) Mixed supply - items not naturally bundled
Question 3: ABC Ltd. in Mumbai sells goods worth ₹50 lakhs to XYZ Ltd. in Gujarat. What type of supply and
tax applicable?
Solution:
• Supplier: Maharashtra
• Customer: Gujarat
• Type: Inter-state supply
• Tax: IGST @ applicable rate
• If goods are taxed at 18%, then IGST = ₹50,00,000 × 18% = ₹9,00,000
____________________________________________________________________________________

REFERENCES
1. CGST Act, 2017 - Central Goods and Services Tax Act
2. IGST Act, 2017 - Integrated Goods and Services Tax Act
3. GST Compensation to States Act, 2017
4. CGST Rules, 2017 - Especially Rules 46 (HSN), 10 (Composition)
5. ICAI Study Material - GST Modules (January 2026 Edition)
6. GST Council Recommendations - 55th Meeting (Dec 2024), 56th Meeting (Sep 2025)
7. CBIC Notifications - Rate notifications, Exemption notifications
8. Official GST Portal - [Link]