Besides, eating at restaurants will cost less as the Council lowered the rate on them to 5 per cent, irrespective of turnover or whether they have air-conditioners or not.
However, restaurants will be denied input tax credit because they were supposedly not passing on the benefit to customers.
Only restaurants in starred hotels charging at least Rs 7,500 would pay 18 per cent, said Union Finance Minister Arun Jaitley, who chaired the Council meeting.
Also, the GST
on 13 items, including pasta, curry, diabetic food, and condensed milk, was lowered from 18 per cent to 12 per cent; from 18 per cent to 5 per cent on six items such as puffed rice, idli, dosa, sambar, and worn clothing; and from 5 per cent to nil on six items like guar meal and frozen fish.
The GST rates on aircraft engines were reduced from 18-28 per cent to 5 per cent, aircraft tyres from 28 per cent to 5 per cent, and aircraft seats from 28 per cent to 5 per cent. The GST rate on bangles of lac was lowered to nil from 3 per cent.
Prime Minister Narendra Modi said, "The recommendations made by the GST Council will further benefit our citizens and add strength to the GST. These recommendations are in the spirit of continuous feedback we are getting from various stakeholders on the GST."
Under the composition scheme, which gives easier compliance to small and medium players and a flat rate without the benefit of input tax credit, the rate has been cut to 1 per cent in the case of manufacturers. Traders will continue to pay 1 per cent. For restaurants it will continue to remain 5 per cent, the same as for those (except the ones in starred hotels) that are not under this scheme.
Besides, the scheme was made open for service providers up to a threshold of Rs 5 lakh.
The threshold for availing of the scheme was raised to an annual turnover of Rs 1.5 crore from Rs 1 crore.
Besides, the law will be changed to enable a further increase to Rs 2 crore.
While Bihar Finance Minister Sushil Kumar Modi said the decision would cost the exchequer Rs 20,000 crore, Jaitley refused to quantify the revenue impact, saying compliance might also increase due to the rate reductions.
West Bengal Finance Minister Amit Mitra said the Centre and the states had incurred losses of Rs 90,000 crore in the first three months of the GST.
Only a few categories will remain in the 28 per cent tax slab, which would include luxury and sin goods such as big cars and cigarettes, which attract a cess over the peak rate, auto parts, yachts, construction materials such as cement and paints, etc.
The move drew flak from Cement Manufacturers’ Association.
The Council decided to go beyond the recommendation of the fitment committee to thin the 28 per cent slab to 62 items and decided to additionally lower rates for 12 more items.
Shaving-cream, beauty products, chocolates, chewing gum, marble, and granite are among the additional 12 items whose rate has come down to 18 per cent, going beyond the fitment committee recommendation.
"We identified 12 more items for which the rates will be reduced to 18 per cent," said a government official.
Explaining the rationale behind the move, Jaitley said the principle of equivalence was applied while fitting items in various slabs of the GST. This means that items were fitted in the slabs — 5 per cent, 12 per cent, 18 per cent, and 28 per cent — on the basis of the closest rates to the ones drawn by them in the pre-GST regime.
He evaded a reply to the query as to whether the decisions were a precursor to merging the standard rates of 12 per cent and 18 per cent, saying the question pertained to the agenda of meetings in the future.
Vishal Raheja of Taxmann said: "We expect that government will further slash tax rates by moving from four tax slabs to fewer rates or even a single one.”
Abhishek A Rastogi, Partner, Khaitan & Co, said it appeared that after this mass rate reductions various anti-profiteering problems might come up for businesses which would not pass on the benefits to consumers.