GST & Tax Structure — Set 2

Correct Answer: B. 12%

The 12% GST slab covers medicines, mobile phones, processed food items, ghee, butter, computers, and certain textiles. This mid-range slab covers items that are necessary but not strictly basic. Mobile phones were shifted from 12% to 18% in 2020, so the rate may vary — always check the latest notifications for exams.

Correct Answer: C. 18%

The correct answer is 18%. The 18% GST slab is the most common rate and covers a wide range of goods and services including restaurant services, cement, detergents, soaps, capital goods, AC, refrigerators, and most professional services. Revenue from the 18% slab constitutes the largest share of GST collections. This topic is frequently tested in competitive examinations such as RRB NTPC, SSC, and UPSC.

Correct Answer: C. Luxury goods like tobacco, luxury cars, and aerated drinks

The correct answer is Luxury goods like tobacco, luxury cars, and aerated drinks. The 28% GST rate applies to luxury and demerit goods such as tobacco products, luxury automobiles, aerated drinks (carbonated beverages), and gambling. Additionally, a Compensation Cess is levied over and above 28% on these items to compensate states for revenue losses during the GST transition period. This topic is frequently tested in competitive examinations such as RRB NTPC, SSC, and UPSC.

Correct Answer: B. Revenue loss in the first 5 years of GST implementation

The GST Compensation Cess was introduced under the GST (Compensation to States) Act, 2017, to compensate states for any revenue loss they might face in the first 5 years (2017-2022) of GST implementation. States were guaranteed a 14% annual growth in GST revenue. The cess was extended beyond 2022 due to COVID-19 impacts and outstanding compensation claims.

Correct Answer: B. Credit of GST paid on inputs allowed against output GST liability

Input Tax Credit (ITC) allows businesses to claim credit for the GST paid on inputs (raw materials, services) while computing their output GST liability. This prevents the cascading effect (tax on tax) that existed under the old system. ITC is available only if the supplier has paid the tax, the goods/services have been received, and the invoice is filed in the GST portal.

Correct Answer: B. Cascading effect (tax on tax) from the pre-GST era

The correct answer is Cascading effect (tax on tax) from the pre-GST era. Before GST, taxes like VAT, Excise, and Service Tax were levied at different stages without adequate ITC, leading to a cascading effect where taxes were levied on already-taxed goods. GST's seamless ITC mechanism eliminates this cascading effect by allowing credit for taxes paid at every stage of the supply chain, reducing the effective tax burden on final goods. This topic is frequently tested in competitive examinations such as RRB NTPC, SSC, and UPSC.

Correct Answer: B. GST Identification Number (15-digit)

GSTIN (Goods and Services Tax Identification Number) is a unique 15-digit alphanumeric number assigned to every GST-registered taxpayer. The first two digits represent the State Code (e.g., 27 for Maharashtra, 07 for Delhi), followed by the taxpayer's PAN (10 digits), the 13th digit is entity number for multiple registrations, 14th is 'Z' by default, and 15th is a check digit.

Correct Answer: B. State Code

The first two digits of a GSTIN represent the State Code based on the census codes. For example, 27 represents Maharashtra, 07 represents Delhi, 09 represents Uttar Pradesh, 33 represents Tamil Nadu. This allows for easy identification of the state in which the taxpayer is registered under GST.

Correct Answer: B. Harmonized System of Nomenclature

HSN (Harmonized System of Nomenclature) is an internationally recognized system for classifying goods developed by the World Customs Organization (WCO). Under GST, HSN codes are mandatory for classifying goods to determine the correct tax rate. Businesses with turnover above ₹5 crore must use 6-digit HSN codes; smaller businesses may use 4-digit codes.

Correct Answer: B. Services Accounting Code

SAC (Services Accounting Code) is used in GST to classify services for taxation purposes. Similar to HSN for goods, SAC codes systematically categorize all services. SAC codes are based on the United Nations Central Product Classification (CPC). Every service provider must use the relevant SAC code in GST invoices.