GST 2.0 was announced earlier this month as a ‘Diwali gift’ to the people. Now, ahead of the festival, the Centre has emphasised that if traders do not pass on the benefit of the GST cuts to customers, they will be liable for penalty and punishment under the Weights and Measures Act.
Despite the anti-profiteering provisions not in force, the traders who do not reduce prices may end up in serious trouble. Section 171 of the GST Act contains provisions related to anti-profiteering. Under this section, GST officials have the authority to take action against traders.
If any trader fails to pass on to customers the benefit of a tax rate reduction decided by the GST Council, officials have the power to act against them. Though the central government has deactivated the powers under Section 171(2) effective from April 1, 2025, if the government notices that traders are not passing on GST rate reduction benefits to customers, it can reactivate the provision simply by issuing a notification.
Verification of traders’ accounts and documents
If the government finds that profiteering is being carried out under the guise of reduced tax rates, the anti-profiteering provisions will be enforced. This would involve not just checking a few accounts but a complete audit and verification of the trader’s accounts and documents.
When goods are moved from the 12% slab to the 5% slab, customers should not assume that prices will fall directly by 7%. The 12% GST slab has been abolished, and many goods previously under this slab are now taxed at 5%. To calculate the revised price, the following formula can be applied:
For example, if an item costs ₹100 with 12% GST:
₹100 × 12 ÷ 112 = ₹10.71 (this is the GST portion).
Thus, the base price is ₹89.29 without GST.
Now, if the item falls under the 5% GST slab, 5% GST is added to ₹89.29 = ₹4.46.
Hence, the new price of the item becomes ₹93.75.
So, an item priced at ₹100 under 12% GST will, when moved to the 5% slab, reduce in price by ₹6.25. Customers’ assumption that the reduction should be ₹7 is incorrect.
Similarly, if an item costing ₹100 with 12% GST is moved into the 18% slab, its price will not increase by 6%, but by ₹5.39.
