In the biggest tax reform since Independence, the national sales tax or GST Bill was today approved by the Rajya Sabha to replace a raft of different state and local taxes with a single unified value added tax system to turn the country into world's biggest single market.
The 66-year-old Constitution, which gives power to Centre to levy taxes like excise, and empowers states to collect retail sales taxes, was amended though the 122nd Constitution Amendment Bill.
Prime Minister Narendra Modi said the GST will "also be the best example of cooperative federalism" and "Together we will take India to new heights of progress".
The legislation was approved by the Upper House with 203 votes in favour and none against, after a seven-hour debate during which a rare bonhomie was witnessed among the ruling and the opposition parties.
Replying to the debate, Finance Minister Arun Jaitley said the GST rate will be kept "as low as possible" but did not commit to a specific rate despite opposition benches pressing for it.
"We will also try and keep the rate as low as possible, certainly much lower than what the present situation is. And as compliance increases, the possibility of that rate coming down further would be there," he said.
The tax rate, he said, would be decided by the GST Council comprising of Union Finance Minister and representatives of all 29 states.
"We must trust the sense of responsibility of the states who belong to the same political parties as us. Who in their last meeting said that our guiding principle is going to be -- one we will lower the burden of tax," he said.
The Finance Minister said presently 80 per cent of goods attract 12.5 per cent of Central excise duty while at the state level 55 per cent of items are charged with 14.5 per cent VAT or sales tax.
The weighted average of the two in 65 per cent of the items comes to 27 per cent. Adding cess, octroi and entry tax takes the figure to 30 per cent, he said.
In deciding the GST rate, "we are guided by two factors -- 27 per cent is too high, it is inflationary, it costs the people, so it should come down... The second they said we will collect what is essential for our present revenue requirement," he said.
Jaitley said members will have an opportunity to speak on subjects when the supporting GST Bill comes up in November.
The GST, he said, will make the system more efficient, increase tax compliance and tax avoidance will become more difficult as it will be detected at some stage or the other.
Also, there will be no cascading effect of tax on tax, he said adding there are certain items which will either attract lower rate of tax or no tax at all.
Ruling out GST impacting inflation, Jaitley said 54 per cent of goods in the basket used to calculate consumer price inflation are tax exempt and another 32 per cent attract low rate of tax. Only 15 per cent are taxed at standard rate.
