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Key Highlights
- Unpasteurised milk is a GST-free product. This means that milk is tax-exempt for farmers and consumers alike.
- Dairy products having undergone some processing (e.g. cream and condensed milk), attract 5%-12% rates of GST depending on sugar and other additives.
- Cream in packaged forms, cream toppings, and desserts (HSN 2106) are at the tax rate of 18%, which makes them costly compared to regular cream.
- The burden of ensuring proper classification of dairy products under appropriate tax rates falls on the shoulders of the dairy businesses to avoid penalties.
Milk and dairy products constitute a major part of India's economy and everyday consumption. Based on the processing and packaging of the dairy product, the dairy sector is levied different tax rates under the Goods and Services Tax regime.Fresh and concentrated milk and cream fit in HSN Code 0401 and 0402, respectively. Unprocessed and raw milk is free of GST, while flavoured and processed milk has different applicable tax rates.Entities engaged in dairy should familiarise themselves with milk HSN code and GSTrate compliances to ensure proper invoicing and compliance. So, let's understand the HSN codes and GST rates of milk products in different forms.
GST Taxability of Milk Production and Sales
To rationalise and eliminate tax leakage, the GST Council has removed the exclusions given to specific dairy products. This amendment becomes effective on 18 July 2022.
- Prepared and labelled milk products like paneer, curd, lassi, and buttermilk are subject to a GST of 5%.
- UHT (Ultra-high temperature) milk will attract a 5% GST.
- GST of 12% also applies to cheese, butter, ghee, and condensed milk.
However, as far as GST is concerned, pasteurised and fresh milk continues to be exempt. Additionally, as long as buttermilk, paneer, and curd are sold unpackaged and without a brand name, they are exempt from GST.
GST Rate on HSN-coded Milk, Paneer, and Curd
Chapter 4 of the GST Act lists the GST rates on cheese, cream, and curd. Here is a table indicating the relevant GST rates for rate for dairy products along with their
milk HSN codes:
| HSN Code | Product Details | GST Rate |
| 0401 | Both fresh and pasteurised milk—except for UHT milk—including separated milk, milk, and cream that isn't sweetened or concentrated | NIL |
| 0401 | Milk at Ultra-High Temperature (UHT) | 5% |
| 0402 | Concentrated or sweetened milk or cream, including powdered skim milk but not concentrated milk | 5% |
| 0403 | Cream, yoghurt, and acidified or fermented milk and cream, whether concentrated or not | 5% |
| 0403 | Any prepackaged and labelled lassi, buttermilk, and curd | 5% |
| 0403 | All products of buttermilk, lassi, and curd, except for prepackaged and labelled ones | NIL |
| 0404 | For milk products without any sugar added or concentrated | 5% |
| 0406 | Chena or Paneer-not including those that have been prepackaged or labelled | 5% |
| 0406 | All products of Chena or Paneer, except for prepackaged and labelled ones | NIL |
| 0402 91 10, 0402 99 20 | Condensed Milk | 12% |
| 8434 | Dairy tools and milking machines | 18% |
| 7310, 7612 | All sorts of cans for milk, irrespective of their structure and materials of construction, i.e., aluminium, steel, iron, etc. | 12% |
Input Tax Credit Claim on Milk, Paneer, and Curd
A registered taxable person can claim input tax credit (ITC) on goods and services used to develop their business as suppliers of various dairy products following Section 16(1) of the CGST Act, while Section 17(5) of the CGST Act puts certain restrictions on ITC claim linked to those items.
Changes to Milk, Paneer, and Curd
As per GST legislation, since the introduction of GST Law, curds and paneer have been exempt from GST. However, due to rate rationalisation issues, during the 47th GST Council meeting, the GST rate was reduced on milk, and the compensation mechanism to states is coming to an end.In addition, reports of revenue leakage due to certain pre-packaged food products being exempt from GST further aggravated this problem. Several unregistered businesses were selling their goods under their brand names without paying the GST fee.Hence, the GST council recommended that GST be charged on these pre-packaged and labelled goods.
Knowing the HSN Rates and GST Codes on Milk-Related Products is Important
Dairy farmers, traders, retailers, and consumers should understand GST rates and applicable HSN codes on milk and cream. While fresh milk is exempt from GST, other processed dairy products like cream, flavoured milk, and condensed milk receive different GST rates according to their sugar content and other enhancements.Such businesses must also ensure proper classification of milk HSN codes and file for GST compliances based on Input Tax Credit (ITC), wherever applicable. It is most advisable to stay informed through official GST portals ( www.gst.gov.in ) regarding the changes in taxation for dairy products.To find your GST liability, you can use the online GST calculator . It is a simple tool which helps find the GST payable on your products so that you can file your returns easily.
FAQS - FREQUENTLY ASKED QUESTIONS
What is the milk HSN code and GST rate?
Unprocessed and fresh milk comes under HSN Code 0401, which comprises raw, pasteurised, toned, double-toned, and skimmed milk, provided they are not concentrated or have added sugar or flavouring. Fresh milk is exempt from GST, and no tax is charged on its sale.
Does GST apply to pasteurised or toned milk?
No, pasteurised, toned, and skimmed milk are also exempt from GST, as long as they don't have added sugar, flavouring, or preservatives. These milk types are tax-free under GST as long as they are in their natural state without added ingredients.
What is the GST on cream?
Cream, based on processing and added ingredients, is taxed differently under GST:
Fresh cream (no added sugar or flavours) is classified under HSN Code 0402 and is charged 5% GST. This applies to cream meant for household and bakery purposes. Whipped cream and dessert toppings containing preservatives, emulsifiers, or stabilisers are categorised under HSN Code 2106 and charged a higher 18% GST.
What is the classification of flavoured milk under GST?
Flavoured milk is not natural milk and is hence included as a processed dairy product under HSN Code 0402, which is charged 12% GST. Flavours, sweeteners, or preservatives change the natural flavour of milk and thus the government charges it as any other processed food.
Is condensed milk taxable under GST?
Yes, condensed milk and sweetened dairy milk are classified as processed dairy products under HSN Code 0402 and are subject to 12% GST. Being processed and having a longer life, it is taxed separately from fresh milk.
Do dairy farmers need to pay GST on milk sales?
No, dairy farmers marketing raw and unprocessed milk (HSN 0401) need not pay or charge GST because fresh milk is GST-free. However, if farmers produce processed dairy products like cheese, butter, or flavoured milk, they'll have to register for GST and pay tax accordingly.
Are milk and cream purchases eligible for ITC by businesses?
ITC cannot be claimed for GST-exempt items like fresh milk as no tax is charged on exempted goods. However, ITC is available on cream, flavoured milk, condensed milk, and dairy products taxed at 5%, 12%, or 18%.
Are ghee and butter in the same HSN code as milk and cream?
No, ghee and butter come under HSN Code 0405 and are charged 12% GST, while milk and cream come under HSN Codes 0401 and 0402 and are charged different tax rates.
Is GST charged on dairy products sold loose?
Loose milk (not packed) is exempt from GST, provided it is in its natural state. Loose cream (without sugar or preservatives) is charged 5% GST under HSN Code 0402. Branded or packed dairy products can be subject to GST based on processing and ingredients added.
What is the GST rate on dairy whiteners?
Dairy whitener, a value-added milk product with preservatives such as maltodextrin and stabilisers, comes under HSN Code 0402 and is subject to 12% GST. This is because it is a composition-altered milk with a longer shelf life than fresh milk.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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