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Key Highlights
- Air conditioners are considered luxury items and thus attract a high GST rate.
- Currently, there are no exemptions in the case of GST on air conditioners, reaffirming its status as a luxury good.
- The CGST (Central Goods and Services Tax) Act allows a registered person to claim input tax credit, subject to certain conditions and restrictions.
The implementation of GST (goods and services tax) replaces taxes like service tax, value-added tax, etc. and simplifies regulatory compliances. This, in turn, removes the cascading effect of taxes which existed earlier.Talking about prices, GST impacts the price of goods and services. Quantifying the effect of GST helps in understanding the total product cost. In this blog, let’s focus on GST on air conditioners - one of the commonly known consumer durable goods. Also Read: How Does GST Work in India?
GST on Air Conditioners
Air conditioners are considered luxury items and thus attract a high GST rate. The rate of GST on air conditioners is 28%. However, given the changing climate conditions, many debate that air conditioners have become a necessity to fight the soaring temperatures, and are thus no longer a luxury.Here is a tabulation of GST on AC, including its description and the relevant chapter of the HSN (harmonised system of nomenclature) code. You can also view these details on the official website of Central Board of Indirect Taxes and Customs .
|
Chapter/Heading/Sub-Heading/ Tariff Item*1 |
Description
| IGST*2 |
|
8415 |
Air-conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated |
28% |
Source: https://cbic-gst.gov.in/gst-goods-services-rates.html *1 Get the applicable HSN code details at https://services.gst.gov.in/services/searchhsnsac *2 IGST (Integrated Goods and Services Tax) = CGST (Central Goods and Services Tax) + SGST (State Goods and Services Tax)
Price Change Due to GST on Air Conditioners
Let’s understand the price change due to GST on air conditioners with the help of an example.
|
Particulars |
Before GST (₹) |
After GST (₹) |
|
Manufacturing Cost |
50,000 |
50,000 |
|
Excise Duty (12.5%) |
6,250 |
NA |
|
Total Manufacturing Cost |
56,250 |
50,000 |
|
Transportation |
5,000 |
5,000 |
|
Value Addition |
5,000 |
5,000 |
|
VAT (14%) / GST (28%) |
9,275 |
16,800 |
|
Product Cost |
75,525 |
76,800 |
* VAT depends on the respective state law. It is assumed at 14% in this example.Thus, as seen in the above example, the cost is higher in the post-GST era than in pre-GST.
Supply Value for Computation of GST on Air Conditioners
The value of supply is nothing but the transaction value which is the price paid or payable for the supply of goods or services.In the case of air conditioners, the supplier usually offers installation services. Thus, this is a composite supply where the supply of an air conditioner is bundled with the installation service. Hence the supply value for GST on AC comprises the sales value and the installation costs.
Input Tax Credit in GST on Air Conditioners
The CGST (Central Goods and Services Tax) Act allows a registered person to claim input tax credit on goods and services used or intended to be used in the course or furtherance of business, subject to certain conditions and restrictions.
Exemptions of GST on Air Conditioners
Currently, the sale of air conditioners does not enjoy any exemptions. This further affirms its status as a luxury good, and the corresponding high rate of GST on AC translates into a higher product cost. Understand Applicable GST on Air Conditioners to Ensure Regulatory Compliance Understanding the applicable GST on AC helps meet the statutory requirements. Use an online GST calculator to know your tax liability, which facilitates the calculation of input tax credit in turn.Input tax credits help manage the overall business finance effectively, just like working capital loans. A working capital loan simplifies cash flow management and ensures smooth business operations. Also Read: Working Capital Loan: Meaning, Types, Benefits & How to Apply
FAQS - FREQUENTLY ASKED QUESTIONS
What is the rate of GST on air conditioners?
At present, the rate of GST on air conditioners is 28%.
Why is the rate GST on AC high?
Air conditioners are considered luxury items and thus the rate of GST on AC is high.
What is the supply value for GST on AC?
Supply value for GST on AC comprises the sales value and installation costs.
Why is the installation cost included in the supply value for GST on AC?
Installation cost is included in the supply value for GST on AC because the supplier usually offers installation services. Thus, this is a composite supply where the supply of an air conditioner is bundled with the installation service.
Can I claim an input tax credit in the case of GST on AC?
Yes, you can claim an input tax credit in the case of GST on AC subject to certain conditions and restrictions.
Is it essential to use the goods in the course or furtherance of business to claim the input tax credit?
Yes. The goods should be used or intended to be used in the course or furtherance of business. Additionally, you should also satisfy other relevant conditions to claim input tax credit.
Where can I verify the rate of GST on AC?
You can verify the current rate of GST on AC on the official website of Central Board of Indirect Taxes and Customs.
Is VAT payable along with GST on air conditioners?
No. GST replaces VAT. You will have to only pay GST on air conditioners and no VAT.
Where can I find out the applicable HSN codes?
You can find out the applicable HSN codes on the official website of Central Board of Indirect Taxes and Customs.
Are there any exemptions on GST on AC?
No. Currently, there are no exemptions on GST on AC, reaffirming its status as a luxury good.
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.
