Chapter 84 - GST on Air Conditioners: Its Rate and Impact On Price

• 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?

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 .

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)

Let’s understand the price change due to GST on air conditioners with the help of an example.

* 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.

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.

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.

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