Goods and Services Tax (GST) is a one of the major tax reforms introduced in India whose aim is to simplify the taxation system. With its introduction, it has replaced multiple indirect taxes and brought them under one umbrella. However, one such valuable and most demanding product that falls under the GST is air conditioners, commonly used to beat the heat.
So, keeping the above discussion in mind let’s deep delve into the GST rates on AC.
Understanding GST
GST is a consumption-based tax levied on the supply of goods and services. It is categorized into different tax slabs, namely 5%, 12%, 18%, and 28%, with some items being exempted from GST. The rate at which GST is applied to a particular product depends on its classification and usage.
GST Benefits
The implementation of GST on air conditioner has several benefits for both consumers and the economy:
1. Simplified Taxation
Air conditioning GST rate has eliminated the cascading effect of taxes, making the taxation process simpler and more transparent for both consumers and businesses.
2. Reduction in Prices
Due to the standardized tax rate and streamlined supply chain, the overall AC GST rate have become more competitive, benefiting consumers.
3. Boost to the Economy
GST has led to increased compliance, resulting in more significant tax collections for the government. These funds can be utilized for various developmental activities, ultimately boosting the economy.
4. Promotion of Local Manufacturing
To promote domestic manufacturing, the government has introduced various schemes and incentives. Regards to this, GST plays a crucial role in this initiative, making it easier for manufacturers to comply with regular tax regulations.
Impact of GST on Air Conditioners
Before the Goods and Services Tax (GST) was introduced, there were mainly two types of taxes on products like air conditioners : excise duty and Value Added Tax (VAT). However, these taxes vary from one state to state but usually add up to around 23%-27% of the product’s cost. In the beginning when GST was introduced, the tax rate for air conditioners became 28%. This change increased the price of air conditioners.
To put it simply, before GST, the total tax on air conditioners was lower. After GST was implemented, the tax rate increased, leading to a rise in air conditioner prices. The price hike ranged from 1% to 5% compared to the pre-GST era. So, if you were planning to buy an air conditioner, it became a bit more expensive due to the new tax system.
In summary, GST on AC in India replaced older taxes but increased the tax rate on air conditioners, making them a bit costlier for consumers. This change affected the prices, making people pay a little more than they used to before GST was introduced.
HSN Code Applicable to Air Conditioners
| Description | HSN Code |
| Air conditioners (window or split) and its parts | 8415 |
| Other air conditioning machines, incorporating a refrigerating unit and a valve for reversal of the cooling/heat cycle (excluding domestic air conditioning machines) and its parts | 8415 81 |
| Parts of the goods of heading 8415, n.e.s. in heading 8415 | 8415 82 |
GST On Import of Air Conditioners
To increase the sales of locally made products like air conditioners, the government has imposed a high import duty on air conditioners. The idea behind this is to discourage Indian manufacturers from importing parts and encourage them to use locally made components of air conditioners. Still, if any individual wants to import the parts or air conditioner they have to pay several fees in the form of GST on AC to the government.
- There is Customs Duty, which is 20% of the item’s value that’s being imported.
- Next, Integrated Goods and Services Tax (IGST), which is 28% of the item’s value along with the basic customs duty.
- Social Welfare Surcharge, which is 10% of the total value including IGST and basic customs duty.
GST on Air Conditioner and Value of Supply
1. Input Tax Credit (ITC) Basics:
Under the Goods and Services Tax (GST), businesses can claim ITC on goods or services bought only for business use.
2. Restriction on ITC for Immovable Property:
There’s a rule under Section 17(5)) that limits ITC for goods and services used in constructing buildings, except for plant and machinery.
3. Definition of Immovable Property
Immovable property is defined as things attached to the earth or buildings permanently. Air conditioners don’t meet these criteria.
4. Air Conditioners is Not Considered Immovable Property
Since air conditioners are not permanently attached to buildings, Section 17(5) doesn’t apply to them.
5. How to Account for Air Conditioners
When buying an air conditioner, it should be booked separately as plant or machinery, not as part of the building cost.
6. ITC for Office Use
If an air conditioner is installed in an office for business purposes, ITC can be claimed.
7. Dealing with Taxable and Exempt Goods
If a purchase includes both taxable and exempt items, specific rules (Rule 42 and Rule 43 of CGST) should be followed for ITC reversal.
How Did The Prices Change After GST on Air Conditioner?
| Particulars | Pre-GST (Rs) | Post-GST (Rs) |
| Cost of manufacturing | 60,000 | 60,000 |
| Excise duty at 12.5% | 7,500 | – |
| Production cost | 67,500 | 60,000 |
| Transportation etc. | 5,000 | 5,000 |
| Value addition | 5,000 | 5,000 |
| VAT at 14%*/ GST at 28% | 10,850 | 19,600 |
| Product cost | 88,350 | 89,600 |
The Bottom Line
GST on air conditioners is one of the proactive steps towards a more efficient and consumer-friendly taxation system. That means, by understanding the various GST implications, consumers can make strategic decisions while buying air conditioners for their homes.
Frequently Asked Questions
1. What is the GST rate for 1.5 ton of AC?
The GST rate on 1.5 ton of AC is 28% as they fall under the category 8415.
2. Is GST applicable for both window and split AC?
Yes, GST is applicable on both the units at the same rate of 28%.
3. Is installation of the AC subject to GST?
Yes, GST is also applicable on the installation of AC as well.