In this post, you can easily find out the GST rate for air conditioners and their spare parts, including the appropriate HSN code in India.
On the GST execution, the tax rates were being diminished for the majority of the electronic goods except for air conditioners and large screen TVs, which now come beneath the 28% tax slab.
54th GST Council Meeting – A 28% GST rate is applied to HSN Code 8415 for Roof-Mounted Package Unit (RMPU) air conditioning machines used in railways.
Why Did the Price of Air Conditioners Change Because of GST?
Earlier, the two major taxes were levied on consumer durables, which were VAT and excise duty. The combined rate summed up to 23%-27% depending on the state. Beneath GST, the rate of the air conditioners is 28%. The firms would pass on this additional tax load to the consumers. The same would be directed to a rise in the cost of air conditioners by 1% to 5%. The cost of comparison before and after GST is mentioned below:
| 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 |
Assumed to be 14%. The Value Added Tax (VAT) relied on the state of the transaction. Thus the consumers furnish more for air conditioners than they had done in the pre-GST times.
Subjected GST on Air Conditioners
Almost on all electronic goods, GST is applicable, and air conditioners also come with it. The GST rates are 5%, 12%, 18%, and 28%. The important goods are levied at 5%. The standard rate imposed is 12% and 18%. The luxury items are imposed at 28%.
The air conditioners are recognized as a luxury item and are thus imposed at 28%. But through the change of the climate and a rise in the temperature, air conditioners are no longer a luxury item. Hence it evolves as a necessity.
What is the Supply Value for Calculating the GST on Air Conditioners?
Supply counts as a taxable event beneath GST. The supply comprises all types of sales, exchanges, transfers, rentals, leases, and disposals.
Value of Supply = Transaction Value
The value of the transaction is the cost furnished for the supply or services of the goods. Towards the concern of the sale of air conditioners, the supplier of air conditioners indeed used to furnish the installation services in the majority of the cases.
Hence, both supplies of air conditioners along with the installation are naturally bundled and provided with each other in the ordinary course of business. Hence the same poses a composite supply. The principal supply of air conditioners and their installation charges are coincidental. Value of supply = sale value + installation charges.
GST Rates on Air Conditioners with HSN Codes
28% is the GST rate on air conditioners. They come beneath chapter 8415.
| HSN code | Description |
|---|---|
| 8415 | Air conditioner with a motor fan for changing temperature and humidity. |
| 841583 | Not incorporating a refrigerating unit |
| 84158310 | Split air conditioner with 2 tonnes and above and not incorporating a refrigerating unit. |
| 84158390 | Not incorporating a refrigerating unit: Other |
ITC Availability Upon Air Conditioners and Reversal
Beneath GST, every enrolled individual is qualified to avail of the Input Tax Credit on buying the goods or services which are to be utilized for the business purpose. However, section 17(5) limits input tax credit on the goods or services obtained by the taxable individual towards the construction of the immovable property excluding the plant and machinery on his part for the utilization to move the business ahead.
Now, immovable property is that which is defined under Section 3(26) of the General Clauses Act, 1897 states that immovable property is said to be the “things attached to the earth or permanently attached to the walls and building”. But the air conditioners are attached to the walls, they could get removed and installed at any other place. It does not come beneath the immovable property.
A centralized AC system is acknowledged as a plant and machinery and not an immovable property therefore restrictions u/s 17(5) must not apply. But the same must be ensured that the air conditioner cost must be separately booked as plant and machinery and does not engage the cost of building.
Moreover, when the AC has been installed in the office or factory for the purpose of business, ITC would be available. But when the supply consists of taxable and exempt goods, then the ITC reversal must be performed under Rule 42 and Rule 43 of the CGST Rules.
GST Concern on the Air Conditioner Import
The government has retained a high import duty on air conditioners to enhance the sale of local goods. The rise in import duties has the purpose of discouraging Indian enterprises from importing components from outside India rather than substituting them with goods made in India. The taxes listed below apply to the import of air conditioners:
- Basic customs duty at 20% of the assessable value
- IGST at 28% of the assessable value + basic customs duty
- Social welfare surcharge at 10% of the assessable value + basic customs duty + IGST amount.
Exemptions Available, if Any
At the present time, there are no exemptions available beneath GST upon the sale of air conditioners.
How do Air Conditioner Prices Get Impacted by the GST?
Beneath VAT, consumers’ durables were taxed from 12.5% to 14.5% depending on the condition where the transaction would take place. Apart from that, 12.5% excise duty and cess were amended. The complete, air conditioners were taxed at a maximum of 27%. Beneath GST, the tax rate on air conditioners is 28. The rise in the tax rate has raised the final price of the product.
Advantages: The major advantage is that the dealers would avail of the Input tax credit on the raw materials. Thus eliminating the cascading effect of taxation.
Closure: keeping the basic electronic appliances such as air conditioners beneath the 28% slab mentioned, does come beneath the luxury item rather than necessity. The rise in the tax rates and rise in inflation would thus raise the cost of air conditioners.
