GST on Air Conditioners: AC HSN Code and GST Rate

GST on air conditioners is levied at 28%, being the highest tax slab under GST. On the implementation of GST, the tax rates were reduced for most electronic goods except air conditioners and large screen TVs, which is explained in further sections of the article.

How did the prices change after GST on air conditioners?

Before GST on air conditioners, two major taxes were charged on consumer durables, which were VAT and excise duty. The combined pre-GST rate summed up to 23% – 27% (depending on the state). Upon levying GST on air conditioners, the GST rate of air conditioners was fixed at 28%. The companies pass on this additional tax burden onto the consumers. This led to an increase in prices of air conditioners by 1% – 5%. The price comparison pre and post-GST are shown below:

*Assumed to be 14%. VAT depended on the state of transaction. Hence, consumers now pay more for air conditioners than they did in the pre-GST era.

Applicability of GST on air conditioners

GST applies to almost all the electronic goods, which includes air conditioners. There are four major tax rates under GST, i.e 5%, 12%, 18% and 28%. Essential goods are charged at 5%. The standard rates charged are 12% and 18%. Luxury items are charged at 28%. Air conditioners are considered as a luxury item and are hence charged a GST rate of 28%. However, with the climate changes and an increase in temperature, air conditioners are no more a luxury item. It has mostly become a necessity in many Indian cities. 

What is the value of supply to compute GST on air conditioners?

Under GST, supply is considered as a taxable event. Supply includes all kinds of sales, exchange, transfers, rentals, leases and disposals. 

Value of supply= Transaction value 

The transaction value is the price paid/payable for the supply of goods or services. In the case of sale of air conditioners, the supplier of air conditioner also provides installation services in most cases. Thus, both supplies of air conditioner and its installation are naturally bundled and supplied with each other in the ordinary course of business. Therefore, it is a composite supply. The principal supply of air conditioner and its installation charges are coincidental.  Value of supply = sale value + installation charges

What is the GST rate and HSN code applicable to air conditioners?

 The GST rate on air conditioners is 28%. They fall under Chapter 8415.

Availability of ITC on air conditioners and reversal

Under GST, every registered person is eligible to claim ITC on purchase of goods/services intended to be used in the course of furtherance of business. But, section 17(5) restricts ITC on goods/services received by a taxable person for construction of immovable property other than plant and machinery on his account for use in the course of furtherance of business.

Now, let us first understand what an immovable property is. Section 3(26) of the General Clauses Act, 1897 defines immovable property as “things attached to the earth or permanently attached to the walls and building”. Although air conditioners are attached to the walls, they can be removed and fitted elsewhere. It is not immovable property. A centralised AC system is considered a plant and machinery and not immovable property, and thus restrictions u/s 17(5) should not apply. However, it should be ensured that the cost of the air conditioner should be separately booked as plant and machinery and not included in the building cost. Further, if the AC is installed in an office/ factory for business purposes, ITC can be available. However, if the supply includes taxable and exempt goods, then ITC reversal should be done as per Rule 42 and Rule 43 of the CGST Rules.

Note about GST on the import of air conditioners

The government has kept a high import duty on air conditioners to promote the sale of local goods. The increase in import duties is intended to discourage Indian companies from importing components from outside India instead of replacing them with goods manufactured 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

Availability of GST exemptions

Right now there are no exemptions available under GST on the sale of air conditioners.

Impact of GST on air conditioners' prices

Under VAT, consumer durables were taxed from 12.5% to 14.5% depending on the state in which the transaction took place. Besides, 12.5% excise duty and cess were charged. Overall, air conditioners were taxed at a maximum of 27%. Under GST, the tax rate on air conditioners is 28%. This increase in the tax rate has increased the final price of the product. 

Benefits: The main benefit is that now manufacturers/dealers can claim ITC on raw materials. Thereby removing the cascading effect of taxation. 

Conclusion: Keeping basic electronic appliances like air conditioners under the 28% slab shows that it is still considered a luxury item instead of necessity. The increase in tax rates and increasing inflation will, therefore increase the prices of air conditioners.