GST on AC – Tax Rate, Price Impact & Billing Details

Raman Mehta, a businessman from Delhi, decided to purchase five split air conditioners for his new office. ₹65,000 was the total cost per unit, of which ₹60,000 was for each air conditioner and ₹5,000 was for installation. Air conditioners go under HSN code 8415 and are subject to 28% GST.

Thus, the GST was ₹18,200 (28% of ₹65,000.) The total cost per unit was ₹83,200. For five units, Raman paid ₹4,16,000 in total, which included ₹91,000 in GST. By GST legislation, he minimised his tax burden by taking a full Input Tax Credit because the ACs were to be utilised for business purposes and not when combined with real estate.

HSN Code and GST Tariff for Air Conditioners

GST Rate and HSN Code for Air Conditioners

Under the Goods and Services Tax (GST) regime in India, air conditioners fall under HSN Code 8415, which covers air conditioning machines with a motor-driven fan and elements for modifying temperature and humidity. These are taxed at a 28% GST rate, which is the highest slab under GST.

This rate applies to all types of ACs, split, window, or centralised, irrespective of whether they’re used in residential or commercial spaces.

Example:

Raman Mehta purchases a split AC for his office:

• Base Price: ₹50,000
• GST 28%: ₹50,000 × 28% = ₹14,000
• Total Price (Including GST): ₹50,000 + ₹14,000 = ₹64,000

So, Raman pays ₹64,000 for the AC, with ₹14,000 going towards GST. If used for business purposes, this ₹14,000 may be eligible for Input Tax Credit (ITC) under applicable rules.

For official classification, visit: https://gst.gov.in and refer to the HSN code list or GST rate schedule.

The introduction of the Goods and Services Tax (GST) in India has had a notable impact on the pricing of air conditioners. Prior to GST, the cumulative tax burden on air conditioners, including excise duty and VAT, ranged between 23% and 27%, varying by state. With the implementation of a uniform 28% GST rate under HSN Code 8415, air conditioners were categorised as luxury items, leading to a slight increase in their prices.

Example:

Consider an air conditioner with a manufacturing cost of ₹60,000. Under the pre-GST regime, with an excise duty of 12.5% and VAT at 14%, the total tax would be:

• Excise Duty: ₹60,000 × 12.5% = ₹7,500
• VAT: ₹60,000 × 14% = ₹8,400
• Total Tax: ₹7,500 + ₹8,400 = ₹15,900

Post-GST, with a 28% GST rate:

GST: ₹60,000 × 28% = ₹16,800

Thus, the GST implementation led to an increase in tax from ₹15,900 to ₹16,800, resulting in a marginal rise in the final price of the air conditioner.

This price adjustment reflects the government's classification of air conditioners as luxury items under the GST regime, aiming to generate additional revenue from non-essential goods. While the increase is modest, it has contributed to a slight rise in the retail prices of air conditioners across India.

Input Tax Credit (ITC) Eligibility for Businesses

Under the Goods and Services Tax (GST) regime in India, businesses registered under GST can claim Input Tax Credit (ITC) on the Goods and Services Tax paid on purchases, including air conditioners, provided certain conditions are met.

Eligibility Criteria for Claiming ITC on Air Conditioners:

1. Registered Business: The business must be registered under GST.
    
2. Business Use: The air conditioner must be used in the course or furtherance of business.
    
3. Proper Documentation: The business must possess a valid tax invoice or debit note issued by a registered supplier.
    
4. Receipt of Goods: The goods must have been received by the business.
    
5. Tax Payment: The supplier must have paid the tax charged to the government.
    
6. Return Filing: The business must have filed the necessary GST returns.

Special Considerations for Air Conditioners:

Air conditioners are typically considered capital goods and can be booked under "plant and machinery" in the books of accounts. This classification is crucial because, under Section 17(5) of the CGST Act, ITC is not available on goods or services used for the construction of immovable property, except for plant and machinery. Therefore, if an air conditioner is installed in a manner that allows it to be moved or reinstalled elsewhere, it does not constitute immovable property, and ITC can be claimed.

GST on Imported Air Conditioners

Imported air conditioners are subject to a comprehensive tax structure in India, combining customs duties and Goods and Services Tax (GST). This framework aims to promote domestic manufacturing and reduce reliance on imported goods.

Applicable Taxes on Imported Air Conditioners:

1. Basic Customs Duty (BCD): A 20% duty is levied on the assessable value of the imported air conditioner.
    
2. Integrated Goods and Services Tax (IGST): Set at 28%, IGST is calculated on the sum of the assessable value and the Basic Customs Duty.
    
3. Social Welfare Surcharge (SWS): This surcharge is 10% of the combined amount of Basic Customs Duty and IGST.

Example:

For an imported air conditioner with an assessable value of ₹50,000:

• Basic Customs Duty: ₹50,000 × 20% = ₹10,000
   
• IGST: (₹50,000 + ₹10,000) × 28% = ₹16,800
   
• Social Welfare Surcharge: (₹10,000 + ₹16,800) × 10% = ₹2,680
   
• Total Taxes Payable: ₹10,000 + ₹16,800 + ₹2,680 = ₹29,480
   
• Total Cost of Imported Air Conditioner: ₹50,000 (assessable value) + ₹29,480 (taxes) = ₹79,480.

Future Prospects: GST Rate Adjustments for Energy-Efficient Models
 

Example: 5-Star vs Regular AC – GST Comparison
 

Note: If in the future GST on 5-star ACs is reduced to 18%, the new GST = ₹10,800, bringing the total price to ₹70,800, almost equal to a 3-star model, but with higher energy savings.

Conclusion

Air conditioners with HSN number 8415 are subject to 28% GST tax. When used commercially, businesses can claim the Input Tax Credit, even though it raises their costs. Reduced GST rates for energy-efficient models in the future could further promote environmentally friendly choices.

Faqs

Q. What is the GST rate on air conditioners in India?

The GST rate on all types of air conditioners is 28%.

Q. Can businesses claim Input Tax Credit (ITC) on air conditioners?

Yes, if the ACs are used for business purposes and not part of immovable property.

Q. Is GST applicable on the installation charges of ACs?

Yes, installation charges are included in the taxable value and attract 28% GST.

Q. Are energy-efficient (5-star) ACs eligible for lower GST?

Not currently, but future rate reductions are under discussion by the GST Council.
 

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