GST on Rice — Tax Rate, Exemptions & Key Rules Explained

When Shweta visited her local grocery store in Lucknow, she noticed something odd. A 5 kg branded rice packet cost her ₹315, while the unbranded, loose rice she had been buying earlier cost only ₹275 for the same weight.

Curious, she asked the shopkeeper, “Why is there a price gap when it’s just rice?”

“Because one is GST-exempt, and the other has GST,” he replied.

That moment sparked her curiosity: Is rice taxable under GST? What determines the tax? Is it the brand, the packaging, or something else?

Let’s break it all down.

What Does the Law Say About GST on Rice?

Rice, being a staple food in India, is generally kept under zero-rated or nil GST for most common forms. But there are exceptions based on how it is sold, packed, and branded.

According to the GST Council and CBIC notifications, here’s the current structure:
 

So, What is “Pre-Packaged and Labelled”?

After 18 July 2022, the GST Council clarified that GST would apply at 5% on all pre-packaged and labelled rice, even if the brand is not registered.

This means:
 

• If rice is sold in a bag with a label (e.g., brand name, weight, MRP), it is taxable at 5%
   
• If rice is sold loose or in unlabelled sacks, no GST applies

This aligns with the Legal Metrology Act, which defines a "pre-packaged commodity" as any product placed in a package, sealed, and intended for retail sale.

Examples:

Let’s take Shweta’s case again:

Unpackaged Rice (5 kg)
 

• Base price: ₹275
   
• GST: 0%
   
• Total payable: ₹275
   

Branded, Packaged Rice (5 kg)
 

• Base price: ₹300
   
• GST @ 5%: ₹15
   
• Total payable: ₹315
   

The 5% GST leads to a clear price difference at the retail level, even though the product is essentially the same.

Why This Structure?

The rationale is simple:
 

• Basic food items like loose rice are exempted to protect the common consumer
   
• But pre-packaged goods, which add value through branding and logistics, are considered part of formal trade, and hence taxed
   

This promotes revenue collection without affecting affordability for lower-income households.

GST and Rice Traders: What They Need to Know?

If you are a rice miller, wholesaler, or packager, you must be aware of the following:
 

1. GST Registration is mandatory if the annual turnover exceeds ₹40 lakh.
    
2. You must charge 5% GST if selling:
    
   • Pre-packaged and labelled rice
      
   • Branded rice where brand rights are not forfeited
      
3. You can claim input tax credit (ITC) on machinery, packing material, transport, etc., only if your final product is taxable

This means:
 

• Loose rice seller: Not liable for GST, cannot claim ITC
   
• Packaged rice seller: Must pay GST, but can claim ITC
   

Impact on Consumers and Retailers

Shweta began noticing similar pricing differences not only in rice but also in other essentials like wheat flour and pulses. Her grocer explained that ever since GST rules changed post-July 2022, packaged food products had started attracting 5% GST, shifting the burden of tax onto buyers.

But for consumers like Shweta, this minor increase in price also signals more formal packaging, better hygiene, and traceability.
 

In essence, GST does not make rice unaffordable; it only differentiates based on how it’s sold and distributed.

Compliance for Small Businesses and MSMEs

For small traders, shopkeepers, and rice millers, the rules around GST can directly affect operations, especially with respect to registration, return filing, and input claims.

When is GST Registration Mandatory for Rice Sellers?

As per CBIC guidelines, registration becomes mandatory if:
 

• Annual turnover exceeds ₹40 lakh (₹20 lakh in special category states)
   
• You deal in pre-packaged and labelled rice
   
• You wish to avail of input tax credit (ITC) on purchases, machinery or transport
   

GST Input Tax Credit (ITC): A Real Benefit for Packagers

If you run a packaging unit or brand rice under a company name, the 5% GST you charge can be offset with ITC on:
 

• Packaging material (bags, labels)
   
• Transport vehicle
   
• Processing equipment
   
• Warehouse rent
   

This brings down your net GST liability, improving business efficiency.

Legal Clarification – Notification Reference

The taxability of packaged rice is governed by:
 

• Notification No. 6/2022 – Central Tax (Rate) dated 13 July 2022
   
• Applies from 18 July 2022 onward

It clearly defines taxable categories under “pre-packaged and labelled” commodities as per Section 2(l) of the Legal Metrology Act, 2009.

Challenges Faced by Small Retailers

Shweta’s grocer shared some of his worries too. While larger brands can afford GST compliance and formal systems, small kirana stores face issues like:
 

• Lack of clarity on labelling norms
   
• Technical glitches during GST return filing
   
• Cost of maintaining GST invoices for each item
   
• Delays in claiming ITC
   

To solve these, many traders use tools like:
 

• Vyapar App for offline GST billing (https://vyaparapp.in)
   
• Zoho Books for full GST compliance online (https://www.zoho.com/in/books/)