GST on Air Conditioners: AC HSN Code and GST Rate

With the rising temperature in India, air conditioners, although considered to be a luxury good, have become a necessity now and are widely purchased. Hence, being aware of the Goods and Services Tax (GST) implications is important for both businesses and consumers.

Under the GST regime, tax rates are standardised across the country, impacting the prices of everyday appliances, including air conditioners. In this blog, we will discuss the details of the AC GST rate, emphasising on Harmonised System of Nomenclature (HSN) Code, its impact on business operations and more.

What Is GST on Air Conditioners (AC)?

ACs fall under the category of luxury items, which is taxed at 28% under the Goods and Services Tax regime. This tax rate applies not only to the supply of air conditioners but also to their installation services.

Air conditioners are often regarded as composite supplies as some suppliers of air conditioners include installation charges in the final cost. The 28% tax rate applies to all ACs, irrespective of their type– window or split.

HSN Code for Air Conditioners

The HSN Code applicable to AC is as follows:

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Applicability of GST on Air Conditioners

The Goods and Services Tax comprises four slabs: 5%, 12%, 18%, and 28%. 5% is applicable for essential goods, standard rates are between 12% and 18%, and 28% is applicable for luxury goods. GST applies to nearly all electronic items, including air conditioners. As ACs are considered luxury goods, they fall under the highest GST slab of 28%

However, with the increasing temperature in India, ACs, which fall under the luxury category, have become an essential commodity in many Indian cities.

GST on Air Conditioners (AC): Pre-GST vs Post-GST

Before the implementation of GST, the various components of AC were subject to 2 taxes– Value-added Tax (VAT) and excise duty. The combined tax on air conditioners was 27% to 28%. Since GST, a total of 28% was applicable for air conditioners. There has been an increase of 1% to 5% in prices and this additional tax burden is borne by the consumers.

This table draws a comparison between the rate of air conditioners pre-GST era and post-GST era:

As we can observe, the Goods and Services Tax has led to a price hike for ACs.

Why Is the GST Rate on Air Conditioners Expensive?

Since air conditioners are under the classification of luxury goods, the applicable GST rate is 28%. With high import duty on air conditioners, the government not only aims to increase the usage of essential and local commodities among citizens but also earn high revenue through it.

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What Is the Value of Supply for Calculating the GST on Air Conditioners?

Under GST, supply is considered as a taxable event. The value of supply is equal to the transactional value.

Transactional value is the amount that is either payable or is already paid for the supply of goods and services. When it comes to air conditioners, the installation charges are combined with the supply of air conditioners, making it a composite supply.

Therefore, the Value of Supply = Sale Value + Installation Charges.

Input Tax Credit (ITC) Availability and Reversal for Air Conditioners

Under GST regulations, registered individuals can claim Input Tax Credit (ITC) on goods or services purchased for business use. However, Section 17(5) puts a restriction on claiming ITC on goods or services that a person receives for immovable property construction, except for plant and machinery.

Air conditioners (split or windows) do not fall under the definition of ‘immovable property’ as their location can be changed. Immovable property refers to goods that are permanently attached to the earth, walls or building and cannot be located elsewhere. When it comes to a centralised air conditioning system, it can be defined as ‘plant and machinery.’

Additionally, if the air conditioner is used for business purposes and installed in an office or factory, you are eligible to claim ITC. To claim ITC, book the AC as plant and machinery, not as part of building costs.

Impact of GST on Air Conditioners' Prices

GST has several impacts on air conditioner’s prices:

• By claiming ITC, AC companies are eligible to recover the GST they had to pay on goods and services. This, in turn, has played a role in lowering the prices of air conditioners.
• The single taxation system of GST is simpler and easier for compliance. Before its implementation, multiple indirect taxes like excise duty, VAT and service tax were applicable, which made the process complicated.

Conclusion

Whether you’re a business owner or a consumer, knowing the AC GST rate helps you manage your finances and possibly save money. By understanding the right HSN code and taxes, you can stay compliant with tax rules. As tax systems change, being informed about these details will help you make smarter investment decisions and manage your business better.

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