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GST on Ice Cream
The GST on ice cream is 18% with ITC for businesses and the ice cream HSN code is 2105 00 00. The higher GST rate reflects the luxurious nature of the product.
There has been significant confusion surrounding the taxation of ice cream. Some sellers have been paying 5% GST, while others have been charged 18%
The circular released on 6th October 2021 by the CBIC after the 45th GST council meeting has clarified the confusion and concluded that all manufacturers and retailers of ice cream, including ice cream parlors, will pay GST on ice cream at the rate of 18%.
Related Read: GST Rates in India 2024
AAR on GST on Ice Cream Parlors
The Authority for Advance Ruling (AAR) has ruled that establishments selling pre-manufactured ice cream, like ice cream parlors, are subject to an 18% tax with Input Tax Credit (ITC) eligibility, as the sale of ice cream does not qualify as a service.
The AAR also clarified that ice cream parlors offering services such as seating and product customization, does not classify them as restaurants, which are taxed at a lower rate.
The AAR has also clarified tax considerations on related aspects, including wholesale ice cream orders, the addition of ingredients, and the taxation of items like wooden sticks and spoons used for serving ice cream
Related Read: GST on Food & Restaurants in 2024
HSN Code for Ice Creams
Ice cream’s HSN code is 2105 00 00. In fact, the HSN Code for ice cream and all other edible ice, whether or not containing cocoa is the same as ice cream.
HSN Codes are important as they help in maintaining uniformity in product identity universally, which is essential for tax compliance and generating invoices.
GST Calculation on Ice Cream
Here’s a quick step-by-step guide to calculating GST on ice cream:
Determine the base price of the ice cream. For example, let’s consider it to be ₹100.
- Apply the GST rate of 18% using the formula:(18/100)*100 = ₹18
- Add the calculated GST to the original price to get the final consumer price:₹(18+100)= ₹118
- Therefore, if the base price of ice cream is ₹100, GST at 18% would be ₹18, making the final price ₹118.
ITC For Ice Cream Manufacturers
1. Businesses engaged in manufacturing or selling ice cream can avail ITC on the products used such as milk, fruits, etc., equipment, refrigeration, packaging, and even transportation services.
2. Ice cream manufacturers are not allowed to partake in the Composition Scheme that the government has introduced for small businesses to pay less tax at a standardized rate. Therefore, ice cream sellers have to shell out GST on ice cream at 18% along with the provision for availing of Input Tax Credit.
3. In order to claim GST, compliant GST invoices issued in the business’s name will be required. By utilizing ITC, ice cream manufacturers and parlors can substantially lower the GST-related cost burden on inputs.
Impact of GST Rate on Ice Creams
1. The 18% GST on ice cream impacts both consumers and businesses. For consumers, it results in higher prices compared to pre-GST times as retailers will hike ice cream prices due to the high tax rate imposed on them.
2. Small vendors and parlors, managing cash flow and maintaining competitive pricing becomes challenging due to GST on ice creams. In a bid to maintain profitability, they may increase the selling price of ice cream, which will adversely affect demand, and therefore revenue.
3. Large manufacturers, however, benefit from ITC, helping them absorb some of the costs by recovering the GST paid on inputs.
GST on Ice Cream: Pre GST Vs. Post GST Rate
Before GST, ice creams were taxed under various state-level VAT systems, typically around 12.5% to around 15%. The introduction of GST standardized this to 18%, simplifying the tax process but increasing the overall cost for consumers.
Challenges Faced by the Ice Cream Industry Due to GST
The ice cream industry, particularly small vendors and parlors, faces several challenges due to the 18% GST rate.
Small businesses often struggle with:
1. Tax Compliance and Registration
Small vendors, many of whom operate seasonally or with limited resources, face difficulties in adhering to GST compliance requirements. The complexity of registration and filing processes can be overwhelming.
2. Cash Flow Management
The higher GST on ice cream means parlors need to maintain more working capital to cover taxes on sales, which strains their cash flow. Additionally, timely tax payments and filings are crucial, and missing deadlines can result in penalties.
3. Pricing Pressure
The elevated GST on ice creams forces retailers and parlors to either absorb the cost or pass it on to consumers, potentially affecting demand, especially for budget-conscious customers.
These challenges contribute to operational inefficiencies, especially for small and medium-sized ice cream businesses, while larger corporations may find it easier to navigate GST complexities due to better financial management and access to ITC.
Conclusion
In conclusion, the 18% GST on ice cream, along with the standardized HSN code of 2105 00 00, has significant implications for both consumers and businesses. While it aims to streamline taxation in the industry, the elevated tax rate presents challenges for small vendors, affecting pricing and cash flow, while larger manufacturers benefit from input tax credits to mitigate costs.
FAQ
1. What is the GST rate on Kulfi?
The GST rate on kulfi is 18%.
2. What is the GST on ice cream mix?
The GST on ice cream mix is 18%.
3. What is the GST on ice cream served in the restaurant?
Selling ice cream is considered a bundled component of restaurant service. The GST on ice cream served at a restaurant that serves other food items as well is 5%.
4. What is the GST on natural ice cream?
The GST on natural ice cream is 18%.
5. Does the GST rate on ice cream vary depending on where it is sold?
No, the GST on ice cream is consistent at the standard rate of 18% across India.
