As per GST system, the supply of goods and services is taxed. The GST rate on air conditioners fall into the highest GST slab of 28%, designated for luxury items. This tax rate applies to both the supply and installation of air conditioners.
When you buy an air conditioner, the supplier often includes installation services, making it a composite supply. This means the total value of the air conditioner includes its supply and installation.
Although GST has reduced rates for many electronic items, air conditioners have seen a rate increase of 1 to 5% under the new regime. This is because they are categorized as luxury goods, attracting a higher tax rate.
Read About: Recent GST Rate Updates in 53rd GST Council Meeting 2024
Table of Contents
What is GST on Air Conditioners (AC)?
As per GST Regime, Air conditioners in India are subject to 28% of GST rate, regardless of whether they are split or window units. Air conditioners are classified as luxury items and fall under the highest tax bracket of 28%.
The HSN Code for Air Conditioners
HSN Code |
Description |
| 8415 | An Air Conditioner with a motor fan meant for changing the humidity and temperature |
| 8415, 83 | Not incorporating a refrigeration unit |
| 8415, 8310 | A Split Air Conditioner with a capacity of 2 tonnes and above – not incorporating a refrigeration unit |
| 8415, 8390 | Other: Not incorporating a refrigeration unit |
Related Read: GST Rates in 2024 – Check Full List of Goods and Service Tax Rates, Slabs & Revisions
Applicability of GST on air conditioners
GST is applied to most electronic items, including air conditioners. There are four GST tax rates: 5%, 12%, 18%, and 28%. Essential goods are taxed at 5%, standard items at 12% or 18%, and luxury items at 28%. Air conditioners were initially categorized as luxury items, leading to a 28% GST rate.
However, due to rising temperatures, air conditioners have become essential in many Indian cities, raising questions about this high tax classification.
GST on Air Conditioners (AC): Pre-GST vs Post GST
Before GST, different components of the air conditioner supply chain were been subject to various taxes like VAT, service tax, and excise duty. 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%. Post-GST, the entire transaction is taxed uniformly at 28%, which has led to a slight increase in the overall tax rate for air conditioners by 1 to 5%.
Let’s look at the difference in the price of the air condition pre-GST vs post-GST:
Particulars |
Pre-GST Rate |
Post-GST Rate |
| Manufacturing Cost | ₹60,000 | ₹60,000 |
| Excise Duty (12.5%) | ₹7,500 | NA |
| Cost of Production | ₹67,500 | ₹60,000 |
| Cost of Transportation | ₹5,000 | ₹5,000 |
| Value Addition Costs | ₹5,000 | ₹5,000 |
| Cost of Product | ₹88,350 | ₹89,600 |
| Value Added Tax (14%)/GST (28%) | ₹10,850 | ₹19,600 |
Why GST Rate on Air Conditioners is Expensive?
Air conditioners (ACs) are considered luxury items under the Indian GST slab for several reasons:
- ACs are generally more expensive than other household appliances and are not considered essential for daily living, especially in comparison to items like fans or refrigerators.
- By taxing items such as air conditioners at a higher rate, the government aims to generate more revenue from those who can afford to pay more.
- By taxing luxury items at a higher rate, the government can maintain lower tax rates on essential goods and services, making them more affordable for lower-income populations.
What is the Value of Supply for Calculating the GST on Air Conditioners?
Under GST, any supply of goods or services is considered a taxable event. The value of the supply is based on the transaction value.
Since air conditioners come with installation, the charges for the same are levied and considered as part of the total value of supply.
The primary product is the air conditioner, and the installation is an added service. Thus, the total value of the supply is the combined cost of the air conditioner and the installation charges.
Value of supply = Transaction value
Value of supply (For air conditioners) = sale value + installation charges
Is GST Applicable on Imported Air Conditioners?
The duty on imports of ACs and their components is high. This increase in import duties aims to discourage Indian companies from importing components and instead promote the use of domestically produced goods.
The following taxes 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
Input Tax Credit (ITC) Availability and Reversal for Air Conditioners
Under GST, every registered person can claim Input Tax Credit (ITC) on the purchase of goods and services used for business purposes. However, Section 17(5) restricts ITC on goods and services received for the construction of immovable property, except for plant and machinery.
According to Section 3(26) of the General Clauses Act, 1897, immovable property includes “things attached to the earth or permanently attached to walls and buildings.” Although air conditioners are attached to walls, they can be reinstalled in a different location. Hence, they are not considered immovable property.
However, a centralized AC system is regarded as plant and machinery, not immovable property, so the restrictions under Section 17(5) do not apply. It is important to book the cost of the air conditioner separately as plant and machinery and not include it in the building cost. If the AC is installed in an office or factory for business purposes, ITC can be claimed.
If the supply includes both taxable and exempt goods, ITC reversal should be done according to Rule 42 and Rule 43 of the CGST Rules.
Conclusion
The GST implications on air conditioners highlight the government’s strategy to tax luxury items at higher rates while promoting local manufacturing through high import duties. Despite the current high tax rates, the growing importance of air conditioners in daily life might prompt a re-evaluation of their GST classification. Keeping an eye on these changes is crucial for consumers and businesses alike as the market adapts to evolving regulations.
Frequently Asked Questions
1. What is the GST rate of air conditioners?
The GST rate for air conditioners is 28%, which is the highest tax slab under the GST system.
2. Why is there 28% GST on AC?
Air conditioners are taxed at 28% because they are classified as luxury items, which attract higher tax rates to generate more revenue and encourage the use of essential goods.
3. Can We Claim ITC for GST on an air conditioner?
Yes, ITC can be claimed for GST on air conditioners used for business purposes, provided the cost is separately booked as plant and machinery.
4. Is GST applicable for both window and split ACs?
Yes, GST at the rate of 28% is applicable for both window and split air conditioners.
5. What is the HSN code for air conditioners?
The HSN code for air conditioners is 8415.
