The introduction of the Goods and Services Tax (GST) in India brought significant changes to the taxation landscape, impacting various industries, including the dairy sector.
This blog delves into the GST implications on milk, paneer, and other dairy products, covering aspects such as taxability, applicable GST rates with HSN codes, methods to calculate GST, claiming input tax credit, and recent updates on GST rates.
By the end of this guide, businesses and consumers will have a comprehensive understanding of their tax obligations and benefits related to dairy products.
Table of Contents
Latest Updates on GST for Milk Products
The 53rd GST Council has recommended a 12% GST on all milk cans, irrespective of material or use.
This decision follows the Council’s earlier move in the 47th GST council meeting to impose GST on pre-packed curd, lassi, and buttermilk to curb tax evasion.
Additionally, milking machines and dairy machinery were subjected to an 18% GST rate during the same meeting.
These changes, effective from July 18, 2022, aim to rationalize the GST structure and boost revenue from the dairy industry.
GST on Milk, Paneer, Curd and their HSN Codes
Here’s the detailed table of GST rates on milk products and their HSN codes:
1. List of Milk and Dairy Products with a 0% of GST Rate
Milk Products |
GST Rate |
HSN Code |
| Fresh milk | 0% | 0401 |
| Pasteurized milk | 0% | 0401 |
| Unsweetened, Unconcentrated milk and cream | 0% | 0401 |
| Unpacked and Unlabeled Curd | 0% | 0403 |
| Unpacked and Unlabeled Lassi | 0% | 0403 |
| Unpacked and Unlabeled Buttermilk | 0% | 0403 |
| Unpacked and Unlabeled Chena or paneer | 0% | 0406 |
Read About: Find the List of Goods and Services Exempt Under GST
2. List of Milk and Dairy Products with a 5% of GST Rate
Milk Products |
GST Rate |
HSN Code |
| Ultra High Temperature (UHT) milk | 5% | 0401 |
| Milk and cream containing sugar or other sweetening matter | 5% | 0402 |
| Skimmed milk powder | 5% | 0402 |
| Milk food for babies (other than condensed milk) | 5% | 0402 |
| Yogurt | 5% | 0403 |
| Kefir | 5% | 0403 |
| Fermented or acidified milk and cream (whether concentrated or not, and whether sweetened, flavored, or containing added fruits, nuts, or cocoa.) | 5% | 0403 |
| Pre-packaged and Labelled Curd | 5% | 0403 |
| Pre-packaged and Labelled Lassi | 5% | 0403 |
| Pre-packaged and Labelled Butter milk | 5% | 0403 |
| Pre-packaged and Labelled Chena or paneer | 5% | 0406 |
| Milk-based products consisting of natural milk constituents, sweetened or unsweetened, not elsewhere specified or included | 5% | 0404 |
3. List of Milk and Dairy Products with a 12% of GST Rate
Milk Products |
GST Rate |
HSN Code |
| Condensed Milk | 12% | 0402 91 10, 0402 99 20 |
| Butter | 12% | 0405 |
| Ghee | 12% | 0405 |
| Butter oil | 12% | 0405 |
| Oils derived from milk | 12% | 0405 |
| Cheese | 12% | 0406 |
| Soya milk drinks | 12% | 2202 99 10 |
| Beverages containing milk | 12% | 2202 99 30 |
4. List of Milk and Dairy Products with a 18% of GST Rate
Milking and Dairy Machines |
GST Rate |
HSN Code |
| Milking machines | 18% | 8434 |
| Dairy machinery | 18% | 8434 |
How to Calculate GST on Milk, Paneer, and Curd?
If you’re dealing with pre-packed and labeled curd or paneer, the calculation is straightforward:
Formula: GST Amount = Selling Price * GST Rate
For example, if you sell a packet of paneer priced at Rs. 100 with a 5% GST rate, the GST amount would be:
GST Amount = 100 * 5% = Rs. 5
Total Selling Price = Selling Price + GST Amount
In this case, the total selling price would be Rs. 105.
Impact of GST on Dairy Industry
1. Effect on Dairy Farmers
Dairy farmers face increased costs due to the taxation on products like UHT milk and paneer, which could lower their profit margins. However, exemptions on raw milk help mitigate some financial pressures.
2. Impact on Consumers
Consumers experience higher prices for pre-packed and labeled dairy products due to the GST rate impositions. This price hike affects household budgets, particularly those heavily reliant on dairy products.
3. Challenges Faced by the Dairy Industry
The dairy industry grapples with compliance challenges, especially for small-scale producers unfamiliar with the GST framework. Ensuring accurate tax filings and claiming input tax credits are additional administrative burdens.
How to Claim GST Input Tax Credit on Dairy Products?
Businesses dealing in dairy products can claim Input Tax Credit (ITC) under GST. The process is governed by relevant sections of the CGST Act.
Section 16(1) of the CGST Act
Eligibility Criteria for Claiming ITC:
Section 16(1) of the CGST Act specifies the conditions under which a registered taxable person can claim ITC:
1. Registered Person
Only a registered taxable person under GST can claim ITC.
2. Use in Business
The goods or services, in this case, dairy products like milk, curd, and paneer, must be used in the course or furtherance of business.
3. Possession of Tax Invoice
The claimant must have a tax invoice or debit note issued by a registered supplier.
4. Receipt of Goods or Services
The goods or services for which ITC is claimed must have been received by the claimant.
5. Tax Payment to Government
The supplier must have paid the tax charged to the government.
6. Return Filing
The claimant must have furnished their GST return.
These criteria ensure that only genuine business-related expenses are eligible for ITC, preventing misuse of the credit mechanism.
Section 17(5) of the CGST Act
Conditions Under Which ITC Cannot Be Claimed:
Section 17(5) of the CGST Act outlines specific situations where ITC is blocked, meaning it cannot be claimed:
- Non-Business Use: ITC cannot be claimed on goods or services used for personal purposes.
- Non-Taxable Supplies: ITC is not available on goods or services used to make exempt or non-taxable supplies.
- Blocked Credits: Certain items, such as motor vehicles, outdoor catering, health services, and others listed under Section 17(5), are specifically blocked from ITC claims. This includes:
- Motor vehicles for personal use.
- Food and beverages, outdoor catering, beauty treatment, health services, and cosmetic and plastic surgery, except under specific conditions.
- Membership of a club, health, and fitness center.
- Rent-a-cab, life insurance, and health insurance, except where an employer must provide them to employees under any law.
- Travel benefits are extended to employees on vacation.
Process of Claiming ITC on Dairy Products
1. Ensure GST Registration
Ensure that your business is registered under GST.
2. Maintain Proper Documentation
Keep all relevant tax invoices, debit notes, and receipts for dairy products purchased.
3. Match Invoices with GSTR-2A
Ensure that the purchase details match the supplier’s GSTR-1 filed, which is reflected in your GSTR-2A.
4. File GST Returns
File your GST returns (GSTR-3B and GSTR-1) accurately and timely.
5. Claim ITC in GST Return
In your GSTR-3B, declare the eligible ITC under the appropriate sections.
6. Utilize ITC
After claiming ITC, you can utilize it to offset your output GST liability.
Example of ITC Claim
Suppose you run a dairy business and purchase milk, curd, and paneer for resale. The total GST paid on these purchases is INR 10,000. When you sell these products, the GST collected is INR 15,000. You can claim ITC of INR 10,000, reducing your net GST payable to INR 5,000.
Compliance and Documentation
Proper documentation and compliance are essential for claiming ITC. Ensure the following:
- Tax Invoices: Possession of valid tax invoices or debit notes issued by suppliers.
- Payment Records: Proof of payment made for the supply of goods or services.
- GST Returns: Regular and accurate filing of GST returns.
- Reconciliation: Regular reconciliation of ITC claims with GSTR-2A to ensure accuracy.
Evolution of GST Regulations on Milk Products
Historically, milk and many dairy products have been exempt from GST since the inception of the GST law. This exemption was intended to keep essential commodities affordable for the masses. However, concerns related to revenue leakages and the need for rate rationalization prompted revisions in the GST rates on dairy products.
In response to these concerns, the government withdrew exemptions on certain pre-packed and labeled dairy products to ensure a more uniform tax structure. Notably, fortified-toned milk continues to be exempt, reflecting the government’s intent to support nutritional products. Additionally, khoya/mawa attracts a 5% GST rate, highlighting the effort to balance affordability with revenue needs.
Conclusion
Understanding the GST implications on milk, paneer, and other dairy products is crucial for both businesses and consumers. The revised GST rates and regulations aim to streamline the tax framework, though they also bring challenges in compliance and cost management. By staying informed and compliant with GST regulations, businesses can efficiently manage their tax obligations, while consumers can better understand the pricing of their dairy products.
Frequently Asked Questions (FAQs)
1. What is the GST on Milk?
Fresh milk remains GST-exempt, while pre-packaged and labeled milk are subject to a 5% of GST Rate.
2. Are all types of milk exempt from GST?
No, while regular milk is exempt, UHT milk and flavored milk attract GST of 5 to 12%.
3. Can I claim an input tax credit (ITC) on purchases of milk products?
Yes, businesses can claim ITC on GST paid for milk products used for business purposes.
4. Is there GST on flavored milk?
Yes, flavored milk attracts a 12% GST rate.
5. Is there GST on Lassi or Yoghurt?
Lassi is exempt from GST, while yogurt attracts a 5% GST rate.
6. What is the GST rate on curd and buttermilk?
Unpacked and unlabeled curd and buttermilk are exempt from GST. However, pre-packed and labeled curd and buttermilk attract a GST rate of 5%.
7. Is there GST on ghee and butter?
Yes, both ghee and butter attract a 12% of GST rate.
8. Is there GST on milk powder?
Yes, milk powder attracts a 5% of GST rate.
9. What is the GST Rate on Milk Cans?
Uniform GST rate of 12% is applicable to all types of milk cans, regardless of the material used (steel, iron, aluminum, etc.)
10. How much GST is on a milking machine?
As per GST Guidelines, The GST rate on milking machines is 18%.
11. Is GST applicable on transportation of milk?
No, GST is not applicable on the transportation of milk.
