GST on Air Conditioners: Detailed Guide to GST Rates in 2024

The Goods and Services Tax (GST) is the indirect tax levied on the supply of goods and services, which includes air conditioners (ACs). Air conditioners remain in the highest GST bracket, and the GST rate for HSN code 8415 is 28% for both residential and commercial uses. This high GST rate reflects the government's stance on classifying air conditioners as luxury items, which has contributed to the significant rise in prices post-GST.

Prior to GST, the tax on air conditioners was divided between VAT and excise duty, which ranged anywhere between 23% and 26%. However, with the introduction of GST at 28%, the price has risen significantly, which has had a substantial impact on consumer behaviour. Below is a tabular representation of the price changes in air conditioners:

Harmonised System of Nomenclature (HSN) codes are internationally recognised classification systems used for goods and services under the GST regime. The HSN code for air conditioners is 8415, which applies to both residential and commercial models. This classification ensures consistency in applying the 28% GST rate across different types of air conditioners. By using the HSN code for ACs, businesses and consumers can easily identify the correct tax category, simplifying tax compliance and ensuring uniformity.

Air conditioners remain in the highest GST bracket, and this tax rate applies across various models, including split and window ACs, at 28%. The GST rate for both residential and commercial air conditioners is the same, i.e., 28%. This makes air conditioners relatively more expensive when compared to other household electronic appliances. The GST rate on air conditioners, as of 2024, is taxed at 28%, and this rate may be revised annually during the Union Budget.

Given that air conditioners are taxed under the highest GST bracket of 28%, this added tax increases the overall cost of the product, making it more expensive. Comparatively, before GST, the combined tax rate was slightly lower, ranging between 23% and 26%.

The process of calculating GST on air conditioners is straightforward and does not require complex calculations. Below is an example to explain how you can calculate the GST on air conditioners:

 

If you were to purchase an air conditioner with a base price of ₹50,000 and then here is what the calculation for the GST applicable at 28% would be:

• GST = ₹50,000 x 28%

• GST = ₹14,000

• Total Price = ₹50,000 + ₹14,000

• Total Price = ₹64,000

 

Here is a detailed price breakdown of the air conditioner, inclusive of GST:

• Base Price = ₹50,000

• GST = 28%

• Maximum Retail Price = ₹64,000

 

Discounts and offers apply to the base price of the product, and GST is calculated on the discounted price. This ensures that the tax burden does not overshadow the benefits offered by discounts.

The introduction of GST has had a significant impact on the prices of air conditioners. There has been a marginal increase in prices due to the higher 28% GST rate, compared to the previous tax system. This increase initially led to a temporary reduction in air conditioner sales.

 

However, the market has since adjusted to these fluctuations, with increasing demand for energy-efficient models. Imported air conditioners also attract the same GST of 28%, but additional customs duties are applicable, further increasing their prices.

Businesses are able to claim GST Input Tax Credit (ITC) on air conditioners, making it a tax-saving mechanism. Companies are eligible to claim ITC on air conditioner purchases if they are used for business purposes.

 

The purchase must be part of the company’s assets, and the relevant GST invoices must be available. By claiming ITC, businesses can reduce their GST liability, thereby lowering the effective cost of air conditioners purchased for commercial use.

Energy-efficient air conditioners have gained popularity in recent years due to their reduced energy consumption, which helps lower their environmental impact. While air conditioners fall under the 28% GST bracket, the Government of India is holding discussions on reducing the GST rate for energy-efficient models. This initiative would encourage consumers to opt for appliances that reduce electricity consumption.

 

As of 2024, the GST rate for air conditioners remains at 28%. Any reduction in the tax rate for energy-efficient models will likely be part of future policy adjustments.