Under GST, the supply and installation of Air Conditioners (AC) are usually considered as a bundled supply. Here, the principal supply is that of the goods, i.e., the air-conditioning unit. Installation services are supplementary to the main supply. The GST law has explicitly included Air Conditioners as a taxable supply.
In this article, we will discuss the implications of GST on Air Conditioners, and it’s associated supplies:
Air conditioners are included under HSN code 8415 and are taxable at the highest GST slab, which is 28%. While most of the other electronic appliances saw a fall in the tax rates over-time, only air conditioners and large screen TVs have continued to be taxed at 28%.
In the pre-GST era, there were two kinds of taxes applicable to consumer durables, VAT and excise duty. The aggregate of these taxes ranged between 23-27%, depending on the State involved. After the introduction of GST, the tax rate was increased to 28%, which in turn increased the price range of Air Conditioners. Compared to the pre-GST era, there is a visible 1-5% difference in the prices currently. In other words, any consumer buying an Air Conditioner now has to pay more for the product than they did previously as the manufacturers/supplier are transferring the tax burden to the end-user
- Air Conditioner has always been considered as a luxury product. Owing to this, the tax charged on it is 28%. The value of supply here will be the ‘Transaction Value’ itself.
- Some dealers/suppliers also provide installation services along with the purchase. In such cases, the supply of air conditioner and its installation are naturally bundled in the ordinary course of business, making it a composite supply. Here, the value of supply will be the Sale value of the Air Conditioner + Installation charges. The applicable tax rate will still be 28%.
In the case of imports, along with the 28% of GST, the Government has also included Import Duties on air conditioners. The total taxes charged on an AC are:
|Tax Head||Rate of Tax||Amount on which Tax is charged|
|Basic Customs Duty (BCD)||20%||Assessed Value|
|IGST||28%||Assessed Value + BCD|
|Social Welfare Surcharge||10%||Assessed Value + BCD + IGST|
As per the ITC rules, GST registered taxpayers can claim ITC on the purchase of goods/services intended to be used in the course of furtherance of business. That means, if an AC is installed in an office/factory which is used for running the business, ITC can be claimed. Furthermore, AC manufacturers can claim ITC on raw materials used and thus remove the cascading effect of taxes.
Considering the increase in temperature caused by the dramatic climate change, some experts believe that Air Conditioners need to be considered a necessity rather than a luxury commodity. The GST council is yet to decide about the same.