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As per the regulations of the Goods and Services Tax, the supply, as well as the installation of air conditioners are considered as a bundled supply. In addition to the main supply of the unit, installation fees applicable on air conditioners are additional. As per GST regulations, the supply of air conditioners is taxable. When it comes to air conditioners in India, the AC HSN code and GST rate applicable are 8415 (code) and 28% respectively. Over the years, the GST rate on other electronics has dipped, but the GST on air conditioners has remained the same.

Comparison of Tax Rate on Air Conditioners Pre & Post GST 

With the applicable rates of GST for air conditioners standing at 28%, let us now look at how rates of air conditioners have varied post the introduction of this tax slab:

Particulars

Rate Pre-GST

Rate Post-GST

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

Thus, as can be seen from the table above, since the introduction of GST, you will now have to shell out a larger sum if you wish to purchase an air conditioner.

Impact of GST on Air Conditioners

Before the introduction of the Goods and Services Tax, there existed two forms of taxes on all consumer durables, namely – excise duty and VAT. While marginally differing from state to state, the application of both these taxes amounted to 23%-27%. Once the GST rate for air conditioners was introduced, at 28%, the overall cost of purchasing an air conditioner increased. As compared to before the introduction of the GST rate, post-introduction, prices of air conditioners rose by 1%-5%. 

GST on Air Conditioners & Value of Supply 

  • Under the GST regime, there exist 4 essential tax slabs – 5%, 12%, 18%, and 28%.

  • All essential goods are charged a GST rate of 5%.

  • When it comes to standard goods, the GST rate applicable is 12% or 18%, depending on the good.

  • Luxury goods are charged a GST rate of 28%. Since air conditioners are considered to be a luxury commodity, the GST on air conditioners has been set at 28%.

  • When it comes to computing GST, supply - which encompasses sale, transfer, exchange, lease, rental, and disposal – is deemed taxable.

  • The Value of Supply = the Transaction Value

  • Here, transaction value refers to the price liable to be paid for the good/service.

  • Air conditioners are considered as a composite supply, involving both the supply of the product as well as services pertaining to installation.

  • Thus, in the case of air conditioners, the Value of Supply = the Value of Sale + the Installation Charges.

HSN Code Applicable to Air Conditioners 

When it comes to air conditioners, the HSN code applicable is as follows:

HSN Code

Description

8415

An Air Conditioner with a motor fan meant for changing the humidity and temperature

841583

Not incorporating a refrigeration unit

84158310

A Split Air Conditioner with a capacity of 2 tonnes and above – not incorporating a refrigeration unit

84158390

Other: Not incorporating a refrigeration unit

Check more details about HSN Code in our article GST HSN code.

Availability of Input Tax Credit on Air Conditioners

When it comes to the Goods and Services Tax, every individual is eligible to claim Input Tax Credit, or ITC, on the purchase of goods or services to be used further in the course of business. However, as per Section 17(5), there is a restriction on the ITC pertaining to goods and services that are received by the said person for the purpose of construction of an immovable property (exceptions being plant and machinery). 

As per Section 3(26) of the General Clauses Act of 1897, immovable property is defined as “things attached to the earth or permanently attached to the walls and buildings”. However, when it comes to the topic of air conditioners, they clearly do not adhere to these stipulations. Thus, given that air conditioners cannot be categorised as immovable property, Section 17(5) should not be applicable to them. However, here you must note that when it comes to the cost of an air conditioner, it should be booked as either plant or as machinery and should not be included in the cost of the building. ITC can also be availed if an air conditioner is installed in an office space for the purpose of business. Additionally, if the supply includes both taxable and exempt goods, the reversal of ITC should be undertaken as per Rule 42 and Rule 43 of CGST.

GST on Import of Air Conditioners 

In order to further promote and augment the sale of goods produced locally, the government has set a high import duty on air conditioners. The main aim of this move is to dissuade Indian manufacturers from importing components and to encourage them to use locally manufactured parts. When it comes to importing of air conditioners, the following taxes are applicable:

 

  • Customs Duty, which is set at 20% of the assessable value

  • IGST, which is set at 28% of the assessable value + the basic customs duty applicable

  • Social welfare surcharge, which is set at 10% of the total assessable value + the IGST amount + the basic customs duty

Exemptions of GST on Air Conditioners

At present, there are no exemptions which are applicable on the GST rate of air conditioners, when it comes to sales. You can check the list of exempted goods and services under GST in our detailed article GST Exemption.

Conclusion

Over the years, there has been rapid advancement in the case of air conditioners, owing greatly to technological innovations. As per estimates, it is suggested that by FY 27, the air conditioner market could be pegged at ₹991.57 Billion if it continues to grow the way it is currently. However, given that the government still considers it to be a luxury commodity, the GST on air conditioners still remains high, at a staggering 28%. With manufacturers now striving to develop newer technology to abate the effects that air conditioners have on the environment, a reduction in the air conditioner GST rate in the future can further boost sales in this segment.