GST on Mobile Phones

GST on Mobile Phones and Accessories in India

Prior to the implementation of GST on services and products, value-added tax (VAT) and excise duty were levied on cell phones. However, there was a discrepancy in the rates which were charged across states back then, making it difficult to set a uniform price. The implementation of the GST regime changed all of that; now, a standard GST tax rate is levied on mobile phones all over the country. Currently, the GST on mobile phones across India is 18%.

Until April 1, 2020, the applicable GST rate on smartphones and accessories was 12%; it was later revised to 18%. This revision was made at the 39th GST Council meeting. Post which, mobile phones began attracting an 18% GST rate, irrespective of the state it was purchased from. Here is a table that you can follow to know the Harmonised System of Nomenclature (HSN) code of mobile phones and accessories as per the GST council, along with mobile GST rates.

 

How Did the Price of Mobile Phones Change Due to GST?

VAT and excise were the two taxes charged before GST on mobile phones. The rates of VAT fluctuated between states, and because of that, it took a lot of work to set a uniform rate for mobile phones. But after GST, the tax price is similar all over the country, and as a result of that, a more consistent rate is provided for mobile phones. Currently, 18% is the mobile GST rate.

What is the Nature of Composite Supply?

A composite supply is one made up of two or more items or services that are naturally combined and offered together in the common course of trade and business. These things can't be provided individually. One of them is a significant supply, and when raising the invoice, its GST rate is taken into account. Mobile phones typically come with the USB cable, and the charger needed to use the device, which is typical in the case of mobile phones. Therefore, the USB cord and the charger will be subject to the same GST rate.

Some firms, nevertheless, also sell the earbuds separately from the phone; this is not a natural bundle and is referred to as mixed supplies.

Impact of GST on Import of Mobile Phones 

The cost of imported mobile phones is much higher with the introduction of GST. Prior to the GST era, imported mobile phones were exempt from the 10% cost levied as a social welfare surcharge, which was reimposed during the 2020 Union Budget. The charges in question are levied over and above the 20% basic customs duty.

As of now, the cost of imported mobile phones is calculated by adding the assessable value of goods to the basic customs duty and the other chargeable duty on the goods. As a result, the cost of imported mobile phones is usually higher than those produced locally, courtesy of GST.

Implication of GST on Exchange and Discount Offers

Dealers tend to offer different types of discounts widely and exchange offers on mobile phones which are either sold online or through a physical store. Read on to understand how the GST regime affects the exchange and discount offers on mobile phones.

1. Exchange Offers:

An exchange offer typically implies a trade-up of one’s old phone. The customer can avail a new handset in exchange for the old one by paying the difference between the old handset’s resale value and the cost of the new device. During the VAT regime, this difference sum was not taxable. However, since the implementation of the GST system, the barter of mobile phones is categorised as a supply. As such, the reduced price becomes taxable as well. 

To illustrate, let us assume that an individual buys a phone worth ₹30,000 for ₹25,000 if they trade in their old phone. However, as per the GST provisions, the tax will be calculated on the full amount of ₹30,000.

2. Promotional Discounts: 

Promotional discounts tend to be a big part of the smartphone industry. As part of the GST regime, discounts are excluded when calculating the tax that is payable. However, this only holds true when the discounts are reflected in the invoice. Another condition that must be met is the reversal of the input tax credit (ITC) on the discount received as per the credit note.

The implementation of GST on mobile phones has indeed brought uniformity in the maximum retail price (MRP) of the product all across the country. During the VAT regime, certain states used to charge a lower rate of tax than others. For example, prior to the GST era, Gujarat charged a VAT of 14% on mobile phones. This forced a large number of consumers to look for dealers elsewhere to buy the product at a cheaper cost.

In the GST era, the cost may be a bit higher than before but the uniformity reduces the risk of cascading effects on taxes. As a result, an individual will pay the same price as any other Indian resident for the same phone. The GST regime has made the taxation system simple and straightforward. In order to learn more about GST and its implication on other kinds of goods and services, you can visit Bajaj Markets!

Can ITC be Claimed on Mobile Phones?

Mobile phones are eligible for Input Tax Credits (ITC) under specific terms and conditions, the main one being that they must be acquired and used only for business purposes. The buyer's company's name, address, GSTIN, and HSN code must also be included on the tax invoice, along with the seller's address, GSTIN, and name. 

The recipient of the mobile device must have received it, the provider must have submitted their GST reports and paid the applicable tax to the government, and other requirements for claiming ITC must also be met.