GST rates for food items: GST rates on food items currently ranges between NIL rates to 18% in India. The classification of food items is on a systematic basis, where the food items with not much of process involved or consumable fresh from farm are kept at NIL rate
Traditional papad and packaged fryums may be made from similar ingredients. But when it comes to their prices, you end up paying more tax on fryums than papad. And there are many other examples of food items for which GST rates are different even as their ingredients are the same. Wondering, why?
Under the GST regime, food items that do not have to undergo much processing are taxed at a lesser rate as compared to processed ones or those sold in the market as packaged items.
“GST rates on food items currently ranges between NIL rates to 18% in India. The classification of food items is on a systematic basis, where the food items with not much of process involved or consumable fresh from farm are kept at NIL rate and where rounds of processes involved to make it deliverable to the consumers are charged respectively at the rate varying between 5% to 18%,” Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors, told FE Online.
Taxation of food items has always been an issue of contention between consumers and the makers of indirect tax laws in the country. And it continues even today.
For example, take the case of papad and fryum:
Gujarati thali is incomplete without papad. Fortunately for consumers, the Gujarat bench of the Authority for Advance Ruling (AAR) in the case of Jayant Snacks and Beverages Pvt. Ltd has held that Papads will attract 0% GST.
“Interestingly, the AAR bench observed that Papads were produced using the traditional handmade method. Hence, it could be rolled effortlessly into a round shape,” said Vijayasarathy.
In the past, a few High Court decisions had treated fryums as similar to papad. The contentions were that since Fryums are also flour mixed with spices and come in a variety of shapes and sizes, these should also be classified as papad and hence, subject to NIL GST rate.
“However, the AAR (in various rulings) confirmed that they want to set a precedent. Hence, papad, being a traditional snack food cannot be equated with packaged ‘Fryums’ and cannot have similar tax treatment,” said Vijayasarathy.
Apart from papad and fryum, there are some other examples, where the ingredients to prepare the product are same but not the GST rates:
- Roti (5%) and Malabar Parottas (18%)
- Idli/Dosa batter (5%) and Ready to cook mix in powder form (18%)
- Milk (5%) and Flavoured Milk (12%)
Even in the recent GST council meet, different rates for fruit-juice based drinks and carbonated drinks with fruit juices were clarified.
The differential treatment adopted by the industry in the case of fruit juices and carbonated drinks was put to rest by classifying “Carbonated fruit beverages of fruit drink” and “Carbonated beverages with fruit juice” under the higher GST rate of 28% plus Compensation Cess of 12%.
Now, if a drink is carbonated and contains any content of fruit juice or fruit pulp it will be classified under the higher rate of GST at 28% and will also attract a compensation cess of 12%. Thus the percentage of content of fruit juice or fruit pulp will not be a determining factor for carbonated drinks.
GST on fruit juice-based or fruit pulp-based drinks will continue to remain 12%.
Are we paying less or more tax on food items after GST?
The amount of tax paid under GST Act is comparatively lesser than the Sales Tax regime of the pre-GST era.
“This was made possible, due to the introduction of four-tier GST rate structure where the taxes are levied at multiple levels, ranging from 5% to 28%. The difference in GST rates makes a good impact on cloud-kitchens and food delivery businesses as these businesses are charging competitively less than five-star hotels,” said Vijayasarathy.
“Previously, 2% VAT was charged on milk and certain milk products but under GST regime, the rate of fresh milk is NIL and skimmed milk is kept under 5% bracket and condensed milk is taxed at the rate of 12%. In comparison between the pre and post GST, tax rates on food items, on broad level is similar, however few selective food products and related machineries should be studied on case-to-case basis,” he added.
GST vs Pre-GST rates on basic food items
GST on Vegetables, Fruits & Cocoa products
GST on Food, Beverage Services and Accommodation
GST on foods served at establishments is rated at 5%, 12% or 18% based on factors such as the establishment type and location of restaurants, or food service providers, amongst others. Alcoholic beverages have applicable Value Added Tax, which is a state-level tax, therefore restaurants serving both food and alcoholic beverages will levy separate taxes with GST applying to food and non-alcoholic beverages; and VAT applied on alcoholic beverages served.