The GST Council announced the tax rate for specific goods and services under GST law at its meeting on May 18, 2017. GST was introduced in India to stimulate the free flow of credit. Under previous levies, taxes were paid on taxes against the law of natural justice. For example, suppose a baker of cakes purchases refined flour and other ingredients from various suppliers for₹500 plus 5 % VAT.
Did You Know? As part of GST, the constitution of India has been amended to differentiate between central and state taxation.
What is GST?
There are only two indirect taxes in India, GST and customs duty. The rest of the various other indirect taxes have been absorbed into the GST tax regime. The additional indirect tax levy, GST, is levied on the production, manufacturing, and consumption of goods and services either by an individual or a business in the form of a capital asset. The ultimate burden of GST is passed on to the final buyer (called consumer or producer), and GST solves the problem of double taxation, charging value addition made at various production stages.
Overview: GST Rates for Wooden Furniture Manufacturers
GST on furniture has unfortunately proven negative. Compared to VAT, the tax rates under the GST regime have grown significantly, which has led to an increase in the total tax obligation. Although the government has gradually lowered the GST rates on furniture, which has helped businesses, the rates are still higher than under the previous VAT system.
While different slabs of GST rates impact various furniture categories, here is a table to illustrate the applicable slab rates. Currently, there are five slab rates under GST: 0%, 5%, 12%, 18%, and 28%. A maximum of 40% can be levied under the current GST legislation unless an amendment to the law cannot be made during an active parliamentary session.
Also Read: What is GST? Goods And Services Tax Explained With Benefits
|
Particulars |
Applicable GST Rate |
|
Items like crates, drums, and wooden boxes. The wood is used to make walking sticks, tool handles, umbrellas or anything similar |
12%
|
|
Furniture made of bamboo, rattan and cane |
12% |
|
Bamboo furniture |
18% |
|
Furniture made entirely of bamboo or cane |
12% |
|
Other furniture (other than furniture wholly made of bamboo or cane) and parts thereof |
18% |
|
Mattress supports, articles of bedding and similar furnishings (for example, mattresses, quilts, eiderdowns, cushions, pouffes and pillows) fitted with springs or stuffed or internally fitted with any material or of cellular rubber or plastic, whether or not covered |
18% |
|
Whether concentrated or not, residual wood pulp manufacturing lyes de-sugared. Or chemically altered, including lignin sulfonates and excluding tall oil |
18% |
|
Brewers’ pitch, vegetable pitch, wood naphtha, wood tar oils, wood tar, and other preparations made from resin, resin acids, or a mixture of vegetable pitch and wood |
18% |
|
Creosote |
18% |
|
Any wooden furniture and decorations used as kitchenware or tableware (apart from those listed at 28% under GST) |
12% |
|
Fiberwood, plywood, laminated wood, and other substances that resemble wood or are in any way related to wood |
28% |
|
Wood charcoal or firewood |
Exempt |
|
Wood waste, such as wood chips or sawdust |
5% |
|
Cane furnishings |
28% |
Effects of GST Rate Changes on Wood Furniture Manufacturer
The majority of wooden furniture pieces are made primarily using plywood. The GST rate for plywood has increased significantly from the previous average VAT rate of 5-6% to 28%. The price of wooden furniture may rise due to the increased tax rate on plywood.
The chart above shows that the GST tax rate on wood, furniture, iron, and steel is higher than the previous effects of VAT rates. As a result, the tax obligation of an iron or steel manufacturer under GST has increased. Compared to iron or steel furniture manufacturers, those who make hardwood furniture benefit more from GST.
The negative consequences of reverse charges will then be felt by the furniture manufacturer as well. Certain transactions related to furniture procurement will be subject to reverse charges. Users and consumers will pay high costs, which hampers sales due to increased costs.
Also Read: Composition Scheme Under GST – All you Need to Know About GST Composition Scheme
GST Impact on Iron/Steel Furniture Manufacturers
Under the current GST, iron or steel furniture has become more expensive. The average VAT rate previously applied to iron or steel furniture was 12.5%, whereas, under GST, all other furniture, including wooden furniture, would be subject to a 28% tax rate. Regardless of the steel or iron features, GST will be applied at a rate of 18% as opposed to the typical VAT rate of 5%. Manufacturers can claim an ITC of 18% on any iron or steel they buy with GST.
Position of Input Tax Credit: Furniture Manufacturers
Furniture manufacturers can claim input tax credits on their input supplies (i.e., stock of inventories) and capital assets subject to certain limitations that apply to any other manufacturer. The ITC is barred and not permitted if the furniture is used to build “immovable property,” as that term is defined in section 17(5) of the CGST Act, 2017.
Moreover, in most circumstances, furniture is mobile or readily moved from one location to another, such as a sofa, chair, table, etc. They will be regarded as movable property, and ITC will be permitted on them. Apart from that, the manufacturer is required to possess inventories with valid invoices to claim the ITC.
Conclusion
The new tax rates under GST are simple. They are not as complex as VAT, but increasing taxes has negatively impacted certain goods. Furniture, especially wooden ones, is one of them. If you make furniture, keep in mind that you must pay GST on each material you buy separately. Following that, you can set your product prices following government guidelines.
Follow Legal Tree for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.