GST on Goods: HSN Codes, Rates, and Tax Slabs

GST applies to almost all goods sold in India, with tax rates varying from 0% (nil) to 28% depending on the type of product. Understanding how GST is structured for goods, how HSN codes work, and what rates apply to common products helps businesses invoice correctly and manage compliance effectively.

How GST Rates Are Structured for Goods

The GST Council has classified goods into the following rate slabs:

– **0% (Nil-rated):** Essential goods that are fully exempt.
– **5%:** Essential and basic goods of mass consumption.
– **12%:** Standard goods, processed foods.
– **18%:** Most manufactured and consumer goods.
– **28%:** Luxury goods, demerit goods, sin goods.

Over and above 28%, a Compensation Cess applies on certain luxury and demerit goods (such as tobacco, pan masala, luxury cars) to compensate states for revenue losses during the GST transition.

Examples by Rate Category

**0% (Nil-Rated):**
– Fresh fruits and vegetables.
– Unbranded cereals, pulses, and flour.
– Fresh milk, eggs, and curd.
– Contraceptives.
– Books, newspapers, and maps.
– Sindoor, bangles, kajal.

**5%:**
– Branded cereals and flour.
– Edible oils, sugar, spices.
– Coal.
– Life-saving medicines.
– Two-wheelers (up to 350cc, with ITC restrictions).
– Footwear below Rs. 1,000.

**12%:**
– Butter, cheese, ghee.
– Frozen meat products.
– Mobile phones.
– Medicines (general category).
– Playing cards.

**18%:**
– Packaged foods and processed snacks.
– Cosmetics and beauty products.
– Electrical goods and electronics (TVs, refrigerators, washing machines).
– Capital goods and machinery.
– Steel and metal fabricated items.
– Most FMCG products.

**28%:**
– Luxury cars and SUVs.
– Tobacco products and cigarettes.
– Aerated drinks (with compensation cess on some).
– Cement.
– Air conditioners and large screen TVs.

HSN Code System

Goods under GST are classified using the Harmonised System of Nomenclature (HSN) codes. HSN codes are internationally standardised product classification codes, used to identify the correct GST rate for a product.

Businesses with turnover above Rs. 5 crores must use 6-digit HSN codes on invoices. Businesses between Rs. 1.5 crores and Rs. 5 crores use 4-digit codes. Below Rs. 1.5 crores, no HSN code is required (though it is good practice).

From FY 2021-22, HSN code reporting became mandatory in GSTR-1 for all taxpayers with B2B transactions.

Input Tax Credit on Goods

Registered buyers can claim Input Tax Credit on GST paid on goods purchased for business use. ITC is not available on:

– Goods used for personal purposes.
– Food and beverages (unless you are in the restaurant or hospitality business).
– Motor vehicles for personal use.
– Goods blocked under Section 17(5) of the CGST Act.

Practical Example

Sunrise Electronics sells a 43-inch LED TV. LEDs above 32 inches attract 28% GST. If the sale price (excluding GST) is Rs. 20,000, the GST charged = Rs. 5,600 (28%). The invoice value = Rs. 25,600. The buyer (if a registered dealer) can claim Rs. 5,600 as ITC.

Key Takeaways

– GST on goods ranges from 0% to 28%, with a Compensation Cess on select luxury/sin goods.
– Essential items like fresh produce, books, and basic food are nil-rated.
– Most consumer electronics and FMCG products attract 18%.
– Luxury goods, automobiles, tobacco, and cement attract 28%.
– Goods are classified by HSN codes, which determine the applicable rate.
– ITC is available on goods purchased for business use, with certain exceptions.

When setting up or reviewing your billing system, always verify the correct HSN code and GST rate for each product you sell. Using the wrong rate or code can lead to penalties and ITC disputes with your customers.