India has had, up until 1st July 2017, a very complicated tax system but with GST implementation, the country has seen a lot of changes in different business sectors. GST has had both positive as well as negative impact on different business sectors. Where some sectors welcomed it with open arms, some sectors were not so happy with the GST implementation.
In this article, we will discuss the GST impact on the furniture industry. If you are planning to buy a new sofa set for your living room or a double bed for your bedroom, you need to read this article to have complete knowledge about the tax rates, before taking the plunge.
GST rates play an important role in impacting a business sector. Let us understand the different rates implied on different components of the furniture industry.
The VAT rate during the pre-GST regime was capped at 12.5 percent. The GST council has finalised 12 percent tax rate under GST regime for final goods (wooden furniture) that will be produced by the manufacturers.
The normal VAT rate during the pre-GST regime was 5-6 percent, but now, under the GST regime, there has been a vast increase in the tax rate on plywood and is capped at 28 percent.
During the pre-GST regime, iron or steel furniture was charged at a VAT rate of 12.5 percent. However, under GST it has been decided that any other articles of furniture, except wooden furniture, is to be charged at the rate of 28 percent.
As plywood is primarily used in producing a wide range of wooden furniture articles, the price rise on plywood has put the odds of the rise in the price of wooden furniture at an all-time high. However, the manufacturer can claim ITC on the taxes paid for purchasing plywood.
Let us understand the GST impact of wooden furniture with an example.
Shree Furniture produces wooden articles like chair, cupboard, tables and sofa. Rahul purchased a cupboard set from Shree Furniture for INR 25000. Shree had purchase plywood for INR 10000 for making that cupboard.
|Tax on the cupboard (final product)||INR 3125 (12.5% of 25000)|
|ITC available on buying plywood||INR 600 (6% of 10000)|
|Net tax liability||INR 2525 (3125-600)|
|Tax on the cupboard (final product)||INR 3000 (12% of 25000)|
|ITC available on buying plywood||INR 2800 (28% of 10000)|
|Net tax liability||INR 200 (3000-2800)|
The manufacturer can dispose his tax liability up to INR 2800 under GST and pay INR 200, after using the ITC made available on the purchase of plywood.
Under the pre-GST regime, manufacturers weren’t required to pay excise duty on wood, which is the most important raw material used to make plywood. This way, the manufacturers were making a substantial amount of savings if they decided to evade excise duty on plywood as there was no input duty on the raw material.
Like wooden furniture, iron and steel furniture have also got expensive under the GST regime The pre-GST VAT rate on steel, and iron furniture was capped at 12.5 percent, but under the GST regime, the final product (iron and steel furniture) is charged at the rate of 28 percent. On iron and steel, however, irrespective of their characteristics, GST is being charged at the rate of 18 percent where earlier it was charged at the average VAT rate of 5 percent. Manufacturers can claim ITC at the rate of 18 percent on the purchase of iron and steel, under GST.
Let us understand the impact of GST on iron and steel furniture with an example.
Suppose Raj gets a steel locker from Utsav Furniture Agency for INR 40000. The manufacturer has used steel worth INR 20000 for making the steel locker. Therefore, the tax liability before and after the implementation of GST will be as given below.
|Tax on steel locker (final product)||INR 5000 (12.5% of INR 40000)|
|ITC available on buying steel||INR 1000 (5% of INR 20000)|
|Net tax liability||INR 4000 (INR 5000-INR 1000)|
|Tax on steel locker (final product)||INR 11200 (28 % of INR 40000)|
|ITC available on buying steel||INR 3600 (18% of INR 20000)|
|Net tax liability||INR 7600 (INR 11200-INR 3600)|
The high tax rate on the finalised goods under the GST regime has severely affected the furniture industry of India. Along with the high tax liability that the manufacturers will have to shell out, customers will also have to bear the brunt of high tax rates on final products.