written by Khatabook | August 6, 2021

All About GST on Mobile Phones: It’s Applicability, Rates and Impact

Before the introduction of the GST (Goods and Services Tax) in India, VAT (Value Added Tax) was levied on the purchase of all items, including mobile phones. The VAT rates for mobile phones varied by state. Under GST legislation, the tax rate on mobile phones is the same across the country. Due to removal of the tax-on-tax effect, the implementation of GST laws has reduced the price of cell phones compared to what it was in the preceding scenario.

At the 39th GST Council meeting, the rate of GST on mobile phones and accessories was raised from 12% to 18%, with effect from April 1, 2020. The GST rate on mobile phones in India is 18%, and the HSN number is 8517. As a result, mobile phone prices have increased.

What are CGST, SGST, and IGST?

As previously stated, the buyer must pay 18% GST while purchasing a mobile phone. If the buyer purchases a phone from a dealer within state borders, the 18% will be split evenly between CGST (Central GST) and SGST (State GST). On the other hand, if the buyer purchases the phone from a dealer in another state, the IGST will be 18%. This suggests that mobile phone imports (from one state to another) will be subject to an 18% IGST.

Importance of HSN Codes (Harmonised System of Nomenclature) in GST for Mobile Phones and Accessories

India has the world's second-largest mobile market. MSME (Micro, small, and medium enterprises) in India sell various smartphones, mobile phones, and mobile accessories. 

HSN Chapter 85 governs GST rates on mobile phones and mobile phone accessories. HSN Chapter 85 includes various GST rate slabs based on which GST rates are applicable when purchasing mobile phones. As a result, it is critical to enter the correct HSN number to avoid incorrect invoicing and additional charges.

Product Name 

HSN Code

GST Rate

Mobile Phones

8517

18.00%

Charger

8504

18.00%

Lithium-ion Batteries

8506

18.00%

Earphone

8518

18.00%

Memory Card

8523

18.00%

Power Bank

8504

18.00%

USB Cable

8504

28.00%

Speakers

8518

18.00%

Plastic Screen Protector

3919

18.00%

Headphones

8518

18.00%

Tempered Glass Screen Protector

3923

18.00%

Also Read: All you Need to Know About Composition Scheme under GST

Applicability of GST rate on Mobile Phones

GST has functioned as a significant transformation tool for the Indian economy by integrating all commodities and services under a single taxation framework. Without exception, GST is levied on all mobile phones, whether they are smartphones or feature phones.

For example, Mr Y must pay SGST of 9% and CGST of 9% if he purchases a mobile phone from a dealer in the same state/Union Territory. If he buys a mobile phone from a different state/Union Territory, such as an e-commerce merchant, he will have to pay IGST of 18%.

Composite supply: A composite supply consists of two or more items or services combined and sold in the routine course of business. These goods cannot be purchased separately. One of these items is a primary supply, and only that item's GST rate is taken into account while creating the invoice. In this instance, mobile phones are frequently sold with a USB cable and a charger, both of which are required to use the cellphone. As a result, the mobile phone GST rate will also apply to the USB cable and the charger.

However, in a few companies, the earphones are offered separately from the phone, which is not naturally bundled and is regarded as mixed supplies.

What is the meaning of "value of supply" for calculating GST on mobile phones?

  1. Value of supply: The value of supply under GST is the amount that the seller receives from the buyer in exchange for selling products or services. GST is levied on the transaction value. Transaction value refers to the amount of money that unrelated parties would exchange in the normal course of business.
  2. Exchange offers: Smartphone dealers frequently offer exchange deals in which consumers can acquire new handsets in return for old ones and only pay the difference. Under the VAT regime, this reduced price was not taxable. However, because barter is covered in the GST definition of supply, even the discount (decreased price) is taxable. For instance, in return for an old phone, a new phone is sold for Rs 15,000. The new phone costs Rs 20,000 without exchange. In this situation, GST will be levied on the sum of Rs 20,000.
  1. Exclusion of discounts: Trade discounts and quantity discounts are common in business and industry. As a result, discounts stated on the bill/invoice are not considered for calculating the taxable value of the item. Discounts are not considered for calculating taxable value if the following two conditions are met:
  • The ITC on the credit note discount should be reversed.
  • Discounts are reflected on the appropriate bills.

Impact of GST on Mobile Phones and Accessories

End of price benefits: Before implementing GST, several appealing offers varied in price at retail outlets under the VAT regime. Anyone could buy from certain shops where the VAT rate was lower than in others. However, because GST has been enforced universally across the country, this gap is closed for customers.

Taxed Interchange Offers: Following the implementation of GST on smartphones at an 18% taxation rate, many known phone makers began some new exchange offers that allow users to buy a new one against their old devices.

Better/new Indirect tax system: The new tax regime allows individual taxpayers to opt for lower tax rates. This is beneficial since few deductions and exemptions are available under the new system. Moreover, you are able to evaluate Dividend Income yourself. 

There were 36 VAT authorities (7 UTs and 29 states) in India, and 29 jurisdictions had a 5% VAT on smartphones in addition to an excise tariff of 1%. VAT was 8.9 % in some states/cities such as Rajasthan, Punjab, and Chandigarh. GST of 18% is now applicable to mobile phones and their accessories across India (28 states and 8 union territories). It increased from 12% to 18% in 2020. The GST rate is the same for all traders that have registered for GST.

Impact on the price of mobile phones and smartphones: GST impacts the production of mobile phones and their accessories. They have become slightly more expensive because they come under lower tax rates, given the privileges granted in support of the Government's "Make in India" initiative. On the plus side, this has created many job opportunities with the single tax system where the government is able to aid the country’s economy because of high profitability obtained from GST.

Impact of GST on import of mobile phones

Previously, mobile phones were free from the 10% social welfare surcharge. However, in the 2020 Union Budget, a social welfare surcharge on imported smartphones/mobile phones was reinstated in addition to the already existing 20% basic customs duty. This has made the imported phones more expensive than locally manufactured phones.

"Value of goods to calculate IGST= basic customs duty on value of goods or any other duty chargeable on goods as per law." As a result, the cost of importing mobile phones into India has risen.

GST impact on mobile phones prices and benefits

The implementation of GST on mobile phones has resulted in price homogeneity across the country. Mobile phones were subject to a 5% VAT and a 1% excise levy under the VAT regime. In other states, such as Gujarat, the tax was as high as 14%. As a result, everyone would buy from a select group of dealers where the price was low.

However, under GST, an 18% tax is levied across the country. However, higher GST tax rates have increased the price of mobile phones while lessening the significant effect on taxes.

GST for Mobile Phones and Battery Issue 

India phone businesses have petitioned the Government to modify the GST rate for lithium-ion batteries and impose a 12% tax on them because they are predominantly utilized in phone manufacturing. The phone's parts were taxed at 12%, while the batteries had been taxed at 28%, which prompted the complaint. However, it was also reported that levying SGST, CGST, and IGST affects the supply chain, adds interpretational challenges and makes the viability of low-scale production more difficult.

After the petition gathered traction, the Government decided to reduce GST rates on roughly 50 items, including mobile phone accessories. The companies have guaranteed the consumers that the lower GST rates will be reflected in the purchase price. The ruling also aided India's mobile phone business by lowering the tariff on lithium-ion batteries.

Benefits to the dealers of smartphones

  • Increase in competition: Prices have grown more consistent because of the country’s standard tax rates. It encourages healthy competition among mobile phone sellers. 
  • Increase in sales: Mobile phones have become a necessity in today's world. Mobile phone sales are increasing day by day for mobile phone merchants who are GST registered. 
  • End of online selling benefits: Under the VAT system, e-commerce players purchased mobile phones from states with lower tax rates and sold them in areas with higher VAT rates. Online prices continue to be lower than in-store prices. However, the disparity has narrowed.

The implementation of GST has simplified and streamlined the taxing structure.

Also Read: Types of GST in India - What is CGST, SGST and IGST?

Conclusion

In comparison to VAT, the implementation of GST has simplified the taxes structure in several sectors of the economy. The government has made attempts to ensure that the transition to GST is as smooth as possible. It will help cut inventory costs in the long run, which will reap benefits for the economy as a whole.

FAQs

Has the GST increased recently on mobile phones?

After the GST Council fixed the industry's inverted duty structure, mobile phones are subject to an 18 % GST (Goods and Services Tax) rate beginning April 1, 2020, up from the previous 12%.

How to calculate GST on mobile phones?

According to the GST laws, the GST rate on mobile phones in India is the same across the country. The GST rate on mobile phones is 18%, and the HSN code is 8517.

Can Input Tax Credit (ITC)  be claimed on mobile phones?

Yes. Because mobile phones/laptops are utilized in the course/furtherance of business, they fall under the definition of 'inputs.' Hence, the input tax paid on such goods will be accessible as an input tax credit.

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