GST on Milk: Rates, Exemptions, and Rules

Goods and Services Tax (GST) in India is a unified indirect tax replacing multiple taxes, simplifying tax structure, reducing cascading effects, and enhancing compliance. It covers goods and services nationwide.

What is the GST on milk?

The Goods and Services Tax (GST) on milk in India is a crucial aspect of the tax regime impacting dairy products. Milk, a staple in most Indian households, attracts different GST rates based on its type and form. Raw, unprocessed milk is exempt from GST, ensuring affordability for consumers. However, processed milk products such as flavoured milk, condensed milk, and certain types of packaged milk are taxed under various GST slabs. The exemption for raw milk aims to support farmers and keep basic nutrition accessible. Businesses should understand the unique identification number under GST to streamline compliance and manage their GST filings effectively. Understanding the GST implications on milk is essential for businesses involved in its production, distribution, and retail, ensuring compliance and accurate pricing strategies.

GST rates on milk, paneer, curd, and dairy products

In India, the GST rates on dairy products vary. Milk, including packaged and fresh milk, is exempt from GST. Similarly, curd and lassi are also exempt from GST. However, certain processed dairy products like paneer and cheese are subject to GST at 18%. Other dairy products like butter, ghee, and ice cream may attract a GST rate of 12% or 18%, depending on the product. It is important to note that these rates are subject to periodic revisions by the GST Council. If there are discrepancies in tax payments, businesses might need to issue a debit note in GST for adjustments. Consumers and businesses should stay updated with the latest notifications for accurate tax information. Below is the breakdown of GST rates for milk, paneer, and curd.

List of milk and dairy products with a 0% of GST rate

Here’s a table listing milk and dairy products with a 0% GST rate, following your requested format:

These products are exempt from GST under the Indian Goods and Services Tax regime.

List of milk and dairy products with a 5% of GST rate

Here’s a table listing milk and dairy products that are subject to a 5% GST rate:

These products attract a 5% GST under the Indian Goods and Services Tax regime.

List of milk and dairy products with a 12% of GST rate

Here’s a table listing milk and dairy products subject to a 12% GST rate:

These products attract a 12% GST under the Indian Goods and Services Tax regime.

List of milk and dairy products with a 18% of GST rate

Here’s a table listing milk and dairy products subject to an 18% GST rate:

These products attract an 18% GST under the Indian Goods and Services Tax regime.

Exemptions from GST on milk

Certain dairy products are exempt from GST to make them more accessible to consumers. Raw milk, whether from cows, buffaloes, or other sources, is entirely exempt from GST. This exemption extends to unprocessed and unbranded dairy products such as paneer and curd. These exemptions aim to support the agricultural sector and ensure that essential nutrition remains affordable for the masses. A clear understanding of the GST structure in India helps businesses and consumers align with the system’s policies and exemptions. The GST Council periodically reviews these exemptions to balance revenue collection with consumer needs, ensuring that the basic dietary needs of the population are met without additional financial burden.

How to calculate GST on milk?

If you’re selling pre-packed and labelled curd or paneer, calculating the GST is simple:

Formula:
GST Amount = Selling Price × GST Rate

For instance, if you sell a packet of paneer priced at ₹100 with a 5% GST rate, the calculation would be:

GST Amount = ₹100 × 5% = ₹5
Total Price = Selling Price + GST Amount = ₹100 + ₹5 = ₹105

Therefore, the final selling price, including GST, would be ₹105. Using a GST calculator can simplify this process, ensuring accurate and efficient tax calculations. Businesses should integrate such tools to maintain compliance and streamline their pricing strategies.

GST impact on dairy industry

1. Effect on dairy farmers
   Dairy farmers are facing increased costs due to the GST levied on products like UHT milk and paneer, which can erode their profit margins. However, the exemption on raw milk helps alleviate some of the financial strain they face.
2. Impact on consumers
   Consumers are seeing higher prices for pre-packed and labeled dairy products as a result of the GST rates. This price increase puts additional strain on household budgets, particularly for those who rely heavily on dairy products as a staple.
3. Challenges faced by the dairy industry
   The dairy industry, especially small-scale producers, faces significant compliance challenges with the GST system. These businesses often struggle with the complexities of tax filings and the process of claiming input tax credits, adding to their administrative burden.

Input tax credit claims for milk

Businesses involved in the production and distribution of milk can benefit from input tax credit (ITC) claims. The input tax credit allows businesses to offset the GST paid on inputs against the GST collected on sales. For example, if a dairy company purchases machinery or packaging materials and pays GST on these inputs, it can claim this as a credit against the GST collected on the sale of milk products. This mechanism reduces the overall tax burden on businesses, promoting efficiency and cost-effectiveness. Proper documentation and compliance with GST regulations are essential to maximising input tax credit claims, benefiting the business's financial health.

Example of ITC Claim

Imagine you're running a dairy business, purchasing milk, curd, and paneer for resale. The total GST you pay on these purchases amounts to INR 10,000. When you sell these products, you collect GST of INR 15,000. By claiming an Input Tax Credit (ITC) of INR 10,000, your net GST payable is reduced to INR 5,000.

Amendments of GST regulations for dairy products

In the ever-evolving dairy industry, ensuring affordable access to essential products such as milk, curd, and paneer is vital for both consumers and businesses. While these dairy staples were historically exempt from GST to maintain low prices, recent amendments reflect the government's response to revenue concerns and changing market conditions.

The 47th GST Council meeting introduced significant measures aimed at addressing revenue leakage caused by unregistered entities selling dairy products without complying with GST requirements. This has raised concerns about fairness, particularly for registered businesses that are adhering to the regulations.

Key changes include:

Fortified toned milk
As per CBIC Circular No. 52/26/2018-GST, dated August 9, 2018, fortified toned milk remains exempt from GST when enriched with essential vitamins such as A and D. This exemption highlights the government's focus on promoting health and nutrition while ensuring the affordability of fortified milk under HSN code 0401.

Khoya/ mawa
On the other hand, khoya (mawa), classified as a concentrated milk product under HSN code 0402, now attracts a 5% GST, as per F. No. 332/2/2017-TRU, dated December 7, 2017. This change reflects a policy shift aimed at balancing revenue generation with keeping essential dairy products accessible to consumers.

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Conclusion

Understanding the GST implications on milk and dairy products is crucial for businesses operating in the dairy sector. Raw milk is exempt from GST, while processed and branded dairy products attract varying tax rates. Businesses can leverage input tax credits to reduce their tax burden and enhance profitability. Utilising tools like a GST calculator ensures accurate tax calculations, aiding in compliance and pricing strategies. Adhering to these guidelines ensures a smooth operation within the legal framework, promoting growth and sustainability.