GST on Rice and Other Essential Commodities: A Guide for Traders and Consumers
- Dipali Waghmode
- Feb 3
- 10 min read
You might be curious about the varying prices of your preferred rice brand in different retail outlets. The Goods and Services Tax department has revised the taxation framework for rice in India, aiming to enhance uniformity and transparency within the system. With the implementation of the rice HSN code 1006, monitoring and compliance have been streamlined for all participants in the supply chain, from producers to retailers. Before we explore this topic further, it is noteworthy that while branded rice is subject to a 5% GST, unbranded rice is exempt from this tax. This distinction creates intriguing market dynamics that influence both businesses and consumers.
Table of Content
GST on Rice and Other Essentials
Essential commodities such as rice, wheat, flour, and cereals are either exempt from Goods and Services Tax (GST) or are subject to a GST rate of 5%. Specifically, unbranded wheat, rice, and cereals are exempt from taxation, thereby enhancing their affordability and accessibility for consumers. Conversely, branded versions of these items incur a 5% GST rate, as branding typically adds value, which consequently leads to a higher tax obligation. This taxation framework applies uniformly to flour, cereals, wheat, and rice. Unbranded variants are exempt from tax to ensure they remain affordable for the general populace, while branded variants are taxed at 5%. This approach aims to strike a balance between generating tax revenue and preserving the affordability of essential goods.
Chapter 10 of the HSN code lists the products in the cereal category. GST is not applied to any of the products listed in Chapter 10 of the HSN code. The goods listed in Chapter 10 of the HSN code are listed below:
Wheat and meslin
Rye
Rice
Oats
Barley
Grain sorghum
Maize (Corn)
Buckwheat, millet and canary seeds
Other cereals
As mentioned above, tax-exempt products should not be placed in any unit container with a registered brand name on it. However, in accordance with Section 2(l) of the Legal Metrology Act and its Rules, these are taxable at the rate of 5% when "prepackaged and labelled." According to the legislation, a "pre-packaged commodity" possesses all of the following qualities:
No buyer is there or has not placed a preorder.
Sealed or not.
Based on the Legal Metrology Act's suggested standard packages of given weights or measures. Packets of 100, 200, 500, 1 kg, 2 kg, or 5 kg, as well as multiples of 5 kg, are the predefined quantity.
For instance, a 50-kg package of rice would not be regarded as a branded and pre-packaged good for GST purposes. Consider a scenario in which a rice miller sells packets of 20 kg of rice without making the declaration mandated by the Metrology Act and its regulations. Such a package will be subject to GST on rice since it is a branded and pre-packaged item.
GST on Rice
Rice serves as a vital staple for millions in India. Prior to the introduction of the Goods and Services Tax (GST), rice was subjected to multiple taxes, including Value Added Tax (VAT), excise duty, and octroi. However, following the GST implementation, rice is now taxed at a consolidated rate of 5%. Within the GST framework, rice is categorized under the HSN (Harmonized System of Nomenclature) code 1006. This classification encompasses all varieties of rice, such as basmati, non-basmati, broken rice, and parboiled rice. The 5% GST rate applies uniformly to all these rice types.
GST on Paddy
Paddy, the unprocessed form of rice, is exempt from GST. This exemption distinguishes it from other cereals that may be subject to taxation under the GST framework.
GST on Puffed Rice (Murmura)
Pre-packaged puffed rice, commonly referred to as murmura, is subject to a 5% GST rate. This taxation has implications for both rural and urban markets where puffed rice is consumed.
GST on Wheat
The Goods and Services Tax (GST) applicable to wheat differs based on its packaging status. Branded wheat incurs a GST of 5%, whereas loose wheat is exempt from this tax. This variation in taxation affects both wheat farmers and traders, resulting in higher costs for consumers purchasing branded wheat.
GST on Atta (Wheat Flour)
Branded and pre-packaged wheat flour, known as atta, is taxed at a rate of 5%. Conversely, unbranded or loose atta is exempt from GST, rendering it more cost-effective for consumers.
GST on Dal (Urad Dal, Toor Dal, etc.)
Branded and packaged varieties of dal, such as Urad Dal and Toor Dal, are subject to a GST rate of 5%. In contrast, loose dal is exempt from GST. This distinction influences the pricing dynamics and competitive landscape between branded and unbranded dal in the marketplace.
GST on Besan (Gram Flour)
The taxation of besan, or gram flour, varies according to its packaging. Packaged besan is subject to a 5% GST, while loose besan enjoys an exemption. This differentiation affects the production and trade of besan within the market.
GST on Suji (Semolina)
Packaged semolina, or suji, is taxed at a rate of 5%, which influences its market pricing. In contrast, unbranded suji is exempt from GST.
HSN Codes of Rice and Other Essential Commodities
The HSN codes for rice and other essential cereals are listed below:
Rice: 1006
Wheat: 1001
Maize (corn): 1005
Oats: 1004
Barley: 1003
Millet: 1008
Under the GST system, these codes aid in the classification and categorisation of items for taxation purposes.
Paddy (in husk), semi-milled or fully-milled rice, whether polished or glazed, and broken rice are all included in the category of rice (HSN 1006).
Wheat (HSN 1001) consists of meslin, a blend of rye and wheat.
The term "barley" (HSN 1003) refers specifically to barley.
Corn and allied items are included under the heading "Maize" (HSN 1005)
Oats and related cereal grains are included in Oats (HSN 1004)
Millet (HSN 1008) describes a variety of millet varieties.
HSN Codes and GST on Rice and Other Essentials: A Quick View
HSN Code | Description | GST Rate | |
|
| Other than pre-packaged and labelled | Pre-packaged and labelled |
Chapter 10 | All goods i.e. cereals, packed in unit container with a registered brand name, detailed as follows- | 0 | 5% |
1001, 1008, 1101, 1102, 1109 | Wheat and meslin, wheat flour and meslin flour, buckwheat, millet, canary seeds, ragi, quinoa, jawar, bajra, wheat gluten, and bran | 0 | 5% |
1103 | Cereal groats, meal and pellets, including suji and dalia pre-packaged and labelled | NA | 5% |
1002 | Rye | 0 | 5% |
1003 | Barley | 0 | 5% |
1004 | Oats | 0 | 5% |
1005 | Maize (Corn) | 0 | 5% |
1006 | Rice, rice in husk, husked (brown) rice, Basmati rice, broken rice, parboiled, and puffed rice | 0 | 5% |
1007 | Grain Sorghum | 0 | 5% |
Impact of GST on Rice
The rice industry has been significantly impacted by the introduction of the GST. Due to the numerous taxes imposed on it prior to the GST, the rice business experienced numerous difficulties. As a result, rice became more expensive, making it harder for the average person to afford it. Nevertheless, rice is now more reasonably priced due to the GST's adoption. The increased simplicity and openness of the taxation system is another advantage of the GST. In the past, the rice sector had to cope with a lot of laborious and time-consuming paperwork and procedures. The tax filing process is now simpler and less complicated thanks to GST.
Impact on Traders: The introduction of the Goods and Services Tax (GST) has profoundly influenced rice traders in India. Prior to the GST, these traders faced extensive paperwork and a multitude of taxes, which complicated their business operations. However, the advent of GST has streamlined the tax filing process, rendering it more efficient and less burdensome. Under the GST framework, traders must submit returns on a monthly, quarterly, or annual basis, contingent upon their business size. Moreover, the implementation of GST has facilitated the rise of organized entities within the rice sector. With a standardized tax rate, the competitive landscape has been equalized, enabling smaller traders to compete alongside larger firms.
Impact on Consumers: The price of rice has decreased since the introduction of the GST, making it more accessible to the average person. The ultimate price of rice has decreased, which benefits consumers, as a result of lower production and distribution costs. Additionally, a number of taxes, including octroi, that were applied to rice during interstate transportation have been eliminated as a result of the introduction of the GST. As a result, transportation costs have decreased, which has made it simpler for traders to move rice across state lines. In the end, consumers have profited from a more effective distribution network.
Special Cases and Exemptions
There are certain exceptional circumstances and exemptions where the Goods and Services Tax (GST) rate differs:
Zero-rated Exports: Cereals exported from India are classified as zero-rated supplies, meaning that Goods and Services Tax does not apply to these exports. Nevertheless, exporters are entitled to claim an input tax credit or a refund for the GST paid on input services.
GST on Processed Cereals: The GST rates applicable to processed cereals, including rice products and wheat flour, range from 5% to 18%. The specific rate depends on factors such as branding and packaging.
Composition Scheme for Small Traders: Small traders whose annual turnover is below a designated threshold may opt to register under the Composition Scheme. These dealers are required to pay GST at a reduced rate (typically 1%) based on their annual turnover, which significantly alleviates their tax burden and facilitates compliance.
Conclusion
In conclusion, the Indian rice industry has benefited from the introduction of the GST. It has lowered the price of rice, making it more affordable for the average person, streamlined the taxation system, and made it simpler for traders to operate. The industry as a whole has benefited from the rise of organised companies and a more competitive market. All things considered, the GST has been a move in the right direction for the expansion and advancement of India's rice sector.
FAQ
Q1. What is the GST rate on rice?
Under the Goods and Services Tax (GST) framework, rice is subject to a uniform tax rate of 5%.
Q2. What is GST on puffed rice?
Before July 18, 2022, GST was not imposed on certain branded or unbranded products. However, following this date, the regulations changed, and GST became applicable to the supply of labelled and pre-packaged items, thereby incorporating the provisions of the Legal Metrology Act. Consequently, puffed rice that is pre-packaged and labelled is now subject to a 5% GST from July 18, 2022. Conversely, if puffed rice is sold in loose form, it remains exempt from GST.
Q3. Is GST applicable on all types of rice?
The 5% GST rate is applicable to all varieties of rice, including basmati, non-basmati, and others.
Q4. How much GST is on rice transportation?
The transportation of rice is subject to the standard GST rates for transportation services, which may vary based on the mode of transport and other considerations.
Q5. Do the GST rates for raw and parboiled rice differ?
No, the 5% GST rate is uniformly applied to all forms of rice, including both raw and parboiled varieties.
Q6. Are there any exemptions for some categories of rice under GST?
Paddy, the unprocessed form of rice, is exempt from GST. However, once paddy is processed into rice, the 5% GST rate becomes applicable.
Q7. What is GST on rice notification?
In accordance with the recommendations of the GST Council, the Indian Government has issued notifications to implement GST on rice, wheat, and other essential commodities at a rate of 5% effective from July 18. The Indian government's notification No. 6/2022-Central Tax (Rate), dated July 13, 2022, stipulates that GST will be levied at 5% on rice and wheat when sold in packaged containers. This GST implementation may result in an increase in the price of rice by approximately Rs. 3/kg to Rs. 5/kg.
Q8. Is GST applicable on unbranded rice, wheat, and cereals?
Unbranded essential commodities such as rice, wheat, and cereals are not subject to GST, which helps maintain lower prices for consumers. Conversely, if these products are marketed under a registered brand, they incur a GST rate of 5% due to the additional value linked to branding and packaging.
Q9. Are exports of cereals subject to GST in India?
Cereals that are exported are classified as zero-rated supplies under GST, meaning they are exempt from GST while allowing businesses to reclaim input tax credits on associated expenses. This policy fosters exports by alleviating tax burdens and enhancing the competitive pricing of Indian agricultural goods in global markets.
Q10. What GST rate is applicable to processed cereals and products?
Processed cereals and products, such as branded rice flour or rice bran, typically attract GST rates ranging from 5% to 18%, depending on the degree of processing and branding. This can lead to increased product prices, potentially affecting demand, particularly for items positioned as premium offerings.
Q11. What is the HSN code for rice?
Rice is categorized under HSN code 1006 within the GST framework. This classification encompasses all varieties of rice, including basmati, non-basmati, paddy, broken rice, and parboiled rice.
Q12. How do I claim the input tax credit on rice trading?
If your business is registered for GST, you are eligible to claim an input tax credit (ITC) for the GST incurred on purchases of branded rice classified under HSN code 1006.
Q13. Does packaging affect GST rates?
Although packaging does not alter the HSN code, it can influence whether a product is considered branded or unbranded, which subsequently determines its GST applicability.
Q14. What is GST for rice above 26 kg?
The Goods and Services Tax (GST) applicable to a 26 kg bag of rice varies based on its branding status. Unbranded rice is exempt from GST, resulting in no change to its price. Conversely, branded rice incurs a 5% GST.
Q15. How does zero GST on unbranded essentials favour consumers?
The absence of GST on unbranded essential items such as rice, wheat, and cereals contributes to lower prices, which is particularly advantageous for consumers with limited financial resources. This policy ensures that these fundamental staples remain affordable and accessible, thereby supporting food security for a significant segment of the population.
Q16. Has Budget 2025 changed GST on rice and other essential goods?
Budget 2025 may alter GST exemptions on packaged and branded rice, impacting prices for both traders and consumers.
Q17. Does GST apply differently to branded vs. unbranded rice?
Yes, branded rice attracts 5% GST, while unbranded rice remains GST-exempt unless sold in pre-packaged units.
Q18. How does GST affect small traders dealing in essential commodities?
Small traders under the composition scheme may see relaxed GST compliance, but larger businesses must pay GST on branded goods.
Q19. Are pulses, wheat, and other staples taxed under GST?
Essential staples like pulses and wheat are tax-exempt unless branded, similar to rice taxation rules.
Q20. Do food processing businesses face GST on value-added products?
Yes, processed items such as flavored rice, rice flakes, and fortified grains attract higher GST rates than raw staples.
Q21. How does GST on food grains affect consumer prices?
If Budget 2025 increases GST on packaged grains, consumer prices may rise, especially for urban buyers who prefer packaged goods.
Q22. What are the GST implications for importers of rice and grains?
Imported rice may be subject to customs duty and GST, making foreign-sourced grains more expensive than domestically produced ones.
Q23. Do retailers selling loose rice and pulses need to charge GST?
No, retailers selling loose, unbranded grains are exempt from GST, but pre-packaged food items attract standard rates.
Q24. Can farmers claim input tax credit (ITC) on GST for agricultural inputs?
Yes, farmers can claim ITC on GST paid for seeds, fertilizers, and farm equipment, reducing their tax burden.
Q25. Is there any expected GST relief for small rice millers in Budget 2025?
There are discussions about tax concessions for small rice millers to support local grain processing industries.
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