The furniture industry is dominated by SSIs, small workshops that do not pay taxes or excise duties. Consequently, they only pay VAT, which ranges from 12.5 to 14.5 percent. If they use these forms of companies, they will also be required to charge 28 percent GST. Despite receiving GST credit for supplying raw materials, their prices would increase by 7%.
According to an announcement made at a GST Council meeting on 18 May 2017, VAT on goods and services would be repealed. Various wood furniture and supplies are compared with the GST regime in this article. During this article, we will examine how GST rates impact the furniture industry.
GST rate for wood furniture supplies
It is essential to know the GST cost for the supply of wood products in order to understand the price of wood furniture.
- Articles such as wooden frames, drums, crates, and timber used to make umbrellas, scrolling sticks, tool handles, or something similar, are subject to GST at 12 percent.
- Wood pulp and bamboo pulp are subject to a 12 percent GST.
- For residual lyes, such as lignin sulphonates, but not high oils, from the manufacture of wood pulp, regardless of concentration, de-sugaring or chemical processing, GST is 18 percent.
- Among the items subject to GST are wood tar, vegetable pitch, wood naphtha, brass pitch, wood tar oils, and related preparations based on rosin, resin acids, or vegetable pitch.
- Tableware and kitchenware made from wooden decorations are subject to GST at a rate of 12 percent (in addition to those registered at 28 percent).
- For fiber-wood, plywood, laminated wood, or other woodlike or woodlike materials, a 28 percent GST is imposed.
- Chips, sawdust, and wood waste are taxed at a rate of 5%.
- Furniture made of cane is subject to a GST tax of 28 percent.
- Firewood and wood charcoal are not subject to GST.
In place of the previous 12.5 percent VAT rate, furniture producers now charge GST at the rate of 12 percent. Plywood is the most common material used to make wood furniture. Compared to earlier VAT levels, plywood prices increased by 5-6 percent under GST. The price of wood furniture (timber) has risen as a result. Furniture manufacturers can now claim an ITC (Input Tax Credit) on plywood purchased.
Wooden furniture, such as dining tables, chairs, couches, cupboards, and beds, are manufactured nearby by a furniture store.
The customer purchases a sofa package for Rs. 20,000 at the store. In this case, plywood was used to make a sofa package costing Rs. 10,000.
Taking into account both VAT and GST, we obtain the following results when comparing the tax liability of wooden objects (sofa sets):
Tax liability under VAT
Sofa set tax (finished good) = Rs. 2,500 (i.e. 12.5% of 20,000)
Incentives available for plywood purchases (material) = Rs. 600 (6% of 10,000)
As a result, the net tax liability = Rs. 1,900 (2,500 – 600)
Tax liability under GST
Tax levied on the sofa set (finished good) = Rs. 2,400 (i.e. 12% of 20,000)
ITC available on the purchase of plywood = Rs. 2,800 (28% of 10,000)
Therefore, net tax liability = Rs. 400 (2,800 – 2,400)
By claiming the ITC available on the purchase of plywood (Rs. 2,800), the furniture manufacturer can dispose of its entire GST liability of Rs. 2,400.
Iron or Steel Furniture GST Rate
GST also made it more expensive to produce iron and steel furniture. gst rate on furniture would be taxed at a rate of 28 percent compared to the previous average VAT rate of 12.5%.
Iron and steel are now taxed at 18 percent, instead of the previous 5 percent VAT. Iron and steel furniture manufacturers must declare the ITC duty they paid on imports.
One of our customers purchased a steel almirah from a furniture shop for Rs. 50,000. The furniture store has a large section where only iron and steel furniture is made. A steel worth Rs. 30,000 has been purchased by the furniture manufacturer for the steel production of the almirah. Adding both VAT and GST to the steel item (almirah), we get the following results:
Tax liability under VAT
A tax of Rs. has been levied on the chest of drawers (finished good) = Rs. 6,250 (i.e. 12.5% of 50,000)
The ITC available on steel purchases (material) = Rs. 1,500 (5% of 30,000)
As a result, the net tax liability = Rs. 4,750 (6,250 – 1,500)
Tax liability under GST
The tax imposed on the cabinet (finished good) = Rs. 14,000 (i.e. 28% of 50,000)
The ITC available on steel purchases (material) = Rs. 5,400 (18% of 30,000)
As a result, the net tax liability = Rs. 8,600 (14,000 – 5,400)
As compared to what was previously paid as VAT, the GST tax rate on furniture, whether made of wood, iron, or steel, is much higher. Under the GST, iron or steel producers may have a higher tax liability. Furniture manufacturers who produce wood furniture should benefit more from GST than those who produce iron or steel furniture.
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