The goods and services tax law has changed multiple times since it launched in July of 2017. This is especially the case with GST on packaged food, both branded and unbranded. Whether you run a grocery store or manufacture food, these GST rules can affect your business. It can affect everything from how you price your products to how you print your packaging.
How Does GST Work for Food Products?
Each food product has a different tax rate under GST. Fresh fruits and vegetables have a 0% tax rate. While molasses fall into the 28% GST bracket. Whenever you sell a food item, it’s important to charge the correct GST rate.
Sometimes the GST specifies tax rates for branded type foods versus unbranded types. In this case, branded means that your company’s name, trademark, or logo is printed on the packaging. Unbranded foods are displayed and sold from an unmarked unit container.
History of Branded Foods and the GST
After the initial GST roll-out, some companies decided that to lower their tax bills, they would get their brands deregistered. Technically, that meant that they could sell their products at a reduced GST. This would keep their product prices low. This strategy was especially common among companies that sold pulses, cereals and flours. Under GST law, branded products in this category have a 5% GST rate. And unbranded products have a 0% GST rate.
When the GST Council caught wind of this, it forced them to define what they meant by registered brand. At its 21st meeting on September 9, 2017, the GST Council amended the law’s notifications to clarify the definition of registered brands under GST. In doing so, they closed the loophole. Now, it’s not as easy for companies to avoid taxes by getting their brands deregistered.
What Counts as a Registered Brand?
Following is the criteria used by the GST Council to decide whether or not your products are officially branded:
- If you registered your brand before May 15, 2017- The GST regime still sees you as registered. This is despite the fact that you’ve officially deregistered your brand since.
- If your brand was registered under the Copyright Act of 1957 as of May 15, 2017 – You’re considered a registered brand.
- If you run an international company, and you had a registered brand in any other country as of May 15, 2017 – The government sees you as a registered brand in India. As long as your brand was legally registered there, it doesn’t matter what the laws of the other country are.
- If your company’s trademark or name has an actionable claim – The government also considers you a registered brand. An actionable claim is any right that can be enforced in a court of law, such as a contract or a rent agreement.
The Council specifically referenced pulses, cereals, and flours in this decision. That means that any cereal company that meets one of the above criterias is charged a 5% GST, as of May 2018.
Other Foods With Branded/Unbranded Rates
The cereals and flours category isn’t the only type of food that has different rates for branded and unbranded products. Unbranded namkeens have a GST rate of 5%, while branded namkeens come with a 12% GST. Unbranded paneer has a 0% GST, and branded paneer has a 5% GST. Branded coconut water has a 12% GST, and unbranded versions have a 0% GST. One exception to the rule is bread. Whether it’s branded or not, bread attracts a 0% GST, unless it’s served at a restaurant for consumption or used as pizza bread. The GST Council moves products to different GST tax rate categories at nearly every meeting. So it’s important to check regularly to see which changes affect your food products.
What Happens When You Want to De-register Your Brand?
Of course, the government must still allow a way for your company to deregister. If you want to do so, you have to do two things. First, you need to file an affidavit with Commissioner of Central or State or Union Territory Tax. The affidavit should say that you’re going to give up your rights to your brand name. That includes actionable claims. In addition, you have to update every container of your product to say that you have given up these rights. This statement has to appear in both English and the local language of the place of supply.
Although this sounds simple, it has big implications for your company. First of all, it’s an expensive process to update your packaging. This is especially if you have a large store in a warehouse. What’s more? By forgoing the right to your company name and branding, you open the door for other manufacturers to produce sub-par versions of your products and sell them under your name. That means that customers could lose faith in your products and sales could drop. The government knows that companies are unlikely to take this risk, and will opt instead to accept the higher tax.
While GST rates for the food industry are ever-changing, the GST Council’s clarification on registered brands is a big help for food-related companies. With the new definitions, it’s easier to keep your company compliant and to choose vendors that are also following the rules.