GST on Chocolate and Other Cocoa Preparations - HSN Code 1806

Chocolate is one of the widely consumed confectionery products in India. Be it milk chocolate, dark chocolate, or cocoa-based spreads, chocolate products are increasingly popular worldwide. However, it should be noted that businesses engaged in the production and sale of chocolate and cocoa preparations have to adhere to GST (Goods and Services Tax) rules and shall allocate the correct HSN (Harmonized System of Nomenclature) Code 1806 for their products. Manufacturers, retailers, and distributors must understand the GST rates that apply to them and the relevant compliance processes.

This article helps you to understand the HSN Code 1806, GST rates on chocolate/cocoa and other top tax considerations for businesses.

What is the HSN Code for Chocolate?

Chocolate and Other Food Preparations Containing Cocoa — HSN Code 1806 With all other chocolate products including:

Milk chocolate
Dark chocolate
White chocolate
Chocolate bars and blocks
Cocoa-based spreads
Nuts and fruits enrobed in chocolate
Other cocoa preparations

So all types of chocolate products in India are under the same tax treatment due to the classification under HSN Code 1806.

GST on Chocolate: Applicable Tax Rates

HSN Code 1806: GST Rate on Chocolates and Cocoa Preparations

HSN Code	Description	Examples	GST Rate
1806 10	Cocoa powder (sweetened)	Sweetened cocoa powder, drinking chocolate mix	18%
1806 20	Chocolate in blocks, slabs, or bars (filled)	Chocolate bars with fillings like caramel, nuts	18%
1806 31	Chocolate in blocks, slabs, or bars (not filled)	Plain chocolate bars, dark chocolate slabs	18%
1806 90	Other chocolate and cocoa-based food preparations	Cocoa spreads, chocolate-coated items, chocolate pastes	18%

The GST rate on chocolate is uniformly 18%, irrespective of whether it is in solid or paste form, filled or unfilled. This is because chocolate is classified as a processed and luxury food item rather than an essential good.

You might also be interested in ‍Refrigerator HSN Code & GST Rate - 8418.

Why is GST on Chocolate 18%?

While sugar or jaggery are taxed at 5% or exempt from GST, chocolate is classified as a luxury or indulgence. Due to this, the higher GST rate of 18% applies:

Chocolate is a non-essential:

Unlike staple foods like wheat, rice, or sugar, chocolate is a nice-to-have buy.

It is a value-added product:

Chocolate is produced through many levels of processing involving fermentation, roasting, refining, and conching.

It’s a premium and branded product:

Most chocolates are sold through big brands, and a higher tax rate applies for packaged and branded goods.

There is a high tax rate on luxury food items, only for taxation on chocolates at 18% GST by the government to ensure that the prevalent essential goods remain cheap.

Impact of GST on the Chocolate Industry

The introduction of the Goods and Services Tax has created a ripple effect on chocolate manufacturers, importers and retailers in India; however, the impact is not all negative.

Simplified Tax Structure

Before GST, high and different taxes such as excise duty, VAT and CST were levied on chocolates depending on the individual states. “For example, if you have businesses in multiple states, under GST, you will simply have to comply with a single 18% rate throughout India.

Factors for Manufacturers with Cost Concerns

Though the 18% GST rate will hike the final price of chocolate for consumers, the businesses would be able to claim input tax credit (ITC) on the raw materials, including cocoa beans, milk, sugar and packaging materials. This offsets tax costs.

Import and Export Benefits

Exports of vegan products attracted zero-rated GST, which enabled chocolate exporters from India to claim refunds on input taxes. While imported chocolates are charged GST of 18% as well as customs duties, chocolates produced locally are therefore growing competitive.

Effect on Large and Small Businesses

Big chocolate players (like Cadbury, Nestlé and Amul) have advanced supply chains and can optimise their GST compliance through ITC.

The high cost of compliance with GST and the risk of being subjected to an increased tax burden by tax authorities can cause pricing competitiveness to wither down, while small and artisanal chocolate businesses cannot resort to such large-scale measures.

GST Compliance for Chocolate Businesses

Chocolates are to be taxed under the GST regime, and hence, businesses trading in them need to comply correctly or else they will be fined. Here’s how:

Make sure chocolate products are classified correctly with this 18% GST rate.
Clean invoicing of all chocolate sales with HSN codes and GST rates.
Input Tax Credit (ITC) on Raw Materials and Packaging Materials
Ensure timely filing of GST returns (GSTR-1, GSTR-3B, and GSTR-9) to avoid fines and penalties.
Stay updated on GST regulations as tax rate changes or notifications related to GST may affect compliance.

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Conclusion

HSN Code 1806 or Chocolates and cocoa preparations—As Chocolates are classified under, a category of luxury goods, they find themselves in a luxury food item category along with Besan, choli, and cocoa products where the GST rate applicable on them is 18% Although this tax arrangement makes compliance easier, minimizes tax cascading effect and provides for better planning, it also has implications for prices for businesses and citizens. By availing Input Tax Credit (ITC) and categorizing HSN correctly, chocolate businesses can systematise their costs and stay in alignment with GST.

For chocolate manufacturers, retailers, or distributors, knowledge of GST on chocolate is invaluable for seamless operation and management of costs. The best is to be abreast with the GST provisions and ensure easy compliance for your business.

FAQs

1. What is the GST rate on chocolate?

The chocolate is taxed at the rate of 18 per cent GST, which applies to all forms such as bars, slabs, spreads, and filled chocolates.

2. What is the rate of GST on homemade or artisanal chocolates?

Consumer goods, including homemade and artisanal chocolates, are also subject to 18 per cent GST, as they are classified under the same HSN code as branded chocolates.

3. Can Chocolate manufacturers avail of the ITC?

They can claim ITC only on raw materials such as cocoa, milk, sugar and packing material, and thus, reduce overall taxes.

4. Does GST exempt chocolates at all?

No, chocolates and cocoa-based preparations do not come under GST exemptions and are taxed at the same rate of 18%.

5. What is the impact of GST on imported chocolates?

The imported choco bars are subject to 18pc GST plus customs duty in addition to the cost of the chocolate itself, making them relatively more expensive than locally produced chocolates.