Exempting PPE, test kits, masks from GST may be counterproductive

Shishir Sinha New Delhi | Updated on April 19, 2020

Exempting PPE (personal protective equipment), test kits, masks and other items being used extensively to fight Covid-19 from the Goods and Services Tax (GST) could be counter-productive, according to government sources.

As on date, PPE has twin GST rates (5 per cent if price per piece is below ₹1,000 and 12 per cent if price per piece is above ₹1,000). GST rates on test kits, masks, ventilators and sanitisers are 12, 5, 12 and 18 per cent respectively. The government has received many recommendations from various stakeholders for exemption. The thinking is that exemption will lead to reduction in the prices of these essential items and thus would benefit masses in the fight against Covid-19.

Input tax burden

“Exemption leads to blocked input tax credit (ITC), thus increasing the cost of manufacturing,” one person in know of the matter said. He explained that the GST is a value added tax, and at each stage of the supply chain, tax is collected on net basis on the value addition occurs in that stage. Now, if the GST on PPE is reduced to nil, the total cost would remain unchanged. While the GST exemption to PPE would make output GST zero, the ITC will not be available for the manufacturer, and therefore, input tax would get added to the cost.

According to the source, while the consumer does not gain from GST exemption, the compliance burden would increase for manufacturer, who would be required to maintain a separate account of inputs, input services and capital goods used for manufacture of PPE (exempted items). In case he is not in a position to maintain separate accounts, he shall be required to reverse the input tax credit on all inputs/input services used in manufacture of exempted PPE after applying detailed calculations.

Reduce tax to zero

Harpreet Singh, Partner, KPMG, felt exempting PPE from GST may not serve the intended purpose, as the same could result in blockage of input taxes that go in manufacturing of PPE. “The right step could be to make sales of PPE zero-rated where no taxes are levied on sales and input taxes that go into manufacturing of PPE are refunded,” he said.

Rajat Mohan, Partner at AMRG & Associates, said exemptions are generally counter-productive due to the importance of input tax credit. However, he argued that reducing the tax to zero on PPE kits would free the supplier from all compliances under GST. “At this time, margin is very high in such kits, thereby exemption would lower the cost of products in quite a few cases — especially where tax rate is 18 per cent due to application of ‘mixed supply’. This will save the chain from compliance of e-way bills also,” he said.

Demand for GST exemption on various items got louder voice when the government exempted PPE, test kits, masks and ventilators from basic custom duty and appliable cess for period up to September 30. “While the elimination of BCD may have been detrimental to domestic manufacturing, the customs duty was reduced in the larger interest of immediate need of such goods to deal with Covid-19, considering that domestic supply may not have been sufficient to meet the increased requirement,” another person in the know of the matter said.

Exemption would lead to advantage to importers and thus, domestic manufacturing will suffer. Also, the impact would be severe as custom duty exemption is for limited period only.

S. No.


Cost (Rs)

GST rate

GST (Rs)








Other inputs, capital goods, input services





Total inputs (1+2)


Total ITC

141 (15+126)








Net GST on output (Net of ITC)

= (Output tax – Input tax)

= (141-141)



Net price to consumer (including GST)

1175 + 141


Published on April 19, 2020

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