Manufacturing sits at the heart of India’s Goods and Services Tax (GST) system, and factories face some of the most layered compliance obligations under the law. From claiming input tax credit on raw materials and plant to managing job work, e-invoicing and the movement of finished goods, a manufacturer’s GST footprint touches almost every part of the shop floor. This 2026 guide from TAXAJ explains the key requirements and the practical steps to stay audit-ready.<\/p>\n
A manufacturer must obtain GST registration once aggregate turnover crosses Rs 40 lakh for suppliers of goods in normal category states, or Rs 20 lakh in special category states. Registration is state-specific, so a factory operating units in more than one state needs a separate GSTIN for each state. Registration is also compulsory, irrespective of turnover, where the manufacturer makes inter-state outward supplies or is liable to pay tax under reverse charge.<\/p>\n
Smaller manufacturers with turnover up to Rs 1.5 crore may opt for the composition scheme and pay tax at 1 percent of turnover, but they cannot claim input tax credit or make inter-state supplies. Manufacturers of notified goods such as pan masala, tobacco and ice cream are excluded from this option.<\/p>\n
Every product a factory makes must be classified under the correct Harmonised System of Nomenclature (HSN) code, which drives the applicable tax rate. Manufacturers with turnover above Rs 5 crore must quote 6-digit HSN codes on invoices, while those up to Rs 5 crore use 4-digit codes for business-to-business supplies.<\/p>\n
Following the GST rate rationalisation effective 22 September 2025 (often called GST 2.0), most goods now fall under two principal slabs of 5 percent and 18 percent, with a special 40 percent rate for a small list of sin and luxury goods. A wrong HSN or rate can trigger short-payment demands, interest and penalties. The table below summarises the common structure.<\/p>\n
| Rate<\/th>\n | Typical manufactured goods<\/th>\n<\/tr>\n |
|---|---|
| Nil \/ Exempt<\/td>\n | Unbranded food staples, certain agricultural produce<\/td>\n<\/tr>\n |
| 5%<\/td>\n | Essential and mass-consumption items, many packaged foods<\/td>\n<\/tr>\n |
| 18%<\/td>\n | Most industrial and consumer manufactured goods<\/td>\n<\/tr>\n |
| 40%<\/td>\n | Sin and luxury goods such as tobacco and certain high-end items<\/td>\n<\/tr>\n<\/table>\nInput Tax Credit on Raw Materials, Capital Goods and Services<\/h2>\nInput tax credit (ITC) is the backbone of a manufacturer’s working capital. GST paid on raw materials, consumables, packing material, plant and machinery, and input services such as freight and factory maintenance can be set off against output tax. To claim ITC, the manufacturer must hold a valid tax invoice, have received the goods or services, ensure the invoice appears in GSTR-2B, and claim the credit by 30 November following the financial year.<\/p>\n
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