GST on Agarbatti: Rates, HSN Code & Rules

Agarbatti, commonly known as incense sticks, holds significant cultural importance in India, widely used in homes and businesses for daily rituals and religious ceremonies. Under the Goods and Services Tax (GST) system, agarbatti attracts a concessional 5% GST rate under HSN code 33074100. This rate was retained even after the GST 2.0 rate rationalisation that took effect on September 22, 2025, which consolidated most goods into 5% and 18% slabs. This article covers the applicable GST rate, HSN codes, registration thresholds, Input Tax Credit (ITC) rules, and relevant advance rulings for agarbatti businesses.

GST Registration and Composition Scheme for Agarbatti Businesses

GST applies to the manufacturing and sale of agarbatti. However, small-scale businesses with an annual turnover up to Rs. 40 lakhs (or Rs. 20 lakhs in special category states and Telangana) in a financial year are not required to register for GST. Registration becomes mandatory once turnover crosses these threshold limits.

A composition scheme is available for smaller enterprises, allowing simplified compliance and tax at a fixed rate on turnover. Agarbatti manufacturers with annual turnover up to Rs. 1.5 crore (Rs. 75 lakhs for special category states and Himachal Pradesh) can opt in and pay GST at just 1% of turnover, instead of charging 5% on each supply. However, composition dealers cannot claim Input Tax Credit (ITC) and cannot make interstate supplies.

Additional considerations for agarbatti taxation under GST include:

Invoicing

All registered taxpayers must issue an invoice for every supply of goods or services. The invoice must include the supplier’s and recipient’s names, addresses, and GSTINs, a description of the goods, their quantity and value, and the total amount charged.

It is also crucial to accurately state the Harmonized System of Nomenclature (HSN) code and the correct GST rate. Ensuring these details are correct on the invoice is vital for GST compliance and avoiding penalties.

Place of Supply

GST is a destination-based tax, meaning goods and services are taxed where they are consumed. If agarbatti is purchased from another state, GST is levied based on the location where the goods are ultimately delivered, IGST for interstate supplies, and CGST plus SGST for intra-state supplies.

Transportation and e-Way Bills

GST law mandates e-way bills for transporting goods exceeding Rs. 50,000 in value (per invoice/bill/delivery challan), whether within a state or across state lines. Agarbatti manufacturers must generate e-way bills when required to avoid penalties.

GST Rate and HSN Code for Agarbatti (Updated for GST 2.0)

The HSN code for agarbatti is 33074100, and the GST rate is 5%. Dhoop batti, dhoop cones, and similar odoriferous preparations that operate by burning are also taxed at 5%. The GST Council retained this concessional rate in the September 2025 GST 2.0 rate rationalisation, recognising agarbatti as a household consumption item.

The following table outlines the current GST rates and HSN codes for agarbatti and its key raw materials:

Note the rate asymmetry: finished agarbatti is taxed at 5%, while a key input, fragrance oil, attracts 18%. This makes accurate ITC claims especially important for manufacturers.

ITC Availability on Agarbatti

Input Tax Credit (ITC) allows businesses to claim credit for GST paid on goods or services used in their operations. Agarbatti manufacturers can claim ITC on taxes paid for raw materials like bamboo sticks, joss powder, and perfumes. The following conditions must be met to claim ITC:

• The inputs must be used exclusively for business activities, not personal use.
• The business must possess a valid tax invoice or debit note from the supplier.
• The goods or services must have been received. For goods delivered in installments, credit can be claimed only after receiving the final installment.
• Payment to the supplier must be made within 180 days of the invoice date; otherwise, ITC must be reversed with interest, reclaimable upon payment.
• The supplier must have reported the invoice in Form GSTR-1, and it must reflect in the buyer’s Form GSTR-2B.
• ITC must be claimed by November 30th of the subsequent financial year or the date of filing the annual GST return, whichever is earlier.
• ITC is not allowed if depreciation has been claimed on the tax component of capital goods.
• If purchases are used for both taxable and exempt supplies, or for both business and non-business purposes, the credit must be accurately apportioned.
• The ITC must not fall under Section 17(5) of the CGST Act, which lists blocked credits.

Meeting these criteria allows businesses to claim ITC on GST paid for agarbatti-related purchases, reducing their overall tax liability.

Advance Rulings Related to GST on Agarbatti

Advance Rulings are determinations by the Authority for Advance Rulings (AAR) or the Appellate Authority (AAAR) on specific GST questions. They are binding on both the applicant business and tax authorities.

A pertinent case involved M/s Moksh Agarbatti Co., which sought a ruling from the Gujarat GST AAR. The taxpayer provided one unit of dhoop free with every pack (10 pieces) of agarbatti and asked whether it could claim ITC on the GST paid for manufacturing the dhoop, and on dhoop purchased from a third-party vendor.

The Gujarat AAR ruled that ITC could not be claimed in either case. The decision relied on Section 17(5)(h) of the CGST Act, 2017, which disallows ITC on goods that are lost, stolen, destroyed, written off, or given as a gift or free sample. Since the dhoop included with the agarbatti pack was a free sample, no ITC was permitted.

In the same ruling, clarification was also sought on ITC for insurance and maintenance of motor vehicles used to transport directors and employees. The AAR again denied ITC, citing Section 17(5)(ab), which blocks credit on general insurance, servicing, repair, and maintenance of motor vehicles used for passenger transport with an approved seating capacity of up to 13 persons.

Conclusion

GST has streamlined taxation for the agarbatti industry, replacing the earlier patchwork of excise duty, VAT, and CST with a single 5% levy, a rate the GST Council preserved through the GST 2.0 reforms of September 2025. With low output tax, a 1% composition option for small manufacturers, and ITC available on inputs, the compliance framework favours this industry. Businesses should stay on top of invoicing, e-way bill, and ITC rules to avoid penalties and disputes.

FAQs on GST on Agarbatti

• What is the GST rate on agarbatti in 2026?
  Agarbatti attracts 5% GST under HSN code 33074100. The rate was retained unchanged in the GST 2.0 rate rationalisation effective September 22, 2025.
• What is the HSN code for agarbatti under GST?
  The HSN code for agarbatti is 33074100. Dhoop batti and dhoop cones fall under the same code.
• Are there any restrictions on agarbatti manufacturers claiming Input Tax Credit (ITC)?
  Yes. ITC can only be claimed on inputs like raw materials, packaging, and machinery used in agarbatti production, subject to standard ITC conditions. ITC is disallowed on free samples and goods for personal consumption.
• Does agarbatti receive any GST exemption?
  Small businesses with annual turnover up to Rs. 40 lakhs (Rs. 20 lakhs in special category states and Telangana) are exempt from GST registration. Eligible manufacturers can also opt for the composition scheme and pay just 1% on turnover.
• Is GST applicable to packaging materials used for agarbatti?
  Yes, GST applies to packaging materials, at the rate applicable to the specific packaging material used, and ITC can generally be claimed on it.