The India popcorn tax controversy — Wacky Tax Wednesday

India implemented a goods and services tax (GST) on July 1, 2017. Before then, it used a value-added tax (VAT) system. Like VAT, GST is an indirect tax levied on goods and services. 

Different products and services in India are subject to different GST rates. For example:

• 28% for luxury items like automobiles and chocolate
• 18% for electronics, heavily processed foods, and most services
• 12% for clothing, confectionary, and mobile phones
• 5% for essential goods like coffee, cooking oil, and medicine
• 0% for books and for basic foods like bread and vegetables 

Popcorn is a food, obviously. But is it a luxury, like chocolate? A heavily processed food? A confectionary or an essential food? Or is it subject to the 0% rate, like basic foods? 

It’s hard to know, and that makes tax compliance challenging for anyone selling popcorn in India.

Over the years, businesses have requested clarification about the taxability of popcorn from the Goods and Services Tax Council, which administers GST in India. Answering one such request in January 2021, the GST Council determined the seller’s popcorn was subject to a 9% Central GST and a 9% State GST, for a cumulative rate of 18%. 

But more clarification was deemed necessary, so in December 2024, the GST Council promised to address the popcorn tax.

The circular explaining the GST classification of popcorn isn’t yet available from the Central Board of Indirect Taxes and Customs, which publishes circulars and other tax notices. 

But boy, did the popcorn tax controversy in India make headlines when Finance Minister Nirmala Sitharaman explained the GST classification of popcorn during a news conference in December. 

The Wall Street Journal published some of her comments: “Salted popcorn, caramelized popcorn, plain popcorn. When it comes to popcorn’s tax treatment, as long as it is salty, whether it is with salt, spiced, tangy, chili powder, that’s all 5%. But when it has added caramelized sugar, it is no longer salty.” 

Simply put, different types of popcorn can be subject to different GST rates in India. Loose popcorn may be taxed differently from prepackaged popcorn. The GST on caramel popcorn is different from the GST on salty popcorn.

Here’s the scoop:

• Ready-to-eat popcorn mixed with salt and/or spices is taxed at 5%, provided it’s loose, not prepackaged and labeled. 
• The GST rate for prepackaged and labeled popcorn (salty or spicy) is 12%. 
• Caramelized popcorn, categorized as a sugar confectionery, is subject to 18% GST. 

More details should be available in the GST Council popcorn tax circular once it’s published.

India certainly isn’t the only jurisdiction to tax sweet foods differently from savory foods. 

In the United Kingdom, for example, a head of lettuce is subject to 0% VAT, but the 20% standard VAT rate applies to ice cream. In the U.S., some states tax candy differently from other grocery items; some jurisdictions add a surtax to soda and other sweetened beverages. 

As for the taxability of popcorn in the U.S., sales tax rates can depend on all sorts of factors: where and how it’s prepared or served, where and how it’s sold, and so forth. The Navajo Nation levies a junk food tax on “minimal-to-no nutritional value food,” including “sweets” and “snack chips and crisps.” Some packaged popcorn may be subject to the higher tax and some may not; the Office of the Navajo Tax Commission doesn’t say.

Such tax policies have caused confusion in the U.K. and in the U.S., so it stands to reason that having different popcorn GST rates in India would confuse businesses and taxpayers there.

Confused or not, businesses are responsible for getting tax right. Automating the collection of sales tax, GST, and VAT can help. Visit avalara.com to learn more.