Looking for expert help with GST and income tax for agarbatti makers India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Key Takeaways
- Agarbatti, dhoop batti, dhoop, lobhan and sambrani are 5% GST from 22 September 2025 (Notification 9/2025-Central Tax (Rate), Schedule I, S. No. 250).
- Perfume compounds you buy are 18%, and job work on agarbatti by a registered job worker is 18%. That gap builds up unused credit.
- Section 54(3)(ii) lets you claim the build-up as a refund, but only the share from inputs, not from job work or other services (Rule 89(5)).
- Firms and larger proprietors deduct 1% or 2% TDS on payments to job workers under Section 194C (Section 393 of the 2025 Act from 1 April 2026).
- Small makers can declare 6% or 8% of turnover as profit under Section 44AD for AY 2026-27.
What is the GST rate on agarbatti? Agarbatti, lobhan, dhoop batti, dhoop and sambrani (tariff item 3307 41 00) are taxed at 5% GST, 2.5% CGST plus 2.5% SGST, from 22 September 2025 under Schedule I, S. No. 250 of Notification 9/2025-Central Tax (Rate). Other burning preparations that don't carry these names are 18%.
Agarbatti making runs on thin margins and many hands. A typical unit buys raw sticks, charcoal and jigat powder, mixes masala, sends batches out to home rollers or a rolling unit, then dips the sticks in perfume and packs them. Each step has its own tax question. This guide is for small and mid-sized agarbatti, dhoop and sambrani makers and the Chartered Accountants (CAs) who file for them. Goods and Services Tax (GST) rates are as in force from 22 September 2025. Income tax is for FY 2025-26 (AY 2026-27) under the Income-tax Act 1961, with the 2025 Act section numbers that apply from 1 April 2026.
Which products are 5% and which are 18%?
Your finished sticks are 5%. Watch the edges of your range, because a "room freshener" or "aroma cone" can land in a different entry.
Comparison
GST on Agarbatti, Dhoop and Common Inputs from 22 September 2025
| Item (HSN) | GST | Notification entry |
|---|---|---|
| Agarbatti, lobhan, dhoop batti, dhoop, sambraani (3307 41 00) | 5% | 9/2025-CT(R), Schedule I, S. No. 250 |
| Other odoriferous preparations that operate by burning (3307 41 00) | 18% | 9/2025-CT(R), Schedule II, S. No. 65 |
| Room deodorisers and other preparations under 3307 not listed above | 18% | 9/2025-CT(R), Schedule II, S. No. 64 |
| Candles, tapers and the like (3406) | 5% | 9/2025-CT(R), Schedule I, S. No. 253 |
| Perfume compounds used as industrial raw material (3302) | 18% | 9/2025-CT(R), Schedule II, S. No. 59 |
| Wood charcoal, including shell charcoal (4402) | Nil | 10/2025-CT(R), S. No. 123 |
| Paper or paperboard cartons and boxes (4819 10, 4819 20) | 5% | 9/2025-CT(R), Schedule I, S. No. 322 |
Source: Notifications 9/2025-Central Tax (Rate) and 10/2025-Central Tax (Rate), both dated 17 September 2025, in force from 22 September 2025. IGST rates under the matching Integrated Tax (Rate) notifications.
A product named "dhoop cone" or "sambrani cup" is still in the 5% entry, because the entry covers dhoop and sambraani by name. A burning product that's none of the named items, such as a scented burner block, moves to 18%. Name and describe the product on your invoice the way the notification does.
Raw sticks and jigat powder. Check the HSN code and rate on each supplier's invoice. Bamboo sticks are often billed under heading 4421 and jigat powder under Chapter 14, and the rate depends on the exact heading. If a supplier's rate looks wrong, ask before you claim the credit.
Registration limit: Karnataka and Telangana differ
An agarbatti unit that sells only goods gets the higher limit in most States. Section 22(1) of the Central Goods and Services Tax (CGST) Act sets Rs 20 lakh, and Notification 10/2019-Central Tax raises it to Rs 40 lakh for suppliers of goods only. Ten States and Union Territories are excluded, including Telangana. So a Mysuru or Bengaluru maker has a Rs 40 lakh limit and a Hyderabad maker has Rs 20 lakh. Our GST registration limit guide lists each State.
Two things override the limit. A single sale to a buyer in another State makes registration compulsory (Section 24(i)), and most agarbatti is sold through distributors across States. And a job worker who rolls sticks for you supplies a service, so the goods-only Rs 40 lakh limit doesn't apply to them; in most States their limit is Rs 20 lakh.
Composition is open to manufacturers with turnover up to Rs 1.5 crore (Notification 14/2019-Central Tax), and agarbatti isn't on its excluded list. It rarely suits this trade. You'd pay 1% on turnover without credit (Rule 7, CGST Rules), you can't sell to other States (Section 10(2)(c)), and distributors can't claim credit on your bill. Our composition scheme guide explains the rest.
Job work: sending masala and sticks to rollers
Most units don't roll in-house. You send raw sticks and masala to a rolling unit or to home workers and get rolled sticks back. Section 143 of the CGST Act lets a registered principal send inputs to a job worker without paying tax, as long as the goods come back within one year. If they don't, the inputs are treated as supplied to the job worker on the day they left your premises, with tax and interest due.
Why 18% and not 5%? Notification 15/2025-Central Tax (Rate) taxes job work at 2.5% CGST only for listed goods: food products, Chapter 23 products, pharmaceuticals, hides and leather, printing, textiles, bricks, Chapter 71 goods, handicraft goods and umbrellas. Agarbatti is in Chapter 33 and isn't in the handicraft goods table the notification relies on (Notification 32/2017-Central Tax). It falls in the residual entry, 9% CGST plus 9% SGST. This is our reading of the notification, so if your rolling unit bills 5%, get your CA's written view before you claim the credit.
Step-by-Step Guide
Running Job Work Under Section 143
For a registered principal sending inputs to rollers
Send inputs on a delivery challan
Raw sticks and masala go out without tax on a challan issued by you, with the details in Rule 55 (Rule 45 of the CGST Rules).
Track each batch
Section 143(2) puts the responsibility for accounts of inputs sent out on you, not the job worker.
Bring rolled sticks back within one year
The one-year limit can be extended by the Commissioner by up to one more year on sufficient cause.
File ITC-04
Annually if your turnover last year was up to Rs 5 crore, half-yearly above that (Rule 45(3), as amended by Notification 35/2021-Central Tax).
Source: Section 143, CGST Act 2017; Rule 45, CGST Rules 2017; Notification 35/2021-Central Tax
Our job work GST guide covers challans and ITC-04 in more detail.
Why credit piles up, and how to get it back
Your output is 5%, but perfume compounds are 18% and registered job work is 18%. Most months your credit is larger than your output tax. Section 54(3)(ii) of the CGST Act allows a refund when credit builds up because inputs are taxed at a higher rate than output. Agarbatti isn't among the goods for which this refund is blocked (Notification 5/2017-Central Tax (Rate)).
The catch is in Rule 89(5). "Net ITC" in the refund formula means credit on inputs only. Credit on input services, including job work, isn't part of it, and the formula also takes away a matching share of your output tax.
Example (one month): you sell agarbatti worth Rs 20,00,000 at 5% and nothing else.
- Output tax: 5% of Rs 20,00,000 = Rs 1,00,000
- Credit on perfume compounds: 18% of Rs 5,00,000 = Rs 90,000
- Credit on cartons and other inputs billed at 5%: 5% of Rs 6,00,000 = Rs 30,000
- Net ITC (inputs only): Rs 1,20,000
- Credit on job work: 18% of Rs 3,00,000 = Rs 54,000
- Total credit: Rs 1,74,000, so Rs 74,000 is left over after paying output tax
Comparison
Rule 89(5) Refund Worked Out for the Example Month
| Step | Working | Amount |
|---|---|---|
| Inverted turnover x Net ITC / Adjusted total turnover | Rs 20,00,000 x Rs 1,20,000 / Rs 20,00,000 | Rs 1,20,000 |
| Output tax x (Net ITC / total credit on inputs and services) | Rs 1,00,000 x Rs 1,20,000 / Rs 1,74,000 | Rs 68,966 |
| Maximum refund | Rs 1,20,000 less Rs 68,966 | Rs 51,034 |
| Credit carried forward | Rs 74,000 less Rs 51,034 | Rs 22,966 |
Source: Section 54(3)(ii), CGST Act 2017; Rule 89(5), CGST Rules 2017, as amended by Notification 14/2022-Central Tax. Purchase figures are assumptions for illustration.
You file the claim in Form GST RFD-01 on the GST portal. The time limit is two years from the relevant date (Section 54(1)), and for this refund the relevant date is the due date of the GSTR-3B for the period in which the claim arises (Explanation 2(e) to Section 54). So the refund for a month whose GSTR-3B is due on 20 November 2026 must be filed by 20 November 2028. Keep purchase invoices for perfume and other inputs ready, because the officer checks that the higher-rated items are inputs and not services.
Income tax: 44AD, TDS on rollers and cash payments
Presumptive tax. Section 44AD of the 1961 Act covers resident individuals, Hindu Undivided Families (HUFs) and partnership firms (not LLPs) with turnover up to Rs 2 crore, or Rs 3 crore if cash receipts don't exceed 5% of turnover. Deemed profit is 6% of turnover received through banks or electronic modes, including UPI (Rule 6ABBA), and 8% of the rest.
Example (FY 2025-26): turnover Rs 45,00,000, of which Rs 38,00,000 came by bank transfer and UPI and Rs 7,00,000 in cash.
- 6% of Rs 38,00,000 = Rs 2,28,000
- 8% of Rs 7,00,000 = Rs 56,000
- Presumptive profit = Rs 2,84,000
Be careful about dropping the scheme once you've used it. If you don't declare profit under 44AD in any of the next five years, Section 44AD(4) bars you from it for the five years after that. Outside 44AD, a turnover above Rs 1 crore needs a tax audit (Section 44AB(a)), or above Rs 10 crore if cash receipts and cash payments are each within 5%. For AY 2026-27, CBDT Circular 07/2026 extended the audit report date to 21 October 2026 and the return date to 21 November 2026. See our Section 44AD guide.
TDS on job workers. Section 194C needs you to deduct tax when you pay a contractor for work, and "work" includes making a product to your specification from material you supplied. You must deduct if you're a firm, company or other listed person, or a proprietor or HUF whose turnover last year was above Rs 1 crore. The rate is 1% for an individual or HUF contractor and 2% for others. No deduction is needed if a single payment is up to Rs 30,000 and the year's total is up to Rs 1 lakh.
Say your firm pays a rolling unit run by a proprietor Rs 25,000 a batch for six batches in a year. No single payment crosses Rs 30,000, but the total of Rs 1,50,000 crosses Rs 1 lakh, so 1% TDS applies: Rs 1,500. From 1 April 2026 the same rule sits in Section 393(1) of the Income-tax Act 2025 (Table, S. No. 6(i)), with the same rates and limits. Our TDS on contractor payments guide covers returns and certificates, and our TDS filing service handles the quarterly returns.
Cash payments. Section 40A(3) disallows an expense paid in cash above Rs 10,000 to one person in a day. Rule 6DD(f) carves out cash paid to buy products "manufactured or processed without the aid of power in a cottage industry" from the producer. Buying finished hand-rolled sticks from a home producer can fit that exception. Paying a roller to roll your own masala is a payment for a service and doesn't. Pay rollers by UPI or bank transfer and you avoid the question.
Common mistakes agarbatti makers make
- Accepting a 5% job work invoice without checking. If 18% is the correct rate, the job worker can face a demand for the shortfall. Settle the rate with them in writing before the first batch.
- Expecting the full leftover credit as refund. Job work and service credit isn't part of Net ITC under Rule 89(5). Plan cash flow on the formula, not on the ledger balance.
- Losing track of inputs at rollers. Masala and sticks not back within one year are treated as supplied on the day they left. Reconcile challans each quarter.
- Paying rollers in cash above Rs 10,000 a day. The cottage-industry exception covers buying products, not paying for rolling work.
If you also sell pooja items, candles or gifts, see our gift shop GST guide. For the TDS section choice on other payments, read which TDS section applies to your payment.
How Tax Garden helps
We register agarbatti units under GST, set up job work challans and ITC-04, and file GSTR-1 and GSTR-3B with your 5% sales and 18% inputs reported correctly. When credit builds up, we work out the Rule 89(5) refund and file RFD-01. Message us on WhatsApp at 9640290977 or start with our GST return filing service.
