Looking for expert help with Income tax and GST for packaged drinking water plant owners 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
- From 22 September 2025, GST on drinking water in 20 litre jars is 5% (was 12%), and on other packaged water in bottles is also 5% (was 18%).
- Water sold in a sealed unit container is outside the nil rate (S. No. 103, Notification 10/2025-Central Tax (Rate), from 22 September 2025), so capped jars and bottles are taxed at 5%. The new entry no longer mentions "purified" water, so loose RO water needs a closer look.
- A plant selling only water must register above Rs 40 lakh turnover, but Rs 20 lakh in Telangana and nine other states. Renting dispensers brings you down to the Rs 20 lakh limit everywhere.
- At 5% output tax, credit on 18% bottles and caps can pile up. You can claim the excess back as an inverted duty refund under Section 54(3).
- A proprietor or firm with turnover up to Rs 2 crore (Rs 3 crore if cash is within 5%) can use Section 44AD for AY 2026-27.
What is the GST rate on packaged drinking water in India? 5% from 22 September 2025. The 56th GST Council cut drinking water in 20 litre bottles from 12% to 5%, and other packaged water of heading 2201 (not sweetened or flavoured) from 18% to 5%. Both now sit in a single entry at S. No. 146 of Schedule I to Notification 9/2025-Central Tax (Rate). Water that isn't aerated, mineral, distilled, medicinal, ionic, battery or de-mineralised and isn't sold in a sealed unit container stays at nil under S. No. 103 of Notification 10/2025-Central Tax (Rate).
If you run an RO plant that fills 20 litre cans for homes and offices, or a small bottling unit that packs 1 litre and 500 ml bottles, September 2025 changed your GST bill. Both products now sit at 5%. That's good for your customers, but it also means your output tax is now lower than the 18% you pay on bottles, caps and machinery, and credit can build up in your ledger. This guide covers the new rates, when you need registration, whether composition makes sense, how to get stuck credit back, and how to file income tax for AY 2026-27 (FY 2025-26).
What GST rate do you charge on jars and bottles?
The rate depends on what's in the container and when you sold it. Here's the split.
Comparison
GST on Drinking Water (heading 2201)
| What you sell | Up to 21 Sep 2025 | From 22 Sep 2025 |
|---|---|---|
| Drinking water packed in 20 litre bottles or jars | 12% | 5% |
| Packaged water in 1 litre, 500 ml and other bottles (no added sugar, not flavoured) | 18% | 5% |
| Natural or artificial mineral water (no added sugar, not flavoured) | 18% | 5% |
| Water not sold in a sealed unit container and not aerated, mineral, distilled, medicinal, ionic, battery or de-mineralised | Nil (entry also excluded purified water) | Nil (entry no longer mentions purified water) |
| Flavoured or sweetened water and other beverages (heading 2202) | Not covered here | Not covered here |
Source: Notification 9/2025-Central Tax (Rate), Schedule I, S. No. 146; Notification 10/2025-Central Tax (Rate), S. No. 103 (both from 22 Sep 2025); 56th GST Council recommendations, Annexure I (PIB, 3 Sep 2025); Notification 2/2017-Central Tax (Rate), S. No. 99 (to 21 Sep 2025)
What it means per jar. Say you sell a 20 litre jar at Rs 25 before tax. Up to 21 September 2025, 12% GST added Rs 3.00, so the customer paid Rs 28.00. From 22 September 2025, 5% adds Rs 1.25, so the customer pays Rs 26.25. If your invoices for FY 2025-26 span the change, check that every bill dated 22 September or later shows 5%.
Why sealed RO jars aren't exempt. Many plant owners think cans of RO water are tax-free. The nil-rate entry for water (S. No. 103 of Notification 10/2025-Central Tax (Rate), from 22 September 2025) leaves out aerated, mineral, distilled, medicinal, ionic, battery and de-mineralised water and "water sold in sealed unit container". A capped 20 litre jar or a PET bottle is a sealed unit container, so once you're registered those sales are taxable at 5%.
What changed on 22 September 2025. The earlier entry (S. No. 99 of Notification 2/2017-Central Tax (Rate)) also excluded "purified" water, which put RO water outside the exemption even when supplied loose. The new entry drops that word. CBIC has not clarified whether loose RO water, supplied without a sealed container, now falls within the nil entry. Until it does, keep billing sealed jars and bottles at 5%, and take written advice or seek an advance ruling before treating any loose supply as nil.
Delivery charges follow the water. If you bill Rs 5 a jar for doorstep delivery on the same invoice, that's a composite supply under Section 2(30) of the CGST Act, and Section 8 taxes it at the rate of the principal supply. The water is the principal supply, so delivery is taxed at 5% too.
When does a water plant need GST registration?
A plant that sells only water is a supplier of goods. You must register once aggregate turnover crosses Rs 40 lakh in a financial year. In Telangana, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Tripura and Uttarakhand, the limit is Rs 20 lakh (Notification 10/2019-Central Tax and the GST Council's registration guide).
Two things push you to the lower limit. First, the state you're in. Second, any service income. The Rs 40 lakh limit is only for people engaged exclusively in supplying goods. Rent out water dispensers or charge a monthly fee to maintain office coolers, and you're a mixed supplier with a Rs 20 lakh limit (Rs 10 lakh in Manipur, Mizoram, Nagaland and Tripura).
Example: an RO plant in Hyderabad sells 7,000 jars a month at Rs 25 each before tax.
- Monthly sales: 7,000 x Rs 25 = Rs 1,75,000.
- Yearly sales: Rs 1,75,000 x 12 = Rs 21,00,000.
- Telangana's limit for goods is Rs 20 lakh, so this plant must register. The same plant in a state that uses the Rs 40 lakh limit wouldn't need to, unless it also earned service income.
Jar deposits don't count as sales when you collect them. Under the proviso to Section 2(31) of the CGST Act, a deposit isn't payment for a supply unless you apply it as consideration. So a refundable Rs 150 deposit per jar stays outside your turnover. If a customer never returns the jar and you keep the deposit, you've applied it as consideration, and it becomes a taxable sale on which GST is due.
Need help with the paperwork? Our GST registration service handles the application, and our turnover limit guide explains how aggregate turnover is counted.
Composition scheme or regular GST?
A water plant is a manufacturer, so under Rule 7 of the CGST Rules a composition dealer pays 1% of turnover (0.5% CGST plus 0.5% SGST). You can opt in if last year's turnover was up to Rs 1.5 crore (Rs 75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand) under Notification 14/2019-Central Tax, in force from 1 April 2019. The same notification bars manufacturers of ice cream, pan masala, tobacco, aerated water (added from 1 October 2019) and fly ash bricks, fossil-meal bricks, building bricks and roofing tiles (added from 1 April 2022). Packaged water under heading 2201 isn't on that list, but a plant that also fills soda or other aerated water is shut out of the scheme.
The trade-offs are real, though.
Step-by-Step Guide
Should Your Water Plant Choose Composition?
Who buys from you?
Offices, hotels and shops registered under GST want a tax invoice so they can claim credit. A composition dealer issues a bill of supply and can't pass on credit, so these buyers may prefer a regular supplier.
Do you sell outside your state?
A composition dealer can't make inter-state sales of goods. If you supply jars across a state border, regular GST is your only option.
How much GST do you pay on inputs?
Bottles, caps and closures of plastic (heading 3923) carry 18%. Under composition none of that is claimable. Under regular GST it is, and excess credit can be refunded.
Can your customers absorb 5%?
Households buying jars at a fixed price may resist a 5% increase. Composition lets you keep a single price, but you pay 1% of turnover from your own margin.
Compare the cash cost
Work out a year's figures both ways before you file the composition option. You can't collect tax from customers under composition, and your bill of supply must say 'composition taxable person, not eligible to collect tax on supplies'.
Source: Section 10, CGST Act 2017; Rule 7, CGST Rules 2017; Notification 14/2019-Central Tax as amended by 43/2019 and 04/2022-Central Tax; CBIC FAQ on Composition Levy
For the Hyderabad plant above, composition would cost 1% of Rs 21,00,000 = Rs 21,000 a year, paid out of the plant's own pocket. Under regular GST it would charge 5% of Rs 21,00,000 = Rs 1,05,000 to customers and pay that minus its input credit to the government. Which works better depends on the customer mix, so look at who your buyers are before deciding. Our composition scheme guide covers the filing steps.
Getting stuck credit back: the inverted duty refund
This is the part most plant owners miss after September 2025. Your output is now taxed at 5%, but your main packing inputs are still at 18%. Bottles, caps and closures of plastic (heading 3923) are taxed at 18% (S. No. 124 of Schedule II to Notification 9/2025-Central Tax (Rate)), and the 56th GST Council didn't change that rate. When credit on inputs is higher than tax on sales, the balance piles up in your electronic credit ledger.
Section 54(3)(ii) of the CGST Act lets you claim a refund of credit that accumulates because the tax rate on inputs is higher than the rate on output. You file it in Form GST RFD-01, and the amount is capped by the formula in Rule 89(5) of the CGST Rules:
Maximum refund = (Turnover of inverted rated supply x Net ITC ÷ Adjusted total turnover) − (Tax payable on that supply x Net ITC ÷ ITC on inputs and input services)
"Net ITC" means credit on inputs only. Credit on capital goods (your RO plant, filling and capping machines) and on input services isn't refunded through this formula.
Example (one month, bottling unit, all sales at 5%, no input services):
- Sales of 1 litre bottles: Rs 10,00,000. Output GST at 5%: Rs 50,000.
- Purchases of PET bottles and caps: Rs 4,00,000. Input credit at 18%: Rs 72,000.
- Refund: (Rs 10,00,000 x Rs 72,000 ÷ Rs 10,00,000) − (Rs 50,000 x Rs 72,000 ÷ Rs 72,000) = Rs 72,000 − Rs 50,000 = Rs 22,000.
For inverted duty refund applications filed on or after 1 October 2025, CBIC Instruction 06/2025-GST (3 October 2025) directs officers to sanction 90% of the claim provisionally where the system rates it low risk, pending the amendment to Section 54(6) that the 56th GST Council recommended. The GST Council's press note had said 1 November 2025, but the instruction applies it from 1 October 2025, the date the amended Rule 91(2) took effect under Notification 13/2025-Central Tax. Packaged water of heading 2201 isn't among the goods barred from this refund under Notification 5/2017-Central Tax (Rate). Read our inverted duty refund guide for documents and timelines. Our GST return filing service can track the credit build-up month by month and prepare the claim.
Income tax: Section 44AD or full books?
For FY 2025-26 (AY 2026-27), a water plant owned by a resident individual, HUF or partnership firm (not an LLP) can use Section 44AD. Deemed profit is 6% of turnover received through banks and 8% of cash turnover. The limit is Rs 2 crore, or Rs 3 crore if cash receipts are within 5% of turnover (Finance Act 2023).
Jar businesses collect a lot of cash at the doorstep. That matters: once cash crosses 5% of turnover, your limit drops to Rs 2 crore, and every cash rupee is taxed at 8% deemed profit instead of 6%.
Example (proprietor, new tax regime, FY 2025-26): sales of Rs 1,20,00,000, of which Rs 36,00,000 came in cash. Cash is 30% of turnover, so the Rs 2 crore limit applies, and Rs 1.2 crore is within it.
- 8% of Rs 36,00,000 (cash) = Rs 2,88,000.
- 6% of Rs 84,00,000 (bank) = Rs 5,04,000.
- Deemed profit: Rs 7,92,000.
- Tax: 5% of Rs 3,92,000 (the slice between Rs 4 lakh and Rs 7.92 lakh) = Rs 19,600. Income is within Rs 12 lakh, so the Section 87A rebate of up to Rs 60,000 covers it. Tax payable: nil.
Now say the same owner keeps full books and the profit works out to Rs 15,00,000:
- Rs 4-8 lakh at 5% = Rs 20,000; Rs 8-12 lakh at 10% = Rs 40,000; Rs 12-15 lakh at 15% = Rs 45,000. Total Rs 1,05,000.
- Income is above Rs 12 lakh, so there's no rebate. Marginal relief doesn't help either, because Rs 1,05,000 is less than the Rs 3,00,000 by which income exceeds Rs 12 lakh.
- Add 4% cess of Rs 4,200. Total: Rs 1,09,200.
Before you choose 44AD, remember that a firm pays a flat 30% and gets no 87A rebate, and that dropping out of 44AD after using it can lock you out for the following five years. Our Section 44AD guide explains the conditions. From FY 2026-27, the Income-tax Act 2025 replaces the 1961 Act and section numbers change, but your FY 2025-26 return still follows the 1961 Act.
Tax Rate Chart
New Tax Regime Slabs, FY 2025-26 (AY 2026-27)
Up to Rs 4 lakh
Rs 4-8 lakh
Rs 8-12 lakh
Rs 12-16 lakh
Rs 16-20 lakh
Rs 20-24 lakh
Above Rs 24 lakh
Source: Finance Bill 2025 memorandum; Section 115BAC(1A), Income-tax Act 1961
Common mistakes water plant owners make
- Billing sealed RO jars as exempt. Water sold in a sealed unit container is outside the nil rate. Once registered, charge 5% on capped jars and bottles.
- Using the old 12% or 18% after 21 September 2025. Your billing software may still carry the old rate. Check the first invoice dated 22 September.
- Assuming the Rs 40 lakh limit applies everywhere. In Telangana and nine other states it's Rs 20 lakh, and any service income drops you to Rs 20 lakh in every state.
- Letting input credit pile up. At 5% output and 18% on bottles and caps, a regular dealer can claim the excess back under Section 54(3). Many don't.
- Treating forfeited jar deposits as non-taxable. Once you keep a deposit for a lost jar, GST applies to it.
How Tax Garden helps water plant owners
We check whether your plant needs GST registration, set up your invoices at the right rate, compare composition with regular GST against your real customer mix, and file your GST returns and inverted duty refund claims. At year end, we compare Section 44AD with full books and file your return through our ITR filing service. See pricing for plans.
