Looking for expert help with GST and income tax for paper bag and plastic bag manufacturers 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
- Paper bags are 5% GST (Notification 9/2025-CT(Rate), Schedule I, S. No. 319). Plastic carry bags and PP/HDPE woven sacks are 18% (Schedule II, S. No. 124 and 200), from 22 September 2025.
- A paper bag unit buys kraft paper, glue and ink at 18% and sells at 5%, so credit piles up. You can claim it back as an inverted duty refund under Section 54(3) and Rule 89(5), within two years.
- Bag makers supply goods only, so the registration limit is Rs 40 lakh, except in Telangana and the other excluded States, where it's Rs 20 lakh.
- A buyer with turnover above Rs 10 crore deducts 0.1% TDS on purchases from you above Rs 50 lakh a year (194Q, now Section 393 of the 2025 Act).
- Under Section 44AD, deemed profit is 6% of digital receipts and 8% of cash, for turnover up to Rs 2 crore (Rs 3 crore if cash is within 5%).
What is the GST rate on paper bags and plastic bags in India? Paper bags are taxed at 5% GST under Schedule I, S. No. 319, of Notification 9/2025-Central Tax (Rate), which also covers bio-degradable bags. Plastic carry bags (heading 3923) and woven or non-woven polyethylene and polypropylene sacks are taxed at 18% under Schedule II, S. No. 124 and 200. Both rates apply from 22 September 2025.
Bag making is two businesses that look alike from the street. A paper bag unit buys reels of kraft paper and turns them into grocery, pharmacy and garment bags. A plastics unit extrudes film or weaves PP tape into carry bags, cement sacks and rice bags. GST treats them very differently: one sells at 5% and the other at 18%, and that changes your cash flow every month. This guide covers both for FY 2025-26 (AY 2026-27), with the Income-tax Act 2025 sections that apply from 1 April 2026.
Paper bag and plastic bag HSN code and GST rate
Here's the full picture for a typical bag unit. Schedule I is 2.5% CGST plus 2.5% SGST (5%), and Schedule II is 9% plus 9% (18%).
Comparison
GST on Bags and Bag-Making Inputs (from 22 September 2025)
| What you buy or sell | HSN and entry | GST |
|---|---|---|
| Paper sacks and bags; bio-degradable bags | Ch 39, 48, Sch I S. No. 319 | 5% |
| Paper cartons, boxes and cases | 4819 10, 4819 20, Sch I S. No. 322 | 5% |
| Plastic carry bags and other plastic packing articles | 3923, Sch II S. No. 124 | 18% |
| Woven and non-woven PE/PP bags and sacks for packing goods | 3923 or 6305, Sch II S. No. 200 | 18% |
| Jumbo bags (flexible intermediate bulk containers) | 6305 32 00, Sch II S. No. 201 | 18% |
| Uncoated kraft paper (input) | 4804, Sch II S. No. 169 | 18% |
| Writing and printing paper (input) | 4802, Sch II S. No. 167 | 18% |
| Glue and adhesives (input) | 3506, Sch II S. No. 75 | 18% |
| Printing ink (input) | 3215, Sch II S. No. 57 | 18% |
| Plastic granules, PE and PP (input) | 3901 to 3913, Sch II S. No. 114 | 18% |
| Plastic film and sheets (input) | 3920, Sch II S. No. 121 | 18% |
| Nonwoven fabric (input) | 5603, Sch I S. No. 351 | 5% |
| Paper bag making machines | 8441, Sch II S. No. 428 | 18% |
| Plastic extrusion and bag machines | 8477, Sch II S. No. 462 | 18% |
Source: Notification 9/2025-Central Tax (Rate), Schedules I and II, in force 22 September 2025, as amended up to 01/2026-CT(Rate) (no change to these entries)
Two classification points to settle before you print your invoice book:
- Paper bags. Schedule II, S. No. 185 puts "all goods" of heading 4819 other than cartons and boxes at 18%, and that heading includes paper sacks and bags. But Schedule I, S. No. 319 names "Paper Sacks/Bags" specifically at 5%. The specific description is the one we'd follow, and it's how the 5% is generally applied.
- Non-woven carry bags. Schedule II, S. No. 200 covers woven and non-woven bags of polyethylene or polypropylene "strips or the like" used for packing goods, at 18%. A stitched non-woven fabric bag can also be argued as a textile made-up, which is 5% up to Rs 2,500 a piece (Schedule I, S. No. 390, which excludes 6305 32 00 and 6305 33 00). The answer depends on how the bag is made. Settle it with your CA, in writing, before you quote 5% to a customer.
"Bio-degradable bags" at 5% isn't defined in the notification. If you make compostable bags and want the 5% rate, keep your certification on file.
Why do paper bag units build up GST credit, and how do you get it back?
A paper bag unit pays 18% on almost everything it buys and charges 5% on what it sells. The extra credit stays in your electronic credit ledger unless you claim a refund. Section 54(3)(ii) of the CGST Act allows a refund where credit has built up "on account of rate of tax on inputs being higher than the rate of tax on output supplies". Goods in Notification 5/2017-Central Tax (Rate) are denied this refund. That list covers certain fabrics, edible oils, coal, railway goods and imitation zari thread. Paper and plastic bags aren't on it.
The formula (Rule 89(5), CGST Rules):
Maximum refund = (Turnover of inverted rated supply × Net ITC ÷ Adjusted total turnover) − (Tax payable on the inverted rated supply × Net ITC ÷ ITC availed on inputs and input services)
"Net ITC" means credit on inputs only. Credit on input services (rent, repairs, freight) and on capital goods (your bag machine) is left out, so it isn't refunded.
Worked example: one month for a paper bag unit in Hyderabad.
| Item | Value | GST |
|---|---|---|
| Paper bags sold (5%) | Rs 10,00,000 | Rs 50,000 output tax |
| Kraft paper bought (18%) | Rs 6,00,000 | Rs 1,08,000 |
| Glue and ink bought (18%) | Rs 50,000 | Rs 9,000 |
| Factory rent (18%, input service) | Rs 50,000 | Rs 9,000 |
- Net ITC (inputs only): Rs 1,08,000 + Rs 9,000 = Rs 1,17,000
- ITC on inputs and input services: Rs 1,17,000 + Rs 9,000 = Rs 1,26,000
- All sales are paper bags, so turnover of inverted rated supply = adjusted total turnover = Rs 10,00,000
- First part: Rs 10,00,000 × Rs 1,17,000 ÷ Rs 10,00,000 = Rs 1,17,000
- Second part: Rs 50,000 × Rs 1,17,000 ÷ Rs 1,26,000 = Rs 46,429
- Maximum refund: Rs 1,17,000 − Rs 46,429 = Rs 70,571
Your total credit was Rs 1,26,000 against Rs 50,000 of output tax, so Rs 76,000 was left over. The formula returns Rs 70,571 of it. The rest stays in your ledger. Figures are illustrative.
If you also make 18% plastic bags, those sales go into adjusted total turnover but not into inverted rated turnover, so the refund shrinks in proportion. Keep separate purchase records for each line.
Time limit. Section 54(1) gives you two years from the relevant date. For an inverted duty refund, that date is the due date of the GSTR-3B for the period the claim relates to (Section 54, Explanation 2(e)). You file Form GST RFD-01 on the portal.
Provisional refund. The Finance Act 2026 amended Section 54(6) to let officers pay 90% of an inverted duty refund provisionally. When we checked the CBIC Act text on 23 October 2026, that change was marked "w.e.f. yet to be notified", so it isn't in force yet.
Do you need GST registration, and should you choose composition?
A bag maker supplies goods only. Under Notification 10/2019-Central Tax, a supplier of goods only needs to register once aggregate turnover crosses Rs 40 lakh in a year. That notification excludes intra-State suppliers in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand, where the Section 22(1) limit of Rs 20 lakh applies. Selling even one consignment to another State needs registration from the start (Section 24(i)). Our GST registration service handles the application, and our Rs 20 lakh vs Rs 40 lakh guide covers the edge cases.
Composition rarely suits a paper bag unit. A manufacturer with previous-year turnover up to Rs 1.5 crore can pay 1% of turnover (0.5% CGST plus 0.5% SGST) under Section 10(1) (Notification 14/2019-Central Tax). But composition dealers can't take input tax credit, can't sell to other States and can't charge GST on the bill. Take the month above: under composition you'd pay Rs 10,000 (1% of Rs 10 lakh) and lose all Rs 1,26,000 of credit on your purchases, which becomes a cost. In the regular scheme you pay no cash GST that month and claim Rs 70,571 back. Shops and FMCG buyers that claim credit also prefer a 5% tax invoice. Our composition scheme guide has the full conditions.
Step-by-Step Guide
Monthly GST Routine for a Bag Manufacturing Unit
Tag every sale by rate
Paper bags at 5% (Sch I S. No. 319), plastic carry bags and PP sacks at 18% (Sch II S. No. 124 and 200). Mixed units need clean product-wise sales registers for the refund formula.
Split credit three ways
Inputs (paper, granules, glue, ink), input services (rent, repairs, freight) and capital goods (machines). Only input credit counts as Net ITC under Rule 89(5).
Generate e-way bills
Any consignment above Rs 50,000, including kraft paper reels coming in and bag bundles going out, needs Part A of EWB-01 before it moves (Rule 138(1), CGST Rules).
Match ITC and file returns
Check supplier invoices against GSTR-2B, then file GSTR-1 and GSTR-3B.
File the refund
Paper bag units file RFD-01 for the accumulated credit, within two years of the due date of that period's GSTR-3B.
Source: Sections 10, 22, 24, 54 and Explanation 2(e), CGST Act; Rules 89(5) and 138, CGST Rules; Notifications 9/2025 and 5/2017-CT(Rate); 10/2019 and 14/2019-CT
Our GST return filing service runs this routine every month, refund claims included.
Which plastic bags are you allowed to make?
Tax is only half the compliance picture for a plastics unit. According to the Ministry of Environment, Forest and Climate Change's backgrounder published by PIB on 1 July 2022, the Plastic Waste Management Amendment Rules prohibit the manufacture, import, stocking, distribution, sale and use of plastic carry bags thinner than 75 microns from 30 September 2021 and thinner than 120 microns from 31 December 2022. Listed single-use items, such as plastic plates, cups, cutlery, straws and the packing film around sweet boxes, have been banned since 1 July 2022. Your State Pollution Control Board enforces these rules, so confirm any later amendments with them before you take an order for a new bag type. If you're moving a banned line to paper or leaf tableware, our GST guide for paper plate and leaf plate makers covers the 18% and nil rates.
How is a bag unit's income taxed?
Presumptive tax under Section 44AD. A resident individual, HUF or partnership firm (not an LLP) can declare 6% of receipts through banking or online channels and 8% of the rest as profit. The turnover limit is Rs 2 crore, or Rs 3 crore if cash receipts are within 5% (Section 44AD, Income-tax Act 1961). From tax year 2026-27 the same scheme is Section 58(2), Table S. No. 1, of the Income-tax Act 2025. If your books show a higher profit, you declare that instead. Our Section 44AD guide covers the conditions.
Example: a proprietor with Rs 2.6 crore turnover for FY 2025-26, Rs 7.8 lakh of it in cash.
- Cash is 3% of turnover, within 5%, so the Rs 3 crore limit applies and 44AD is open.
- Deemed profit: 6% of Rs 2,52,20,000 (Rs 15,13,200) plus 8% of Rs 7,80,000 (Rs 62,400), so Rs 15,75,600.
- Tax under the new regime: Rs 20,000 (Rs 4-8 lakh at 5%) plus Rs 40,000 (Rs 8-12 lakh at 10%) plus Rs 56,340 (Rs 3,75,600 at 15%), so Rs 1,16,340.
- Income is above Rs 12 lakh, so the Section 87A rebate doesn't apply. Add 4% cess of Rs 4,654, and tax payable is Rs 1,20,994, assuming this is the only income.
If you declare under 44AD and then declare a lower profit in any of the next five years, Section 44AD(4) bars the scheme for the following five years. Our ITR filing service prepares the return under 44AD or on audited books.
What TDS applies when you buy or sell in bulk?
TDS on purchase of goods (0.1%). A buyer whose business turnover was above Rs 10 crore in the previous year deducts 0.1% on the amount it pays a resident seller above Rs 50 lakh in the year. This was Section 194Q of the 1961 Act for FY 2025-26. From 1 April 2026 it's Section 393(1), Table S. No. 8(ii), of the Income-tax Act 2025, with "buyer" defined in Section 402(6). Two ways this hits a bag maker:
- When you sell. A supermarket chain with Rs 50 crore turnover buys Rs 80 lakh of bags from you in a year. It deducts 0.1% of Rs 30 lakh, which is Rs 3,000. Check Form 26AS and claim it in your return.
- When you buy. If your own turnover crossed Rs 10 crore last year and you buy more than Rs 50 lakh of kraft paper or granules from one mill, you deduct 0.1% on the excess and file quarterly TDS returns. Our TDS filing service handles this.
TCS on the sale of goods under Section 206C(1H) doesn't apply from 1 April 2025, under a proviso the Finance Act 2025 added, so don't collect it. Our 194Q guide covers the details.
Common mistakes bag manufacturers make
- Billing paper bags at 18%. Schedule I, S. No. 319 sets paper sacks and bags at 5%. Overcharging makes you less competitive and leaves you with even more unused credit.
- Leaving credit unclaimed. Paper bag units that never file RFD-01 let refunds lapse after two years.
- Counting rent and machine credit in the refund. Rule 89(5) refunds input credit only. Overclaiming draws a deficiency memo.
- Choosing composition to "save tax". At 1% with no credit, a paper bag unit usually pays more than it would in the regular scheme.
- Making bags below 120 microns. The tax is correct, but the product itself is banned.
How Tax Garden helps bag manufacturers
We keep your 5% and 18% lines separate, file GSTR-1 and GSTR-3B through our GST return filing service, prepare your Rule 89(5) refund working, and keep books through our accounting and bookkeeping service that support 44AD or an audit. If you print bags for brands, our printing press owners' guide covers the printing side. Call or WhatsApp us on 9640290977.
