Looking for expert help with GST and income tax for salt manufacturers and salt pan 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
- Salt of heading 2501 is nil GST, whether crude sea salt, refined salt, iodised table salt or industrial salt, and whether loose or in branded packs (Notification 10/2025-CT(R), S. No. 109).
- A salt works that sells only salt doesn't need GST registration (Section 23(1)(a), CGST Act). Selling gypsum or other taxable by-products changes that, because exempt salt sales count in aggregate turnover.
- Gypsum (2520) is 5%. Potassium iodate and iodine used for iodisation are 5%. PP woven sacks are 18%.
- Credit on bags and services is blocked for salt sold in India, but exporters can claim it back as a refund under LUT.
- Firms and larger proprietors deduct TDS at 1% or 2% on labour and loading contracts above Rs 30,000 a payment or Rs 1 lakh a year.
What is the GST rate on salt in India? Salt is nil-rated. "Salt (including table salt and denatured salt) and pure sodium chloride, whether or not in aqueous solutions", and sea water, are exempt under S. No. 109 of Notification 10/2025-Central Tax (Rate) and the matching IGST notification, in force from 22 September 2025. There's no packaging condition, so packed iodised salt is nil too.
Salt making looks simple on paper. You let sea water or sub-soil brine evaporate in pans, scrape the crystals, wash, dry and bag them. The tax side is where people slip. A salt works in the Rann of Kutch or near Thoothukudi sells nil-rated salt, but it buys bags, iodine, pump repairs and machine hire at 5% or 18%, often sells gypsum or bittern as by-products, and pays dozens of workers and contractors through the season. This guide covers GST law in force from 22 September 2025 and income tax for FY 2025-26 (AY 2026-27) under the Income-tax Act 1961, with the Income-tax Act 2025 numbers that apply from 1 April 2026.
GST rates for salt, by-products and inputs
Salt itself is nil. Almost everything around it is taxable.
Comparison
GST on Salt, Salt Works By-products and Key Inputs (from 22 September 2025)
| Item (HSN) | GST | Entry |
|---|---|---|
| Salt, including table salt, iodised salt and denatured salt (2501) | Nil | Notification 10/2025-CT(R), S. No. 109 |
| Pure sodium chloride and brine (2501) | Nil | Notification 10/2025-CT(R), S. No. 109 |
| Sea water (2501) | Nil | Notification 10/2025-CT(R), S. No. 109 |
| Gypsum and anhydrite (2520) | 5% | 9/2025-CT(R) Schedule I, S. No. 185 |
| Potassium iodate and iodine (Chapter 28) | 5% | Schedule I, S. No. 211 |
| Woven PP or HDPE bags and sacks for packing (3923 or 6305) | 18% | Schedule II, S. No. 200 |
| Goods not named in any schedule | 18% | Schedule II, S. No. 639 (residual entry) |
Source: Notifications 9/2025 and 10/2025-Central Tax (Rate), 17 September 2025, in force 22 September 2025. IGST on inter-State sales is the same rate (Notification 10/2025-Integrated Tax (Rate), S. No. 109 for salt). None of these entries was changed by Notifications 01/2026 to 10/2026-CT(R).
Three points that matter in practice:
- Packing doesn't change the rate. Many nil entries in Notification 10/2025 apply only when goods are not "pre-packaged and labelled". The salt entry has no such condition. A 1 kg branded pouch of iodised salt is nil, the same as a truckload of crude salt.
- Iodisation inputs are taxed. Potassium iodate and iodine are 5%. If all your output is nil salt sold in India, that 5% is a cost you can't recover through input credit.
- Check the HSN of each by-product. Gypsum is named in Schedule I at 5%. Bittern, magnesium chloride and bromine aren't named in Schedule I. Confirm the Customs Tariff heading of each one before billing. If a product isn't specified in any other schedule, the residual entry (Schedule II, S. No. 639) puts it at 18%.
Do you need GST registration?
It depends on whether salt is the only thing you sell.
Only salt. Section 23(1)(a) of the CGST Act says a person "engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax" isn't liable to register. A salt works that sells only salt, in India, can stay unregistered whatever its size.
Salt plus gypsum or other taxable goods. Now you're no longer exclusively exempt. The registration limit is tested on "aggregate turnover", which includes "exempt supplies" (Section 2(6), CGST Act). So your salt sales count toward the limit even though they carry no tax. A goods-only supplier can use the Rs 40 lakh limit under Notification 10/2019-Central Tax, except in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand, where it's Rs 20 lakh.
Say a salt works in Gujarat sells Rs 1,20,00,000 of salt and Rs 3,00,000 of gypsum in a year. Aggregate turnover is Rs 1,23,00,000, well above Rs 40 lakh. It must register, even though only Rs 3,00,000 of its sales are taxable.
Exporters. You'll want to register anyway, because the LUT and the refund of unused credit both need a GSTIN.
Our registration limit guide has the State list, and our GST registration service handles the application.
Input tax credit when most sales are nil
This is where salt works lose money without noticing. Your bags, iodine, JCB hire, pump repairs and truck freight carry GST. Your main product doesn't.
Credit on inputs used only for nil-rated salt isn't available. Credit on items used for both salt and a taxable by-product, called common credit, is split each month under Rule 42 of the CGST Rules. The share linked to exempt supplies is D1 = (E ÷ F) x C2, where E is exempt turnover, F is total turnover in the State for the month and C2 is the common credit. Section 17(2) of the CGST Act is the rule behind it.
Step-by-Step Guide
Worked Example: Monthly GST for a Salt Works Selling Gypsum
Sales for the month
A registered salt works in Tamil Nadu sells salt for Rs 20,00,000 (nil) and gypsum for Rs 5,00,000 (5%). Total turnover in the State: Rs 25,00,000.
Output tax
5% of Rs 5,00,000 = Rs 25,000 (Rs 12,500 CGST plus Rs 12,500 SGST). Salt sales carry no tax.
Credit used only for salt
GST of Rs 9,000 on salt bags and Rs 1,500 on potassium iodate. These go only into nil salt, so no credit is taken.
Common credit
GST on JCB hire for the pans and pump repairs comes to Rs 18,000 (C2). These serve both salt and gypsum.
Rule 42 reversal
Exempt share = Rs 20,00,000 ÷ Rs 25,00,000 = 80%. D1 = 80% x Rs 18,000 = Rs 14,400, reversed in GSTR-3B. Credit left: Rs 3,600.
Cash payable
Rs 25,000 less Rs 3,600 = Rs 21,400 paid in cash for the month.
Source: CGST Act 2017, Section 17(2); CGST Rules 2017, Rule 42; rates from Notifications 9/2025 and 10/2025-CT(R)
Rule 43 has a separate formula for capital goods such as conveyors, washeries and bagging machines. Our Rule 42 and 43 guide covers both, plus the annual true-up.
Exporting salt: LUT and refund of unused credit
Exports flip the credit position. Section 16(1) of the IGST Act treats an export of goods as a zero-rated supply, and Section 16(2) says credit "may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply".
So an exporter of nil-rated industrial salt can take credit on bags, freight, port handling and testing, ship under a Letter of Undertaking (LUT) without paying IGST, and claim the unused credit as a refund (Section 16(3) of the IGST Act read with Section 54 of the CGST Act). If you also sell salt in India, reverse the credit linked to those domestic nil sales under Rule 42 before you work out the refund. The refund must be returned with interest if export proceeds aren't realised within the time allowed under FEMA (proviso to Section 16(3)).
Our export LUT and refund guide walks through the RFD-01 steps.
E-way bills. Rule 138(14)(e) of the CGST Rules says no e-way bill is needed for goods specified in the schedule to Notification 2/2017-Central Tax (Rate), the old nil-rate list. That notification was superseded by Notification 10/2025 from 22 September 2025, but the rule text on CBIC still refers to 2/2017. Until that's clarified, check with your CA before you move salt without an e-way bill, especially on inter-State loads. A consignment that mixes salt and gypsum needs one in the usual way for the taxable goods.
Income tax: TDS on contractors, cash wages and Section 44AD
Salt making is a business, so the profit is taxed as business income, whether you run it as a proprietor, a partnership firm or a company.
TDS on labour and loading contracts. Many salt works hire contractors to prepare pans, harvest, load and bag. Tax is deducted at 1% if the contractor is an individual or HUF and 2% otherwise, when a single payment exceeds Rs 30,000 or the yearly total exceeds Rs 1,00,000. For FY 2025-26 that's Section 194C of the 1961 Act. From 1 April 2026 it's Section 393(1), Table Sl. No. 6(i) of the 2025 Act, which covers "carrying out any work (including supply of labour for carrying out any work)". The duty falls on a "designated person" (Section 402(11)): every firm, company, co-operative society and trust, and an individual or HUF only if turnover exceeded Rs 1 crore in the previous year.
Say a salt partnership firm pays a harvesting contractor, an individual, Rs 4,50,000 over FY 2026-27. The total crosses Rs 1,00,000, so TDS is 1% of Rs 4,50,000, which is Rs 4,500. Our contractor TDS guide covers deposit dates and returns.
Cash payments. An expense paid in cash above Rs 10,000 to one person in a day is disallowed: Section 40A(3) of the 1961 Act, and Section 36(4) of the 2025 Act from 1 April 2026. Daily wages to individual pan workers are usually well below that, but a lump sum to a contractor or a truck owner in cash isn't. Keep a muster roll and pay contractors by bank or UPI. Our Section 40A(3) guide lists the exceptions.
TDS when you sell to large buyers. A buyer whose turnover exceeded Rs 10 crore in the previous year, such as a chemical plant or refinery, deducts 0.1% on purchases from you above Rs 50 lakh in the year (Section 194Q of the 1961 Act; Section 393(1), Table Sl. No. 8(ii) of the 2025 Act). On Rs 90,00,000 of salt bought in FY 2026-27, TDS is 0.1% of Rs 40,00,000, which is Rs 4,000. You claim it in your return.
Section 44AD for proprietors and firms. A resident individual, HUF or partnership firm (not an LLP) can declare presumptive profit instead of keeping full books:
Comparison
Section 44AD for a Salt Works (FY 2025-26)
| Point | Rule |
|---|---|
| Turnover limit | Rs 2 crore, or Rs 3 crore if cash receipts are within 5% of turnover |
| Deemed profit | 6% of receipts by bank, UPI or account payee cheque by the return due date; 8% of the rest |
| Depreciation on pumps, conveyors and washeries | Not allowed separately; treated as already deducted (Section 44AD(2)) |
| Opting out | No return to 44AD for the next five years (Section 44AD(4)) |
| From 1 April 2026 | Section 58(2), Table Sl. No. 1 of the Income-tax Act 2025, same rates and limits |
Source: Income-tax Act 1961, Section 44AD; Income-tax Act 2025, Section 58
Example: a proprietor runs salt pans with FY 2025-26 turnover of Rs 2,50,00,000. Rs 2,40,00,000 came by bank and Rs 10,00,000 in cash, which is 4% of turnover, so the Rs 3 crore limit applies. Deemed profit is 6% of Rs 2.4 crore (Rs 14,40,000) plus 8% of Rs 10 lakh (Rs 80,000), so Rs 15,20,000. Under the new regime, tax is nil up to Rs 4 lakh, Rs 20,000 on Rs 4 to 8 lakh, Rs 40,000 on Rs 8 to 12 lakh and 15% of Rs 3,20,000 (Rs 48,000) above Rs 12 lakh, so Rs 1,08,000. Income is above Rs 12 lakh, so there's no Section 87A rebate. Add 4% cess (Rs 4,320) and the total is Rs 1,12,320, assuming no other income. Our Section 44AD guide explains the opt-out rule.
Comparison
Salt Works: Domestic Sales vs Exports
| Point | Selling salt in India | Exporting salt |
|---|---|---|
| GST on the sale | Nil (10/2025-CT(R), S. No. 109) | Zero-rated, under LUT with no IGST |
| Registration | Not needed if only salt (Section 23(1)(a)) | Needed in practice for LUT and refund |
| Credit on bags, freight and services | Not available; split under Rule 42 if mixed | Available and refundable (IGST Section 16(2), 16(3)) |
| Buyer TDS | 0.1% above Rs 50 lakh if buyer turnover above Rs 10 crore | Not applicable to a foreign buyer |
Source: CGST Act Sections 2(6), 23; IGST Act Section 16; CGST Rules Rule 42; Income-tax Act 1961 Section 194Q; Income-tax Act 2025 Section 393
Common mistakes salt businesses make
- Charging GST on packed iodised salt. The salt entry has no packaging condition. Branded table salt is nil.
- Assuming no registration because salt is exempt. That holds only if salt is all you sell. Gypsum sales bring the whole turnover, salt included, into the registration test.
- Billing gypsum or bittern at nil. They aren't salt. Gypsum is 5%, and unnamed by-products default to 18%.
- Claiming full credit on bags and repairs. Credit tied to nil salt sold in India has to be dropped or reversed under Rule 42.
- Not claiming export refunds. Exporters of nil-rated salt can still get back GST on bags and services.
- Skipping TDS on harvest and loading contracts. Firms must deduct once a contractor's payments cross Rs 1 lakh in the year.
How Tax Garden helps salt works
We check whether your salt works needs a GSTIN at all, map each by-product to its correct entry and set up nil and taxable lines in your billing. Our GST return filing service files GSTR-1 and GSTR-3B with the monthly Rule 42 reversal, and handles LUT renewal and export refunds. New units can start with GST registration. On the income tax side we handle contractor TDS through our TDS filing service, compare Section 44AD with your books and file your return through our ITR filing service. If you also quarry stone or run a crusher, see our stone crusher and quarry guide, and if you're on the coast, the seafood processors guide covers another nil-rated export. Call or WhatsApp us on 9640290977.
