Notebooks to Cost More Even as GST is Reduced to Zero

               
                   
                                                                                                    Published: September 25, 2025                    
                   
                                                                                                    Economy & Taxation                    
                   
                                                                                                    Gautam Mer                    
                   
                                                                                                    5 min read                    
               
           
           
               

Introduction

               

In a surprising turn of events, the recent decision to reduce the Goods and Services Tax (GST) on notebooks to zero is expected to make them more expensive for students and consumers. This paradoxical situation has raised concerns among manufacturers and industry associations, who are now urging the government to reconsider the new tax structure. The government's move to slash the GST on uncoated paper and paperboard to zero was initially hailed as a positive step towards making educational materials more affordable. However, the Indian Paper Manufacturers Association (IPMA) has warned that this will, in fact, lead to an increase in the price of notebooks. This is due to a complex issue related to the inability of manufacturers to claim input tax credit (ITC) on raw materials.

           
           
               

The Input Tax Credit Dilemma

               

The primary reason for the anticipated price hike is the removal of the input tax credit for manufacturers.

  • What is Input Tax Credit (ITC)? ITC is a mechanism that allows businesses to deduct the tax they have already paid on inputs (raw materials) from the tax they are liable to pay on their final product.
  • Impact of Zero GST: With the GST on notebooks reduced to zero, manufacturers can no longer claim a refund for the taxes they pay on raw materials like paper, ink, and glue.
  • Cost Passed to Consumers: This means that the entire tax burden of the raw materials will now be embedded into the production cost, which will ultimately be passed on to the consumers in the form of higher prices.
  • Estimated Price Hike: The Karnataka Paper Merchants' and Stationers' Association has warned that the cost of notebooks is expected to rise by 15-16% due to this issue.
           
           
               

A Blow to the Domestic Paper Industry

               

The new GST structure is also expected to have a significant negative impact on the domestic paper industry.

  • Inverted Duty Structure: The current tax structure is a classic example of an "inverted duty structure," where the tax on inputs is higher than the tax on the final product.
  • Increased Imports: With a zero duty on imported paper, it will become cheaper for manufacturers to import paper rather than source it domestically. This will lead to a surge in paper imports, which will hurt domestic paper mills.
  • Impact on Farmers: The increased reliance on imported pulp will also have a detrimental effect on Indian farmers who supply the wood for domestic paper production.
  • Foreign Exchange Drain: The rise in imports will also lead to a drain on the country's foreign exchange reserves.
           
           
               

An Appeal for Reconsideration

               

In light of these concerns, various industry associations have appealed to the government to review and rectify the anomalies in the new GST structure.

  • Memorandum to the Government: The Indian Paper Manufacturers Association (IPMA) has submitted a memorandum to the Prime Minister, Finance Minister, and Commerce Minister, urging them to recalibrate the GST framework.
  • Proposed Solution: The associations have suggested that all paper products, including notebooks, should be subject to a 5% GST. This would allow manufacturers to claim input tax credit and pass on the benefits to consumers.
               
                    "The industry is hopeful that the government will heed their call and create a more coherent tax regime that protects domestic capacity and preserves investment incentives."                
           
           
               

Conclusion

               

While the intention behind the zero GST on notebooks was to make them more affordable, the reality is that the move is likely to have the opposite effect. The inability of manufacturers to claim input tax credit, coupled with the challenges faced by the domestic paper industry, will inevitably lead to higher prices for consumers. It is now up to the government to address these concerns and create a tax structure that is fair to both manufacturers and consumers. Without a course correction, the burden of this well-intentioned policy will unfortunately fall on the shoulders of the students and parents it was meant to help.