Salon services at 5% without input tax credit
The 56th GST Council meeting reduced the rate on beauty and physical well-being services, naming salons and barbers, from 18% to 5% from 22 September 2025. The notified entry is for group 99972, which covers hairdressing and barbers (999721), cosmetic treatment, manicure and pedicure (999722) and other beauty treatments. The lower rate comes with a condition: the salon cannot claim input tax credit on goods and services used to provide these services, such as colour tubes, chairs, rent or software. The rate is mandatory, so the salon cannot keep charging 18% to protect its credit.
Products used in a service versus products sold
Colour, developer, wax and facial creams used on the client are inputs to the service and are absorbed in the 5% service price. Products the client buys to take home are a separate sale of goods. Shampoos and hair oils under 3305, toilet soaps and toothpaste moved to 5% from 22 September 2025, but many styling products, serums and cosmetics were not in that list and may still attract 18%. Credit is available on goods bought for resale, so keep retail stock on a separate purchase ledger from service consumables.
Franchise salons and royalty
Many salons operate under a brand franchise and pay royalty and marketing fees to the franchisor. These are taxable services at 18%, and because the salon's own services are at 5% without credit, that GST becomes a cost. When planning a franchise, add the franchisor's GST to your cost model. The salon's invoice must carry its own legal name and GSTIN, not only the brand name, even if the brand dominates the bill design.
Memberships, gift cards and packages
Prepaid memberships that give a discount on future services are consideration for future supplies and taxed when paid. Packages of named services, such as six hair spas, are vouchers for identified services and are taxed when sold. Open gift cards usable for any service are taxed when redeemed. Recording the voucher type in your billing software prevents both double taxation and under-payment.
Registration and the 5% rate for small salons
A salon below the ₹20 lakh threshold (₹10 lakh in special category states) need not register and charges no GST. Once registered, the services composition scheme at 6% is available up to ₹50 lakh turnover, but it is higher than the 5% regular rate and also bars credit, so regular registration is usually better. Count retail product sales in aggregate turnover when checking the threshold.