Understand GST applicability on agriculture in India. Learn about exemptions, tax rates for seeds & fertilizers, GST registration for farmers, and input tax credit benefits.
India’s agricultural sector navigates a complex GST landscape. Small-scale farmers enjoy GST exemptions on fresh produce, supporting sustainability and affordability. However, larger agricultural businesses must comply with GST registration and regulations, highlighting the dual nature of this tax system.
In this blog, we will dissect GST’s impact on agriculture, examining exemptions, taxable services, and registration criteria. Our focus will include both small family-owned farms and larger agricultural enterprises, providing insights into how GST influences different facets of the sector.
The GST framework differentiates between small-scale farmers, who are exempt from registration, and larger agricultural entities that require GST compliance. This system aims to protect small farmers while ensuring larger businesses contribute fairly to the tax regime.
Is GST Applicable for Agriculture?
GST is generally applicable to the agricultural sector, but it varies depending on the nature of the agricultural products and services. Fresh agricultural produce such as fruits, vegetables, grains, pulses, and milk are exempt from GST. This exemption is designed to prevent additional financial burdens on farmers and consumers, keeping the prices of essential commodities more affordable for the general public.
For services and processed goods related to agriculture, GST may apply. For instance, services like warehousing, processing, and transportation of agricultural products could attract GST. Similarly, processed agricultural products such as packaged foods, branded cereals, and dairy products are likely to be taxable under GST.
The exemption for raw and unprocessed agricultural goods helps to reduce the overall price of these essentials, supporting both producers and consumers economically.
Will Agriculturists Pay GST?
Formal Agriculture and Agri-Businesses:
- Must register for GST if they meet the criteria.
- Act as consumption-based tax collectors, passing the cost on.
- Can claim input tax credit on purchases.
Non-Registered Farmers:
- Exempt from registration and compliance.
- Still face GST on taxable purchases like agricultural equipment.
Agriculture under GST Rates
The Ministry exempts fresh vegetables, agricultural produce, and unprocessed dairy products from GST. This benefit extends to any business solely focused on supplying such exempt goods, allowing them to skip GST registration and compliance. So, even a formal farmer selling only fresh produce can benefit from this exemption.
GST Rate for Seeds & Fertilisers
The GST rate for seeds and fertilisers in India varies depending on the specific type of seed or fertiliser. Here’s a breakdown:
Seeds:
- Most seeds: 5% GST rate. This includes seeds for crops like paddy, wheat, maize, cotton, sugarcane, pulses, oilseeds, etc.
- Vegetable seeds: Exempt from GST. This includes seeds for vegetables like tomatoes, potatoes, brinjal, okra, etc.
Fertilizers:
- Organic fertilisers and animal or vegetable fertilizers put up in unit containers and bearing a brand name: 5% GST rate.
- Other fertilisers: 12% GST rate. This includes most chemical fertilisers like urea, diammonium phosphate (DAP), muriate of potash (MOP), etc.
| Product | GST Rate |
| Most seeds (paddy, wheat, maize, cotton, sugarcane, pulses, oilseeds, etc.) | 5% |
| Vegetable seeds (tomatoes, potatoes, brinjal, okra, etc.) | Exempt |
| Organic fertilisers and animal or vegetable fertilisers put up in unit containers and bearing a brand name | 5% |
| Other fertilisers (urea, DAP, MOP, etc.) | 12% |
What Agricultural Products and Activities Are Exempt From GST?
GST exemptions for agriculture primarily encompass raw and unprocessed agricultural products. These exemptions include but are not limited to:
- Fresh fruits and vegetables, which are not frozen or processed.
- Cereals like rice and wheat that are not branded or packaged.
- Live animals, predominantly cattle, sheep, goats, and poultry meant for breeding or dairy purposes.
- Fresh milk and buttermilk.
- Seeds used for sowing, such as paddy, wheat, maize, and others.
- Organic manure and natural fertilizers.
How do GST Exemptions Benefit Small-Scale Farmers?
GST exemptions play a crucial role in supporting small-scale farmers by reducing their tax burden. These benefits include:
- Lower Costs: By exempting essential inputs like seeds and fertilizers from GST, small-scale farmers face lower operational costs, enhancing their profitability.
- Increased Competitiveness: With exemptions, small farmers can offer products at more competitive prices, fostering better market access and consumer affordability.
- Simplified Compliance: Exemptions from GST registration and filing simplify compliance requirements, saving time and resources for farmers who often lack access to complex accounting services.
- Enhanced Sustainability: By reducing the financial strain, these exemptions help sustain agricultural practices that might otherwise be economically unviable for small holders.
What Are the Criteria for GST Registration for Agriculturists?
The GST Council stipulates that agriculturists who cultivate land and engage primarily in the production and sale of unprocessed agricultural goods are generally exempt from GST registration. However, if these individuals or entities engage in additional commercial activities or their annual revenue exceeds the GST threshold, registration becomes mandatory.
Input Tax Credits for the Agricultural Sector
Agriculturists who are registered under GST can claim input tax credits on their purchases related to farming activities. This includes GST paid on inputs like fertilizers, pesticides, and other farming essentials.
What Are the Benefits of Input Tax Credits for Agricultural Productivity and Cost-Efficiency?
Claiming input tax credits allows agriculturists to reduce the cost of production, which can lead to more competitive pricing of agricultural products. This not only boosts productivity but also enhances overall cost-efficiency, making farming operations economically sustainable and more profitable. By lowering production costs, agriculturists can invest more in innovative agricultural practices and technologies, further enhancing their output and efficiency.
National Agricultural Market (NAM)
The Indian government’s ambitious National Agricultural Market (NAM) scheme aims to revolutionise the agricultural sector by creating a single, transparent, and efficient trading platform. This online marketplace connects farmers and traders across regulated markets, bypassing the limitations of regional disparities and fragmented policies. However, navigating the diverse terrain of state-specific VAT and APMC laws poses a significant challenge to full-fledged implementation.
The introduction of the Goods and Services Tax (GST) presents a crucial turning point. By subsuming most indirect taxes on agricultural produce under a single levy, GST paves the way for a smoother and more transparent supply chain. Traders gain the significant advantage of input tax credit, effectively minimising tax burdens at each stage of value addition.
This streamlined system promises several benefits:
- Enhanced Transparency: Real-time trading on the NAM platform brings greater transparency to pricing and transactions, reducing information asymmetry and unfair practices.
- Faster Movement of Goods: GST eliminates the need for multiple state-level tax clearances, enabling quicker inter-state transportation of perishable agricultural commodities. This directly benefits both farmers and consumers.
- Reduced Logistics Costs: A more efficient supply chain translates to lower transportation and storage costs, ultimately benefiting farmers with better returns and ensuring competitive prices for consumers.
However, some states like Maharashtra, Punjab, Gujarat, and Haryana face a potential revenue loss as GST replaces several lucrative taxes like CST, OCTROI, and Purchase Tax. Compensating these states for the shortfall will be crucial for ensuring smooth adoption of the NAM scheme.
Impact of GST on Agricultural Sector
The Goods and Services Tax (GST) has the potential to significantly transform India’s agricultural sector by streamlining the supply chain, reducing costs, and boosting transparency. Here’s how:
Enhanced Supply Chain:
- GST simplifies the tax system, eliminating the need for multiple state-level clearances. This translates to faster transportation of perishable goods, minimising wastage and losses for farmers and retailers.
- Input tax credit allows manufacturers and traders to claim credit for taxes paid on raw materials, reducing the overall cost of agricultural machinery and equipment.
Taxation of Specific Products:
- While dairy farming, poultry, and stock breeding are not considered agriculture under GST and are therefore taxable, the tax rates for milk and certain milk products are favourable. Fresh milk is exempt, skimmed milk falls under the 5% bracket, and condensed milk at 18%.
- Tractors, previously exempt from taxes, are now subject to a 12% GST rate. However, manufacturers can claim input tax credit, potentially offsetting some of the cost increase.
- Tea, a staple in Indian households, will see a slight increase in price due to the 5% GST rate compared to the previous 4-5% VAT. However, Assam and West Bengal with lower VAT rates may see a smaller impact.
Conclusion
In summary, the GST framework for agriculture in India provides a balanced approach by exempting basic agricultural products like fresh produce, seeds, and fertilizers, thus supporting small-scale farmers and sustaining the agricultural economy. However, for agriculturists whose operations include processing or selling packaged goods, GST registration becomes mandatory if they meet specific turnover thresholds.
Taxable services within the agricultural sector, such as those related to product processing or enhanced packaging, necessitate GST compliance. Registered agriculturists can benefit from reclaiming input tax credits on their purchases, which helps in reducing the cost of production and promotes economic efficiency within India’s vast agricultural landscape.
FAQs
Yes, GST is applicable in the agricultural sector but with exemptions. Fresh agricultural products like fruits, vegetables, grains, pulses, and milk are exempt, aiding affordability and reducing costs for both farmers and consumers.
Fresh produce such as unprocessed fruits and vegetables, seeds used for sowing, and natural fertilizers are typically exempt from GST. This exemption is designed to support small-scale farmers by reducing their tax burden and operational costs.
Agriculturists whose turnover exceeds the threshold specified by the GST Council must register for GST. This includes entities engaged in the processing, branding, or packaging of agricultural products which transform the original agricultural product into a taxable supply
Services related to the processing of agricultural products, such as milling, packaging, and transportation, which alter the essential characteristics of the product, are generally taxable under GST.
Registered agriculturists can claim input tax credits for GST paid on agricultural inputs like pesticides, machinery, and other farming essentials. This helps in reducing the overall cost of production and enhances the economic sustainability of their agricultural practices.
The need for GST registration among agriculturists is determined by the annual revenue threshold established by the GST law and whether their activities involve the sale of taxable goods or services. Those below the threshold and dealing exclusively with exempt goods may not need to register. Is GST applicable for agriculture?
What agricultural products are exempt from GST?
Who needs to register for GST in the agricultural sector?
What are some examples of taxable services in agriculture under GST?
How can registered agriculturists benefit from input tax credits?
What determines the need for GST registration among agriculturists?
