India is a nation in which Agriculture is its largest contributing sector. Small-scale agriculture has been exempt from tax under GST, and most basic agricultural products sold in their fresh form are also exempt from GST. However, GST compliance and GST registration may be mandatory for large-scale farmers. We examine the impact of GST on the agricultural sector.
The Ministry of Finance has exempted GST for scale agriculture, and most basic produce sold in its fresh form does not attract any GST. However, GST registration and compliance may be mandatory for large-scale farmers and companies involved in the agricultural sector. Any income or revenue derived from sources like farming lands, buildings constructed on or identified with agricultural land, and the commercial produce received from agricultural land is known as agricultural income.
Is GST Applicable for Agriculture?
As per the GST Act, only a farmer, to the extent of supply of agricultural products cultivated from land, is free of GST registration. In detail, as per the GST Act, an agriculturist is an individual or a Hindu Undivided Family who takes on agriculture or cultivation of land:
- By own labour, or
- By the labour of the family, or
- By servants on wages payable in cash or by hired labour or kind under personal supervision or the personal supervision of any member of the family.
Therefore, only small farmers or agriculturalists would be exempt from GST registration and GST compliance. Any person who owns or runs a LLP or a company or any other type of entity which is related to agriculture would be required to get GST compliance or GST registration if the annual turnover criteria or other GST registration criteria of the entity is satisfied and they sell products or commodities related to agriculture that attract GST.
Should Agriculturalists Pay GST?
As per the GST Act, only an agriculturalist as defined above is exempted from GST; many others who are involved in formal agricultural business can be liable for GST registration and GST compliance. Essentially, GST is a consumption-based tax that applies to any person engaged in agrarian enterprises with GST registration, who is also liable to claim input tax credit on GST paid and pass on the ultimate GST liability to their end consumer.
From another point of view, an agriculturalist, according to the GST Act, does not require GST registration, but it does not mean that they are exempt from complying with GST requirements. However, a farmer or an agriculturalist would still have to pay GST when they purchase a product that attracts GST tax. For instance, the GST rate of 12% applies to items such as water pumps, milking machines, and self-unloading trailers, which are used for agricultural purposes. Therefore, when an agriculturalist buys any of these products, he has to pay GST as these products attract GST.
GST Rates on Agricultural Products
Vegetables and other products from agriculture, such as dairy products, which are served freshly without any processing or preserving techniques, have been exempt from GST. As per the GST, any individual who is engaged solely in the business of trading goods or services, or who is not eligible for the tax benefits to startup businesses in India, or is wholly free from GST, does not need to get GST registration.
Even a formal farmer or an agriculturalist who is selling fresh products or products would be exempt from GST registration or GST compliance because they come under the category of an individual engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from GST.
GST Rate for Fertilizers & Seeds
Fertilizers are an essential input for farmers, and it was previously taxed at 6% (1% Excise + 5% VAT). Under the GST regime, the tax on fertilizers is fixed at 5%. As per GST norms, there is no GST on Seeds that are used for sowing purposes. Therefore, agriculturalists or farmers don’t have to pay GST tax on seeds used for sowing.
GST Rate for Agricultural Tools
The following are the types of agricultural tools that come under the category that apply to NIL GST:
Agricultural tools are manually operated or operated with the help of animal or animal-driven tools or hand tools such as spades, bill hooks, shovels, picks, mattocks, forks and rakes; hoes, axes, and similar hewing tools; secateurs and pruners of any kind; scythes, hedge shears, sickles, hay knives, timber wedges and other tools which are used in agriculture, horticulture or forestry sector.
The following are the types of agricultural tools that come under the category of the 5% GST rate:
- Solar water heater and system
- Hand pumps and parts
- Waste-to-energy plants or devices
- Solar lanterns and solar lamps
The following are the types of agricultural tools that come under the 12% GST rate category:
- Power-driven pumps, which are primarily used for handling water, such as submersible pumps, centrifugal pumps (horizontal and vertical), deep tube-well turbine pumps, axial flow and mixed flow vertical pumps, and so on.
- Agricultural, forestry, and horticultural machinery designed for soil preparation or cultivation, or used as lawn or sports-ground rollers.
- Machinery used for Milking and daily activities.
- Machines are used for composting.
- Machines are used for self-loading or self-unloading for various agricultural activities.
- Other agricultural, poultry-keeping or beekeeping, horticultural and forestry machinery, including poultry incubators, germination plant fitting machines, or thermal equipment, and brooders.
- Harvesting or lamming machinery, such as grass or hay mowers, straw or fodder balers, sorting or grading eggs, cleaning machines for fruits or other agricultural produce.
Below are the agricultural tools that have been placed under the 28% GST rate category:
- Ceramic wares used for laboratory, chemical, or other technical purposes
- Ceramic troughs, tubs, and similar receptacles used in agricultural activities
- Ceramic pots, jars, and similar articles are used to pack farm produce and goods.
The impact of GST on the Agriculture Sector in India is analyzed under
a) Poultry farming, dairy farming, and stock breeding are kept explicitly out of the Agriculture sector, and therefore, the products from these are taxable under the GST regime.
b) Gathering of fruit, cutting of wood or grass, and rearing of seedlings or plants, or raising of artificial forest have also explicitly been kept out of the Agriculture sector. Therefore, they all come under the taxable category as per the GST regime.
c) Agriculture by persons other than individuals and HUF seems also kept out of the definition of “to cultivate personally”; therefore, it appears that these will be taxable under the GST regime.
