India is a nation in which Agriculture is its largest contributing sector. Small-scale agriculture has been nontaxable under GST, and most of the basic agricultural products which are sold in fresh form do not have any GST. However, GST compliance and GST registration may be mandatory for large-scale farmers. We look at the impact of GST on the agriculture sector.
The Ministry of Finance exempted GST for scale agriculture, and most of the basic produce sold in fresh form does not attract any GST. However, GST registration and compliance may be mandatory for large-scale farmers and companies involved in agriculture. 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 as an individual or as a Hindu Undivided Family who takes on agriculture or cultivation of land:
- By own labour, or
- By the labour of 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. Basically, GST is a consumption-based tax that is any person who is involved in agricultural businesses with GST registration would also be liable to take the input tax credit on GST paid and impart the ultimate GST liability to their end consumer.
From another point of view, an agriculturalist, according to the GST Act, not getting GST registration does not mean that they don’t have to comply with GST requirements. However, a farmer or an agriculturalist would still have to pay GST when he purchases a product that attracts GST tax. For instance, the GST rate of 12% is applicable to items like water pumps, milking machines and self-unloading trailers and is used for agricultural purposes. Therefore, when an agriculturalist buys any of these products, he has to pay GST as these products attract GST.
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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 business of trading goods or services or who are not eligible for the tax benefits to startup businesses in India or wholly free from GST is not needed to get GST registration.
Even a formal farmer or an agriculturalist who is selling fresh products or product 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 an important input of agriculture and farmers, it was previously taxed at 6% (1% Excise + 5% VAT). Under GST regime, tax on fertilizers has been fixed as 5%. As per GST norms, there is no GST on Seeds which are used for sowing purpose. Therefore agriculturalists or farmers don’t have to pay GST tax on seeds used for sowing.
GST Rate for Agricultural Tools
Following are the types of agricultural tools which 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 5% GST rate:
- Solar water heater and system
- Hand pumps and parts
- Waste to energy plants or devices
- Solar lanterns and solar lamp
The following are the types of agricultural tools which 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 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 which 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 agricultural 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 specifically kept 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 man-made forest have also been specifically kept out of the Agriculture sector and therefore they all come under the taxable category as per GST regime.
c) Agriculture by persons other than Individual and HUF seems also kept out of the definition of “to cultivate personally”, therefore it seems that these will be taxable under GST regime.
