India is among the largest agrarian countries in the world. Its agricultural output and the percentage of the population engaged in the agricultural industry is among the highest globally. As a result, taxation on the agricultural industry and its output have always been minimal.
Even when the Indian taxation system was overhauled through the implementation of the Goods and Services Tax (GST), the GST on agriculture products was mostly determined as zero. This has been highly beneficial for the agriculture industry, which accounts for a significant share of the Indian GDP.
Different agricultural products and tools required for agriculture are subject to different rates of GST. The agricultural products that enjoy exemptions under the GST regime include seeds and organic manure until packed into unit containers and bearing a brand name and label. Essentially, any produce generated from cultivation or produced by agriculturalists is exempted under the GST laws.
While some agricultural products are exempted from GST, there are many others on whom varying GST rates are being applied. Under the GST regime, all goods and services are subjected to taxation rates of nil, 5%, 12%, or 28%. Read on below to learn the different agricultural products’ GST rates.
Manually-operated or animal-driven agricultural implements.
Hand tools, including shovels, spades, hewing tools, and other similar tools used in agriculture, forestry, or horticulture.
Hand pumps and their parts
Solar water heater and systems
Plants or devices for waste-to-energy
Solar lantern or lamps
Power-driven pumps designed for handling water, including centrifugal pumps, submersible pumps, deep tube-well turbine pumps, axial flow and mixed flow vertical pumps.
Machinery required in horticulture, agriculture, or forestry industries for preparation or cultivation of soil or for lawn or sports-ground rollers.
Dairy and milking machinery
Machines used for composting
Self-loading or self-unloading trailers used for agricultural purposes
Other machinery for horticulture, agriculture, forestry, bee-keeping or poultry-keeping uses, including germination plants fitted with thermal or mechanical equipment, poultry incubators, brooders, etc.
Machinery for harvesting or threshing, including straw or fodder balers, hay or grass mowers, and machines for cleaning, sorting and grading eggs, fruit, or other agricultural produce
Instruments made of ceramic for laboratory, chemical, or other technical uses
Ceramic troughs, tubs, and similar receptacles that have use in agriculture
Ceramic pots, jars, and similar articles used for the conveyance or packaging of goods.
Goods and Services Tax aims to bring transparency to taxation systems across industries across the country. In the agriculture sector, the GST system seeks to ensure that the farmers get the best rates for their produce. This can be made possible by the agriculture sector adopting the transparency mechanisms that exist in the GST system for other industries.
The GST rate on agricultural products differs in terms of product categories. However, understanding the impact of GST on the agriculture sector first requires an understanding of how farmers are impacted by the GST.
Farmers need not be registered under GST: The GST Act exempts agriculturalists from GST registration and compliance requirements. Under the Act, the term “agriculturalist” is defined as:
“An agriculturalist” means an individual or Hindu Undivided Family (HUF) who undertakes cultivation of land:
By own labour
Through the labour of family, or
By servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family.
Farmers need not collect GST: To collect GST, a taxpayer must have enrolled and registered under the GST registration system. Since most farmers are unlikely to be registered under the GST system owing to the lack of necessity of them being registered, they are not required to collect GST either.
Farmers need not file GST: The compliance established under the GST laws on agriculture products are only applicable to taxpayers who have registered under GST. For farmers who have not registered themselves under the GST system, there is no requirement for them to file a GST return.
The implementation of the GST taxation system has long been in the works in India. Different rates of GST for different agriculture products makes it evident that a lot of care has gone into deciding the different rates. Since “agriculturalists,” as defined under the GST Act, are exempt from paying GST, many farmers are not currently enrolled or registered under the GST system. However, it is important to remember that the GST taxation system has also been lauded for bringing in transparency to several other industries. Like all other sectors, the agricultural sector could also benefit from transparency in the sector, which could actually result in the farmers receiving the highest share, among all other stakeholders, in the sale of agricultural products.