The development of the Indian economy depends heavily on the agriculture industry. India is one of the world’s top producers and exporters of agricultural goods such as rice, wheat, sugarcane, and spices. In rural India, one of the main industries for employment is the agriculture industry. Therefore, taxation of the agriculture sector plays a major role in the economy. The Goods and Services Tax (GST) was implemented in India in 2017 and has a significant influence on all economic sectors, including agriculture. This article will be your guide on understanding the impact of GST on the agriculture sector in India.
Importance of Agriculture Sector in India
The highest contributor to India’s overall GDP is the agriculture sector. It accounts for around 16% of Indian GDP. As a result, many facets of society would be impacted by the introduction of the GST on agriculture.
What is GST?
GST stands for goods and services tax. In order to fix the core issues with India’s indirect tax legislation, the GST was implemented. The main objective of using the GST at the national level is to further the country’s overall economic development. GST is a tax imposed on products and services to raise money for the government so that it may efficiently carry out its administrative duties. The GST went into effect on July 1st, 2017.
Is there GST on Agricultural Products?
For the most part, the agriculture sector is exempted from GST in India. In essence, there is no GST on agricultural goods including fresh seafood, dairy, fruit, and vegetables. Because of this, GST is not a concern for any agriculture industry enterprises that do not engage in processing. Additionally, companies that just offer products or services are free from GST and have the option to avoid registering for it. As a result, farmers who sell their food in its freshest form are exempt from paying GST on agricultural goods. Furthermore, seeds are excluded from GST, making life easier for farmers.
Farming Activities under GST in India
Since dairy farming, poultry farming, and animal breeding are specifically excluded from the definition of agriculture, they are subject to GST taxation. The simple act of cutting grass or wood, picking fruit, cultivating artificial forests, or producing seedlings or plants has also been expressly excluded from the definition of agriculture; as a result, these activities are likewise subject to the GST and the companies involved in the farming activities have to get GST Registration. However, these companies are also eligible to avail input tax credit after registering and doing GST Return Filing.
GST Rates on Agri Commodities in India
- Butter and other fats, including ghee, butter oil, and oils made from milk, as well as dairy spreads, are subject to a 12 percent GST.
- Previously, fertiliser, a crucial component of agriculture, was subject to a 6% tax. The tax on fertilisers has been lowered to 5% under the new GST regime.
- On phosphoric acid suitable for fertiliser, a GST of 12 percent is applied. Pesticides are subject to an 18 percent GST levy.
- GST aids in lowering the price of large equipment used to produce agricultural goods. Thus, Tractor manufacturing is subject to an 18 percent GST.
- Items used for agriculture that are subject to the 12 percent GST rate include self-unloading trucks, milking equipment, and water pumps.
Recently, in the 47th GST Council Meeting, some rates have been revised. You can understand more about this at:
- GST Rate for Milk Dairy Products, Egg and Honey
- Behind the fuss about GST on essential items: Two sides of the same coin
- GST Exemptions Withdrawn on various consumable items and services
GST on Agricultural Machinery
- Tractors other than semi-trailers with a capacity exceeding 1800 cc attract a GST Rate of 12%.
- Tractors for semi-trailers of capacity of over 1800 cc attract a GST rate of 28%.
Positive Impact of GST on agriculture sector
- The tax on agricultural product storage is not included in the GST system. As a result, farmers paid less tax. Additionally, it has minimised the unavoidable food waste associated with storage and provided farmers the opportunity to sell their goods at the maximum price feasible. You can learn about Cold Storage business at: Start Cold Storage Business in India.
- GST offers each merchant an Input Tax Credit for the tax previously levied for each addition. This promotes the free movement of agri-food throughout the globe by creating a transparent, trouble-free supply chain.
- Farm goods are susceptible to destruction and are impacted by the duration of transportation. Given that there is now just one tax rate in effect, which makes transporting agricultural products inconvenient, the implementation of GST has improved the farm market.
- GST is a tax that is applied on consumption. Only if, in accordance with the previously imposed excess tax, agricultural products are marketed by manufacturers or on the output of goods is it collected.
- On the intergovernmental commerce of a single item, several taxes used to be imposed. Permissions and licences from various states became necessary at every level of their transaction, which really led to complications when transferring commodities. The implementation of GST has also loosened agricultural commodity marketing and allowed for the seamless operation of agricultural commodities.
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