In the recent past, we have witnessed a lot of chaos in the Indian population concerning GST implementation and its impact on society with everyone worrying about the increased costs associated with it.

GST in India came with an uproar affecting all the sectors and the Agriculture sector was no exception to it.

Let us learn and understand today about the impact of GST with more focus on the Agricultural sector specifically.

As all of us are well aware agriculture is the backbone of the Indian economy. It is one of the most vital industries contributing heavily to the growth of the Indian economy. 

The fact that India is one of the largest producers and exporters of a lot of agricultural products in the world like wheat, rice, sugarcane, and spices makes it a very significant industry in terms of GDP. India also exports a large number of agricultural goods such as vegetables, fruits, tea, spices, pulses, and so on which serves as revenue generation for the country. 

The agricultural sector accounts for around 16% of Indian GDP. Not only it is one of the major contributors to Indian GDP but is also a key source of employment generation, especially in rural India. 

The Goods and Services Tax (GST) is widely regarded as one of the most significant modifications to the Indian tax system since independence. The GST intends to unite India’s national markets.

GST in India was implemented keeping in mind to form one single tax for all by replacing multiple indirect taxes and attempts to unite India’s markets. It is implemented in accordance with the principle of “One Nation, One Tax.”

Since the agriculture sector in India employs the majority of the Indian population, the implementation of GST has a very deep impact on the farming community including the farmer income, agro-products, machinery, fertilizers, and exports. 

For assistance regarding GST inputs, you can consult a leading GST consultant in Jaipur who will guide you to sail through the process smoothly.

Thus, it becomes very important to understand how the GST is affecting the Agricultural sector.

Impact of GST in Agriculture

The Goods and Services Tax (GST) was implemented in 2017 and has had a substantial impact on all sectors of the Indian economy, including agriculture. The Goods and Services Tax (GST) is largely considered to be one of the most important changes to the Indian tax system since independence with the aim to integrate India’s national marketplaces. 

Let’s learn the consequences of GST implementation in the Indian Agricultural sector in detail.

One of the key issues in the agricultural industry is that farmers do not receive fair market value for their agricultural goods. Furthermore, the most difficult challenge confronting the agricultural industry in India is the transportation of agricultural products beyond the state borders. 

Prior to the adoption of GST, crops were subject to several types of taxes when traded over state lines with each state requiring a different license for trading in that particular state. This posed a significant barrier to interstate trading in agricultural products.

However, with the advent of GST, agricultural product markets were liberalized. The different GST legislations encourage supply chain stability, transparency, and timeliness. GST compliance and registration have been made necessary for big-scale farmers and agricultural enterprises.

Have a look at the implications of GST in different areas of the Agricultural Sector:

  • Agric-commodities such as vegetables, fruits, milk, wheat, and rice are tax-free. Earlier select milk products were taxed at 2% VAT, however, under the GST regime, fresh milk is taxed at 0%, while other goods such as condensed milk and skimmed milk are charged at 18% and 5%, respectively. 
  • Dry fruits, jellies, paste jam, and juices are taxed at 12% and 18%, respectively. These rates are high in comparison to the previous 5% tax.
  • A 12% GST is levied on butter and other fats (such as ghee, butter oil, and so on) as well as milk oils and dairy spreads. 
  • The tax on fertilizers has been decreased to 5% under the new GST regime. Fertilizer-grade phosphoric acid is subject to a 12% GST. Pesticides are subject to an 18% GST.
  • The GST rate of 12% applies to agricultural products such as water pumps, milking machines, and self-unloading trucks.
  • GST also helps to reduce the cost of heavy machinery used in the production of agricultural commodities. Tractor manufacturing is subject to an 18% GST. 
  • The GST has helped to alleviate the transportation problem in various ways. Currently, no GST is levied on agricultural produce transportation. 
  • An improved supply chain structure provides lower costs for farmers/retailers while also reducing waste. 
  • GST improves transparency at every stage of the supply chain for every product/service and simplifies the tax structure. Small-scale agriculture has been deemed non-taxable under GST legislation, and the majority of basic agricultural items supplied fresh are GST-free. 
  • Dairy farming, poultry farming, and animal breeding are specifically excluded from the category of agriculture, and hence are subject to taxation under the GST framework.
  • The mere cutting of wood or grass, harvesting of fruit and cultivation of manufactured forest, or rearing of seedlings or plants have also been expressly excluded from the definition of Agriculture, and hence are also subject to GST. 

Positive  Impact  of GST on Agriculture 

The following are some of the benefits that GST has brought to the agriculture sector: 

  1. Improved Supply Chain System

The GST scheme excludes the tax for agricultural product storage. As a result, farmers’ tax load was eased. It has also allowed farmers to sell their produce at the highest possible price, as well as decreased the unavoidable food waste that comes with storage.

  1. Credit for Input Tax Credit 

Each retailer receives an Input Tax Credit for the tax that was previously levied on each addition under GST (ITC). As a result, a transparent and trouble-free supply chain will be developed, allowing agri-food to freely circulate around the globe.

  1. Reduced Transport Time 

Farm products can be harmed, and the time it takes to transport them has an impact as well. The advent of GST should stimulate the agricultural industry because it now has a single tax rate, making it easier to transport farm supplies.

  1. Convenient Intergovernmental Trading 

Previously, different duties were applied to intergovernmental trade of a specific item. Several governments required permissions and permits at each stage of their transaction, posing substantial problems in the exchange of goods. The GST has liberalized agricultural commodity marketing and allowed agricultural commodities to run smoothly.

  1. Tax Exemption

The Goods and Services Tax (GST) is a tax on consumer goods and services. It is only collected if agricultural materials are marketed by manufacturers or on the production of goods in accordance with the previously established excess tax.

Negative Impact of GST on Agriculture

The following are the negative effects of GST on the agriculture sector:

  1. Increased Tax Load 

Milk products, condensed milk, Fish, meat, poultry, dried fruit, jellies, and other foods may be subject to higher taxes than in the past. As a result, the food industry’s burden has more than doubled.

  1. Reverse Charge

Agribusinesses typically lease warehouse space to small property owners. Such owners would almost certainly continue to operate alone. The lease of warehouses by storage and storage organizations, on the other hand, will be subject to GST at a reverse cost of 18%. Manufacturers typically pass the tax burden on to consumers in the form of higher pricing or product storage. Prices of farm products are expected to have a direct impact.

Read about “Reverse Charge Mechanism in GST” in details. 

  1. Increased storage or cold-storage facility expenses

Most food grain handling systems and Agric-storage building were previously excluded from service tax. The number of exemptions were reduced by the GST. Farm items are also liable to an 18% GST on factory building and cold storage. Because external availability of storage services is outside the scope of GST, there can’t be an ITC in this scenario.

  1. Modern amenities 

Under the former indirect tax regime, imports of project machinery for storing agricultural goods, such as mechanized handling systems and pallet racking systems, were subject to a 5% customs fee and were particularly exempt from taxes. This exception did not follow the GST rules. These imports are currently subject to an 18% IGST.

Ending Note

Implementation of GST has led to significant implications across several sectors in the Indian economy with the Agriculture sector also being affected immensely by it. GST compliance and registration have been made mandatory for large-scale farmers and agricultural companies.

With the implementation of GST in India markets for agricultural products have become more liberalized. It has brought in transparency, efficiency, speed, and stability to facilitate the Agricultural supply chain leading to less food wastage.  made interstate freight transit easier, particularly for perishable food which in turn benefits both producers and retailers.

This unified tax system of GST is critical for the improvement of the agricultural sector in India. As a result, the GST has both beneficial and negative consequences in the Indian Agriculture sector.

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