Agriculture under GST

Agriculture sector plays vital role in Indian economy both in terms of employment generation and contribution in GDP. Economic survey of year 2015-16 records 17.4% contribution of agriculture sector in total GDP. Nearly 50% Indian population is being dependent upon the agriculture and allied activities for livelihood. Therefore, it is impertinent to note the impact of GST on agriculture sector. India is basically an agriculture based country and that is why a special treatment is enjoyed by the agriculture sector in the current taxation system. Many agriculture commodities are exempted under Central Excise Law or are taxed at Nil rate of duty. In Service tax, agriculture related services are exempted under mega exemption list. However, Many State Governments levies State vat on agriculture products other than unprocessed foods at the rate of 4% or 5%.

GST is the tax on Supply of goods and services at each stage along with the setoff of taxes paid at the previous stage. GST is going to replace a number of Central & State taxes with one uniform tax across India. Taxing agriculture sector under GST could have impact on poor. On the other hand, a complete exemption would shrink the tax base significantly. The Model GST Law was released by CBEC in the month of June 2016. No of suggestion were received on the Model GST law and after proper deliberation a revised version of Model GST law was released by GST Secretariat on 26th November, 2016 along with necessary changes. The position of agriculture sector is remained unchanged in revised GST law.

What is GST?

Goods and services tax is known as GST. The GST was introduced to address the fundamental problems with India’s indirect tax code. The GST is used nationally to boost economic growth. The government collects GST on products and services to fund its administrative operations. GST went into effect July 1, 2017.

Coverage to the agriculture sector under GST

According Sub-Section (2) to section 8 of Revised GST Law, taxable person is liable for payment of tax (i.e. GST) on supply of goods and/or services. Section 10 defines taxable person as, a person who is registered or liable to be register under Schedule V of GST Act. However, According to Clause 2 (b) of Schedule V to GST Act, an agriculturist, for the purpose of agriculture shall not be liable for registration and subsequently becomes a nontaxable person and will not be liable for the payment of GST.

The concept of Agriculturist is further defined under Sub-Section (8) of Section 2 to Revised GST Act as, a person who cultivates land personally, for the purpose of agriculture. Therefore, agriculturist shall be nontaxable, if he fulfills following two conditions i.e.

(1)		Cultivated land personally and
(2)		For the purpose of agriculture

Section 2 Sub-Section (106) of Revised GST Act, defines the concept “cultivates land personally” as, carry on any agriculture operations on one’s own account-

(a)		By one’s own labour, or
(b)		By the labour of one’s family, or
(c)		by servants on wages payable in cash or kind [(but not in crop share)] or by hired labour under one’s personal supervision or the personal supervision of any member of one’s family;

For this purpose, a widow or a minor or a person who is subject to any physical or mental disability or is a serving member of the armed forces of the Union, shall be deemed to cultivate land personally if it is cultivated by her or his servants or by hired labour. In the case of a Hindu Undivided Family, land shall be deemed to be cultivated personally, if it is cultivated by any member of such family.

Giving the land on crop sharing basis is the common practice of agriculture in India. But that will not be treated as land cultivated personally and will be subject to GST.

The second important condition is about cultivation of land personally for the purpose of agriculture. The concept agriculture is defined under Section 2 (7) of Revised GST Act as, “agriculture” with all its grammatical variations and cognate expressions, includes floriculture, horticulture, sericulture, the raising of crops, grass or garden produce and also grazing, but does not include dairy farming, poultry farming, stock breeding, the mere cutting of wood or grass, gathering of fruit, raising of man-made forest or rearing of seedlings or plants; The definition is kept both inclusive and exclusive. Keeping dairy farming, poultry farming, stock breeding, the mere cutting of wood or grass, gathering of fruit, raising of man-made forest or rearing of seedlings or plants out of agriculture definition makes them taxable under GST regime.

It seems that the intention of government to give a tax relief to agriculturist, but the question about taxability of services procured by agriculturist such as farm labour supply, fumigation, grading, packing, leasing of agro machines, storage or warehousing, cold storage services, transportation are still unanswered and hopefully Government will address those in coming days.

Activities to be taxable under GST

Broadly, following activities shall be subject to GST, if all India turnover exceeds the basic exemption limit of Rs. 10 lakhs in case of north east state and 20 lakhs in case of states other than north east state

(1)		Crop Sharing agriculture : When agricultural activity is made on crop sharing basis then it shall not be treated as cultivated personally and therefore, such activity will be subject to GST.
(2)		Food processing units : Many products such as tomato ketchup, tomato chips, potato chips are made from farm product and are manufactured through a process which alters the essential characteristic of the product. Therefore, such products shall not be qualified as agriculture and will be subject to GST.
(3)		Contract Farming : Contract farming involves agricultural production being carried out on the basis of an agreement between the buyer and farm producers. Here, agriculturist shall not be subject to GST but a person who is buying from agriculturist will have to pay GST on subsequent sale.
(4)		Frozen foods : In case of Frozen foods, foods are freezed below -9.5 ° C to extend their life. Sometime the form is also changed. This may alter their characteristic and will be subject to GST.
(5)		Dairy Farming : India ranks first in terms of milk production and accounts for 18.5% of words production. In proposed GST Act, definition of agriculture specifically excludes dairy farming. This makes dairy product such as milk under the ambit of GST. It will be interesting to see taxability of joint product such as curd, butter milk, butter etc under GST. Currently only branded milk and alied products are subject to VAT.
(6)		Poultry & Stock Breeding : Poultry product are currently nil rated goods in both Central Excise and State Vat . Stock breeding is also non-taxable. After specific exclusion from the definition of agriculture, it seems that products like eggs, meat, flesh of poultry and seafood will be subject to GST.
(7)		Seed raising : Seed or plant raising in green house is common practice now and most of the agriculturist purchases plant from such nurseries. Till date this activity was not subject to tax. In GST, it will be taxable as definition of agriculture excludes the concept of seed or plant raising
(8)		Man-made forest : Man made forest are made mostly with the intention of tourism. They are also to be treated as taxable under the GST
(9)		Cutting of Wood : Cutting of wood or grass is also excluded from the definition of agriculture. This will make it taxable under GST.
(10)		Other activities done by agriculturist : an activity done by an agriculturist other than agriculture shall be subject to GST if it is within the scope of GST Act.

GST Rates on Agri Commodities in India

Butter, ghee, butter oil, milk oils, and dairy spreads are subject to a 12% GST.
Fertilizer, an essential part of farming, was formerly taxable at 6%. The new GST system has reduced the duty on fertilizers to 5%.
GST of 12 percent is charged on phosphoric acid that is eligible for use as fertilizer. There is an 18% GST charge for pesticides.
The price of huge machinery used to create agricultural items is reduced with the help of GST. Thus, an 18% GST is applied to tractor production.
GST role in agricultural productivity used in agriculture that are liable to the 12 percent GST rate include water pumps, milking apparatus, and self-unloading trucks.

Rates were adjusted at the 47th GST Council Meeting. Find more details at:

GST Rate on Eggs, Honey, and Dairy Products Made from Milk
Why the commotion about GST on necessities exists: The coin’s two sides
GST Exclusivity was withdrawn from a number of services and consumables

Current Date Tax Laws

Certain foods are exempt from CENVAT, including rice, sugar, salt, wheat, and flour. Cereals and grains have a 4% state VAT tax applied to them. Under the existing tax regulations, agricultural products are subject to numerous licensing requirements as well as numerous indirect taxes (VAT, excise duty, service tax).

Currently, state value-added tax (SVT) is applied to all agricultural products in every state; it is applied before final consumption. Nonetheless, some unprocessed food items, including as meat, eggs, fruits, vegetables, etc., are exempt from state VAT.

National Agricultural Market(NAM)

The central government unveiled a plan to promote the National Agricultural Market (NAM). A National Agricultural Market is defined as providing all farmers and dealers in the regulated marketplaces with a unified e-commerce platform for an open, unbiased exchange of agricultural products.

There would be difficulties in implementing the NAM program because of the various state rules regarding VAT and the APMC (Agricultural Produce Market Committee).

To lay the groundwork for the successful implementation of NAM, GST is essential. Under the GST, the majority of the indirect taxes imposed on agricultural goods will be included. Every trader would receive an input credit under GST for the taxes they have paid on each value addition.

A hassle-free, transparent supply chain will result from this, allowing agricultural products to travel freely throughout India. The majority of agricultural products expire. The GST would strengthen the supply chain system and shorten the time it takes for interstate transit.

Farmers and retailers would profit from a shorter turnaround time. Charges for CST, OCTROI, and Purchase Tax bring in more than Rs 1000 crores for some Indian states, including Maharashtra, Punjab, Gujarat, and Haryana. The GST would include all of the previous levies. Therefore, compensation for the revenue loss would have to be given to these states.

Positive Impact of GST on the Agriculture Sector

The GST system does not incorporate the tax on the storage of agricultural products. Farmers paid less tax as a result. It has also reduced the inevitable food waste that comes with storage and given farmers the chance to sell their produce for the best price possible. Starting a Cold Storage Business in India is a good place to start learning about the cold storage industry.

An Input Tax Credit is provided by GST to each retailer for the tax that was previously imposed on each addition. This facilitates the free flow of agri-food around the world by establishing an open, trouble-free supply chain.
GST role in agricultural productivity is vulnerable to damage and is affected by the length of the journey. The introduction of the Goods and Services Tax (GST) has helped the farm market because there is now only one tax rate that applies, which makes moving agricultural products more difficult.
A tax imposed on consumption is called GST. It is only collected if manufacturers promote agricultural products or if it is based on the output of commodities, as per the previously imposed excess tax.
There used to be multiple taxes levied on the intergovernmental trade of a single item. Every stage of their transaction required permissions and permits from other governments, which truly complicated the movement of commodities. GST has also made agricultural commodity marketing easier and more efficient.

FAQs

What Is The Meaning Of GST And When Was It Started Applied In India?

On July 1st, 2017, India enacted the Goods and Services Tax (GST) to simplify taxation procedures and address underlying faults with the country’s indirect tax structure.

Which Farming Activities in India Are Charged With GST?

Activities that are not included in agriculture, such as raising chickens and dairy cows, are subject to GST and require registration and compliance.

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