Impact of GST on the Indian Agricultural Sector

Agriculture has always been the heart of India’s economy, which supports millions of farmers and plays an important role in the country’s growth. When the Goods and Services Tax (GST) was introduced in 2017, it brought a wave of uncertainty among farmers, especially small-scale ones, who worried about how it would affect their earnings. Anyways, the government ensured that taxes wouldn’t burden small farmers, while larger agricultural businesses saw some key changes under the new system.

GST was designed to simplify the taxation process, which makes it more transparent and uniform across industries, including the agricultural sector. But how exactly has it impacted farmers, agribusinesses, and the agricultural supply chain? Has it made things easier or more complicated? This article discloses the impact of GST on the Indian Agricultural Sector.

What is GST?

Goods and Services Tax (GST), is a nationwide tax system introduced to simplify India’s indirect tax structure. Before GST, multiple taxes like VAT, excise duty, and service tax were levied at different stages, this makes the taxation process complex and difficult to manage. GST was implemented on July 1, 2017, to replace these multiple taxes with a single, unified system.

This tax applies to the supply of goods and services at every stage of production and distribution. It follows a destination-based tax system, which means the tax is collected in the state where the goods or services are consumed, rather than where they are produced. GST aims to boost economic growth, reduce tax evasion, and make business operations smoother across the country by streamlining the taxation process.

Current Tax Laws on Agricultural Products in India

In India, agricultural products are subject to various taxes at different stages of production and distribution. Some essential food items like rice, sugar, salt, wheat, and flour are exempt from the Central Value Added Tax (CENVAT), which reduces the tax burden on basic necessities. Under the State Value Added Tax (VAT) system, cereals and grains are taxed at a standard rate of 4%. Anyway, certain unprocessed food products such as meat, eggs, fruits, and vegetables are exempt from VAT in many states to keep essential food items affordable for consumers.

Agricultural goods often go through multiple regulations, this includes licensing requirements and various indirect taxes such as VAT, excise duty, and service tax. Since these taxes are imposed at different levels, they can increase the overall cost of agricultural products before they reach consumers.

National Agricultural Market (NAM) and the Impact of GST

The National Agricultural Market (NAM) is a pan-India electronic trading portal that integrates existing Agricultural Produce Market Committees (APMCs) to create a unified national market for agricultural commodities.

 Key Features of NAM:

• Facilitates online trading of agricultural produce.
• Connects farmers, traders, and buyers across states.
• Promotes price transparency and competitive bidding.
• Reduces dependency on middlemen.
• Operates under the e-NAM platform (developed by the Ministry of Agriculture).

Impact of GST on NAM

 1. Unified Taxation Structure

• Before GST: Different states had varying taxes (VAT, entry tax, etc.) on agricultural goods.
• After GST: A single tax system simplified trade, enabling easier integration of state markets into NAM.

 2. Seamless Movement of Goods

• Elimination of interstate checkposts due to GST has reduced delays in transportation.
• This has accelerated delivery of agricultural produce and improved market efficiency.

 3. Input Tax Credit (ITC)

• Farmers and traders can now claim ITC on inputs like seeds, fertilizers, and pesticides.
• This helps in reducing overall production costs and encourages formal trade.

 4. Boost to Digital Transactions

• With NAM being an online platform, the GST system complements it by digitizing tax records and promoting cashless transactions.

 5. Better Price Realization for Farmers

• Uniform GST has removed tax barriers, allowing farmers access to a larger market base and competitive pricing across states.

 6. Encouragement of Agribusiness Participation

Reduced tax complications and better compliance have attracted agribusinesses to participate in NAM more actively

Challenges Despite GST

• Fertilizers and agricultural machinery are taxed under GST (5% to 18%), increasing input costs.
• Small farmers are often not registered under GST, limiting their access to ITC benefits.
• Need for more APMC integration into the NAM system across all states.

GST has strengthened NAM by removing tax complexities and enabling a truly unified national market for agriculture. With better supply chain management, reduced costs, and transparent pricing, it benefits both farmers and traders in the long run.

The Impact of GST on the Indian Agricultural Sector

The introduction of Goods and Services Tax (GST) has had a significant impact on India’s agricultural sector. It plays a vital role in making the supply chain more transparent and efficient and helps to reduce delays and wastage in the transportation of agricultural goods. A well-organized supply chain means lower costs for farmers and retailers, this ultimately benefits the entire sector.

1. GST and the Cost of Agricultural Machinery

One of the key advantages of GST is that it helps to reduce the cost of agricultural machinery. Previously, multiple taxes increased the price of essential equipment, but with GST, manufacturers can now claim the Input Tax Credit (ITC), which helps to lower production costs. Anyway, certain agricultural activities like dairy farming, poultry farming, and stock breeding are not classified as agriculture under the GST law, making them taxable.

2. GST Impact on Fertilizers and Tractors

The impact of GST on fertilizers and tractors is particularly notable. Earlier, fertilizers were taxed at 6% (1% Excise + 5% VAT), but under GST, the tax rate has increased to 12%. Similarly, the exemption on tractor manufacturing has been removed, and a 12% GST is now applicable. While this raises initial costs, manufacturers can benefit from ITC, which may lead to cost reductions in the long run.

3. GST and the Dairy Industry

The dairy industry has also seen changes. In the year 2015-16, India’s milk production reached 160.35 million tons, up from 146.31 million tons in the previous year. Under GST, fresh milk remains tax-free, while skimmed milk is taxed at 5%, and condensed milk falls under the 18% tax bracket.

4. GST on Tea and Regional Impacts

Another commonly consumed agricultural product, tea, has also been affected. While tea was previously taxed at 4-5% VAT, under GST, it is now taxed at a flat 5%. States like Assam and West Bengal, which had lower VAT rates (0.5-1%), may see a slight increase in tea prices.

5. Conclusion: Mixed Impact of GST on Agriculture

GST has introduced both challenges and benefits for the agricultural sector. While some costs have increased, the improved tax structure and streamlined supply chain can contribute to long-term efficiency and growth.

Benefits of GST on the Indian Agricultural Sector

The introduction of the Goods and Services Tax (GST) has brought several positive changes to the agricultural sector in India. Multiple indirect taxes have been replaced with a single tax structure. GST has simplified the taxation process, which makes the process more transparent and efficient. Below are some of the key benefits of GST for the agricultural sector:

1. Streamlined Taxation System

Before GST, agricultural products were subject to multiple taxes such as VAT, excise duty, and service tax, which varied from state to state. With GST, most of these indirect taxes have been merged into a single tax, this reduced the confusion and compliance burden for farmers and traders.

2. Reduced Transportation Time and Cost

Under the previous tax system, inter-state transportation of agricultural goods was delayed due to multiple checkpoints and varying tax rates across states. GST has eliminated such barriers that ensure smoother movement of perishable agricultural products and reduce wastage. This has benefited both farmers and consumers by improving supply chain efficiency.

3. Availability of Input Tax Credit (ITC)

Under GST, agricultural businesses can avail of Input Tax Credit, which allows them to claim credit for the taxes paid on inputs like fertilizers, pesticides, and machinery. This has reduced the overall cost of production, making farming more profitable.

4. Boost to National Agricultural Market (NAM)

GST has supported the implementation of the National Agricultural Market (NAM), an online trading platform that integrates markets across different states. With a uniform tax system in place, farmers can now sell their produce beyond state borders without facing different tax rates, this leads to better pricing and market access.

5. Lower Cost of Farming Equipment

GST has helped standardize the tax rates on farming equipment and machinery, this makes it easier for the farmers to purchase the essential tools. Although some agricultural equipment has seen a slight tax increase, the availability of the Input Tax Credit has balanced out the cost, this makes mechanized farming more accessible.

6. Strengthening the Supply Chain

A simplified tax system has improved the efficiency of supply chains in agriculture. With fewer taxes and easier inter-state trade, agricultural goods now reach markets faster, this ensures fair pricing and reduces post-harvest losses.

GST has played a vital role to improve the agricultural sector by simplifying the taxes, this has reduced transportation costs and boosted trade efficiency. While there are challenges, the long-term benefits of GST continue to support India's farmers and agricultural businesses.

Steps to follow to File GST in the Agricultural Sector

GST Filing in the agricultural sector involves a systematic process to ensure compliance with tax regulations and benefits the input tax credits. Below is a step-by-step guide to file GST for businesses engaged in agricultural activities:

Step 1: GST Registration

• Farmers and agricultural businesses must register for GST if their annual turnover exceeds ?40 lakhs for goods and ?20 lakhs for special category states.
• You can register for the GST on the official GST portal.
• You will require some essential documents like PAN, Aadhaar, business address proof, and bank account details.

Step 2: Issue Tax Invoices

• Registered entities must issue GST-compliant invoices, while they sell agricultural products that are taxable under GST.
• The invoice should include GSTIN, invoice number, date, and description of goods, HSN code, and applicable GST rate.

Step 3: Maintain Records

• Businesses must maintain records of sales, purchases, input tax credit (ITC), and GST payments as per the GST law.
• Digital records help in seamless tax return filing and compliance.

Step 4: File GST Returns

There are some GST returns you need to file regularly:

• GSTR-1: Monthly or quarterly return for outward supplies.
• GSTR-3B: Summary return to declare tax liability and input tax credit.
• GSTR-9: Annual return summarizing the entire financial year’s transactions.

Step 5: Payment of GST

• The GST payable is calculated after adjusting for input tax credit (ITC) on purchases like fertilizers, seeds, or machinery.
• You can make the payment can be made through online banking, debit/credit card, or challan generation on the GST portal.

Step 6: Claim the Input Tax Credit (ITC)

• Farmers and traders who deal with taxable agricultural goods can claim ITC on GST paid for inputs such as fertilizers, pesticides, and farm machinery.
• Proper documentation of purchases is required to avail of ITC benefits.

Step 7: Compliance and Audits

• Maintain regular compliance with GST laws that ensure smooth operations and avoid penalties.
• Businesses must undergo periodic audits by the GST department to verify tax payments and filings.

If you follow these steps, your agricultural businesses can efficiently file GST and benefit from tax credits this leads to better financial management and growth in the sector.

Conclusion

This article discloses the Impact of GST on the Indian Agricultural Sector. GST has brought structure and transparency to the agricultural sector by replacing multiple taxes and streamlining interstate trade. It improves supply chains, reduces costs through Input Tax Credit (ITC), and supports better pricing via the National Agricultural Market (NAM). While challenges like high tax on fertilizers and machinery remain, GST has simplified compliance and supports long-term sector growth.

How Online Legal India Can Help:

Online Legal India offers expert assistance in GST registration and filing for agricultural businesses. From documentation to ITC claims, we ensure timely and accurate compliance, helping you avoid penalties and focus on business growth. Visit us to simplify your GST process today.