Impact of GST on Agriculture Sector – GST Rate on Agricultural Products


August 14, 2019

Impact of GST on Agriculture Sector

The single largest contributing Sector to the Indian Economy is the Agriculture. It alone accounts for up to 16% of the Indian GDP. GST was supposed to have more of a greater indirect impact on the Agriculture Sector.

GST directly or indirectly affects all sections of the economy. Agriculture industry is too not an exception. Transportation is one factor that has a direct impactful effect on Agriculture. The GST rate levied on agricultural products is 5%.

GST was supposed to bring about a paradigm shift in the transportation industry. Slow and plagued transportation was a major reason for inappropriate distribution of agricultural products as well as their cost. GST was touted to create a unified and first of its kind National Market for the agricultural products. The One Nation One Tax dream was implemented on July 1, 2017. Successful GST implementation relied on two very important factor:

Technology Upgradation: To handle such a huge and dynamic database, GSTN needed to be at par with international standards in service and backup. The Government has in the early stage of GST shown desire and effort to ensure proper operation of the GSTN Network and online the GST return filing procedures. However, such a complex system was bound to have technical and operational glitches. It seems albeit slowly but surely the issues and grievances are being resolved.

Taxpayer Compliance: For a tax structure like GST in a country like India. Compliance is a major deciding factor for Revenue Generation. Sometimes people find it difficult to let go old process and embrace new ones. This can lead to initial friction and non-compliance.

Hence, the Government needs to be upbeat in its approach towards Tax education and awareness. Also, the more transparent the government appears in its budgeting and revenue allocation, the more is the common people’s faith in the governance. This attitude is a must for increasing the willful taxpayer’s number.



1. The GST Council has over the last few months has made a couple of changes in the GST rate for Agricultural Products and Services. Some of the important ones include:

2. GST On Pumps: The GST tax rate on pump sets has been reduced to 18 percent from 28 percent. The market share of pumps in India was valued at Rs 10,000 crores for the FY 2016. Reduced GST on pumps will reduce manufacturing cost and indirectly drive sales.

3. The GST Council also reduced the GST from the initial rate of 12% to 5%.

4. The 5% GST is now applicable to agricultural products. This would reduce the average weighted MRP by 0.24%.

5. Further, many of the food items have been exempted from the CENVAT whereas cereals and food grains would be liable for 4% VAT Tax.

6. Tractors and Fertilizers will attract 12% and 5% GST

Effect of GST on Agriculture Sector and Farmers

GST will initially involve the Central Government compensating those states which are a major generator of Agriculture Revenue. GST subsumes state revenues like CST/OCTROI/Purchase Tax and hence such states like Maharashtra, Punjab, Gujarat, Haryana which used to generate revenue to the number of Rs 1000 crore have to be compensated. The Central Government hence will have to narrow down on major sources to tax exemptions.

However, amidst all this GST if properly implemented can bring-forth following changes:

1. A reliable and transparent supply chain mechanism. A fast and secure supply chain mechanism can reduce waste as well as the cost for farmers/retailers.

2. Reduce cost for heavy machinery used in Agricultural Production. This will reduce production cost.

3. The Government has also included contract farming, dairy farming, frozen foods, poultry and stock breeding, seed raising, food processing etc under the GST ambit.

4. Deep irrigation in rural and remote areas. The GST council has reduced the GST rate on Sprinkles and Nozzles to 12% GST.

GOODS Tax RATE Under GST Impact of GST
Fertilizers 5% Farming costs will increase
Pesticides 12% Farming costs will increase
Tractors 12% Tractor and its equipment will become
Rubber 28% If the tires are expensive, the tractor trolley prices will be affected, the goods will become expensive
Plastic Pipes 28% Plastic pipes to be expensive by irrigation, tube-well construction costly

RoadBlocks And Solutions

Tax Compliance is an important parameter in a developing country like India. As per Yogesh Thorat, Managing Director of MAHA-FPC, “There is also the cost of compliance. One must keep in mind that FPCs are all in rural areas. For their owners, who are farmers, this is the first experience in corporate dealing. Uploading daily invoices and filing returns thrice every month is certainly a deterrent, just when they have started doing business.”

The above concern is a just one and rightly so the Finance Ministry has exempted FPC’s with annual turnover up to₹ 100 crores from tax on profits derived from farm-related activities. The move will encourage the involvement of farmers in agriculture-related activities. FPC’s facilitate value addition on agricultural products.

Avik Saha of the Jai Kisan Andolan appreciated the move and said, “Favourable tax regime for FPCs is a welcome announcement and resolves the long-standing conflict that individual agriculturists are not taxable in this country, whereas when they collectivize themselves, they are being taxed. This will encourage more farmers to organize themselves into FPCs”

Also Read: GST impact on the various sectors


GST is supposed to serve farmers/distributors in the long run. However, the initial GST years may attract inflation. But these are momentary roadblocks. In the long run with the establishment of NATIONAL AGRICULTURAL MARKET(NAM), GST will aim to propel farmers at the forefront of Indian Economy and provide them the rightful driver’s seat that they have long deserved.


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