GST on agricultural products – Everything you need to know

Learn about GST rates, compliance, and impact on the farming sector in India.
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3 min
26-July-2024

GST exemptions on agricultural products

GST exemptions play a crucial role in the agricultural sector. Agricultural products such as fresh fruits, vegetables, grains, pulses, and milk are exempt from GST, ensuring that farmers and consumers are not burdened by additional costs. This exemption helps in reducing the overall price of essential commodities, making them more affordable for the general public. By keeping these primary food items free from GST, the government aims to support the agricultural community and maintain the stability of food prices. Such GST exemptions are essential for sustaining the livelihood of farmers and promoting the growth of the agricultural sector.

GST rate on agriculture products

Zero percent GST rate: Fresh fruits, vegetables, cereals, and pulses are exempt from GST.

Five percent GST rate: Items like milk, butter, and other dairy products, as well as frozen vegetables and sugar.

Twelve percent GST rate: Packaged and branded agricultural products such as nuts and dry fruits.

Eighteen percent GST rate: Processed food items like sauces, ketchup, and packaged foods.

Twenty-eight percent GST rate: Luxury food items and processed foods containing preservatives.

These GST rates ensure a structured taxation system for agricultural products.

Impact of GST on the agriculture sector

The implementation of GST has significantly impacted the agriculture sector. By unifying various indirect taxes into a single tax regime, GST has streamlined the supply chain and reduced the complexity of tax compliance for farmers and traders. This has resulted in cost savings and increased efficiency. Moreover, the reduction in transportation costs due to the elimination of state border taxes has benefited the sector. However, the agricultural sector faces challenges in understanding and adapting to the new tax system. Overall, GST has brought both opportunities and challenges, aiming to create a more transparent and efficient tax system for the agriculture sector.

How is GST calculated on agricultural products?

Identify the applicable GST rate: Check the GST rate for the specific agricultural product.

Determine the taxable value: Calculate the total value of the product, excluding GST.

Apply the GST rate: Multiply the taxable value by the applicable GST rate.

Calculate the final amount: Add the GST amount to the taxable value to get the final price.

Use an online GST calculator: To simplify the process, use an online GST calculator for accurate calculations.

Utilising an online GST calculator ensures precision in determining the GST on agricultural products, facilitating better financial planning. 

Conclusion

GST has brought about significant changes in the agricultural sector by simplifying the tax structure and offering exemptions to essential products. These changes aim to support farmers and ensure affordable prices for consumers. Additionally, understanding GST rates and utilising tools like online GST calculators can help businesses manage their finances effectively. For those in the agricultural sector seeking to expand or stabilise their operations, exploring a business loan can provide the necessary financial support.

Frequently asked questions

Is GST applicable on commission on agricultural products?
Yes, GST is applicable on commission on agricultural products. While agricultural products themselves may be exempt from GST, the services related to the sale of these products, such as commission for agents or brokers, are subject to GST. The rate applicable to such services is generally 18%. This means that any intermediary earning a commission from the sale of agricultural products must account for and pay GST on their earnings, ensuring compliance with the tax regulations.

What agriculture services are exempt from GST?
Agricultural services exempt from GST include those directly related to cultivation, harvesting, threshing, plant protection, or testing of soil and seeds. Services such as warehousing of agricultural produce, renting or leasing of agro-machinery, loading, unloading, packing, and storage are also exempt. Additionally, support services provided by the agricultural produce marketing committee (APMC) or similar bodies, and services related to the transportation of agricultural produce by non-motorised means, enjoy GST exemptions, ensuring reduced costs for farmers.

What is the impact of GST on agricultural products?
The impact of GST on agricultural products has been significant, bringing both benefits and challenges. GST has simplified the tax structure, reducing transportation costs and eliminating multiple state taxes. This has enhanced efficiency and lowered costs for farmers and traders. However, understanding and adapting to the new system remains a challenge for many in the sector. Overall, GST aims to create a more transparent and efficient tax environment, ultimately benefiting the agricultural sector by promoting better compliance and reducing operational costs. 

Is RCM applicable to agricultural produce under GST?
Yes, reverse charge mechanism (RCM) is applicable to certain agricultural produce under GST. When an unregistered farmer supplies goods to a registered person, the recipient must pay GST under RCM. However, this applies only to specified products such as cashew nuts, bidi leaves, and tendu leaves. The intent is to ensure tax compliance and accountability within the supply chain while simplifying the tax burden on small farmers. Thus, understanding RCM's application is crucial for both suppliers and recipients in the agricultural sector.

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