Treatment of Services Relating to the Agricultural Sector Under GST

The impact of GST on agricultural sectors is foreseen to create a positive atmosphere. The agricultural sector is the most significant contributor to Indian GDP. Also, the agricultural sector is 16% of the Indian GDP. The implementation of that particular hub has many sections that prove our society. It is highly probable that GST shall resolve the issue of transportation.

GST may deliver India its first National Market for agricultural goods. Some clarifications need to be provided to rate our agricultural products. Special reduced rates should be declared for items like tea, coffee, and milk under the GST. So, in this blog, we will discuss the treatment of services relating to the impact of GST on agriculture sector.

Current Tax Laws

There are certain food items like rice, sugar, salt, wheat, and flour, which are released from CENVAT. Under the state VAT, cereals, besides grains, are taxed at the rate of 4%. Agricultural products go through a lot of licensing and a number of indirect taxes(VAT, excise duty, service tax) underneath the current tax laws.

State VAT is currently related to all the agricultural goods in each state; it passes finished prior to final consumption. There are certain releases available from state VAT for certain unprocessed foodstuffs like meat, eggs, fruits, vegetables, etc.

National Agricultural Market(NAM)

A scheme for the promotion of the National Agricultural Market (NAM) is familiarized by the central government. Involving all the agriculturalists and traders in the regulated markets with a common e-commerce platform for a transparent, impartial trade of agri-commodities can be termed as National Agricultural Market.

Unpaid with the different state VAT and APMC (Agricultural Produce Market Committee) laws, implementation of the NAM scheme would be challenging.

GST is crucial for generating a path regarding the successful operation of NAM. Most of the indirect taxes levied on agricultural products would be incorporated under GST. GST would provide each trader with the input credit for the tax paid on all value additions.

Under the agriculture GST rate regime, most unprocessed agricultural products like fresh fruits, vegetables, and cereals are exempt from tax. However, processed agricultural goods attract different GST rates—5% for items like dairy products and frozen vegetables, 12% for packaged and branded foods, and 18% for processed food items like sauces. This classification ensures that essential food products remain affordable while processed goods contribute to tax revenue.

This will create a transparent, hassle-free supply chain, which would lead to the free movement of agri-commodities across India. Most agricultural commodities are perishable by nature. An improved supply chain apparatus due to GST would reduce the time taken for inter-state transportation. The benefit of a reduction in time would be passed on to the farmers/retailers. Some states in India, like Maharashtra, Punjab, Gujarat, and Haryana, have earned more than Rs 1000 crore since charging CST/OCTROI/Purchase Tax. GST would subsume all the above taxes. Hence, these states would need to be salaried to compensate for the loss of revenue.

Suggested read: HSN Code & GST on Agriculture Equipment

Impact of GST on Agricultural Sector

GST is essential to recover the transparency, reliability, and timeline of the supply chain mechanism. A better supply chain mechanism would ensure a reduction in wastage and cost for the farmers/retailers. GST would likewise help reduce the cost of heavy machinery required to produce agricultural commodities. Under the model, GST law, dairy farming, poultry farming, and stock upbringing are kept out of the definition of agriculture. Therefore, these will be taxable under GST.

Under the GST regime, most unprocessed GST on agricultural product are exempt from tax, while processed agricultural goods may attract different GST rates depending on their classification.

Fertilizers, an important element of agriculture, were taxed at 6% (1% Excise + 5% VAT). In the GST regime, the tax on fertilizers has been increased to 12%. The same impact is on Tractors. The waiver on the production of Tractors is removed, and a GST of 12% has been imposed. This is beneficial as the manufacturers will now be able to entitle Input Tax Credits.

India’s milk production in 2015-16 was 160.35 million tons, amplified from 146.31mt in 2014-15. Currently, only 2% VAT is charged on milk and certain milk products, but under GST, the rate of fresh milk is NIL, and skimmed milk is kept under the 5% bracket, then condensed milk is going to be taxed at the rate of 18%.

Tea is possibly one of the most crucial items in an Indian household. The price of tea power also increases due to the tax rate of 5% under the GST rate from the existing average VAT rate of 4-5% with Assam and West Bengal, with the exception of 0.5 and 1%.

As per the endorsement of the GST Council, the issue is clarified below. 3.1 Public Distribution specifically figures at admission 28 of the 11th Schedule to the Constitution, which lists the activities that may be entrusted to a Panchayat under Article 243G of the Constitution.

Hence, said entry no.3A would apply to composite stock of milling of wheat and fortification thereof by miller or of paddy into rice, providing that the value of goods supplied in such composite supply (goods used for fortification, packing material, etc) does not exceed 25% of the value of merged supply. It is a matter of fact as to whether the value of goods in such a complex supply is up to 25% and requires ascertainment on a case-to-case basis.

Conclusion

An increase in the cost of a few agricultural products is predicted due to the rise in the inflation index for a brief period. However, the implementation of GST is going to benefit the farmers/ distributors in the long run as there will be a single combined national agriculture market. GST would ensure that growers in India who contribute the most to GDP will be able to sell their produce at the most accessible price.

FAQs

1. How does GST affect agriculture in India?

Most of the indirect taxes levied on agricultural products would be incorporated under GST. GST would provide each trader with the input credit for the tax paid on every value addition. This will create a translucent, hassle-free supply chain that will lead to the free movement of Agri-commodities across India.

2. Is GST applicable on services provided outside India?

Under the GST rules, spreads are recognized as a zero-rated supply, including shipments to special economic zones (SEZ) units and then developers. This means GST will not be levied on the outbound supply of any services or goods – and exporters can claim an input tax credit for the product shipped.

3. What is the GST rate for agriculture services?

Yes, GST is applicable to directives on agricultural products. While agricultural products themselves may be exempt from GST, the amenities related to the sale of these products, such as commissions for agents or brokers, are subject to GST. The rate valid for such services is generally 18%.

4. Is GST applicable on free services?

Therefore, under this section, when there is a deliberation made, then it can be considered supply, and when there is no consideration or exchange of money under GST, the taxes will not be compulsory on the free supply of goods and services.