GST reduced from 12–18% to 5% for key farm machinery and fertilisers.
Full exemption avoided to protect manufacturers while providing relief to farmers.
Policy aims to balance affordability for farmers and sustainable domestic production.
The 56th Goods and Services Tax (GST) Council, chaired by Finance Minister Nirmala Sitharaman, on September 3 approved reduced tax rates on several farm goods from 12% to 5% that includes agriculture, horticulture, tractors, forestry machinery for soil preparation or cultivation, lawn or sports-ground rollers, nozzles for drip irrigation equipment or nozzles for sprinklers.
Road tractors for semi-trailers with an engine capacity of more than 1800 cc have been exempted from the reduced rate.
Other things that noted a reduction on the GST rates from 12% to 5% in the agriculture sector include diesel engines up to 15HP, hand pumps, nozzles for drip irrigation and sprinklers, drip irrigation systems and sprayers, soil preparation machinery, rollers, and parts. Harvesting and threshing machines, straw balers, hay mowers, and parts; Poultry-keeping or bee-keeping machines, incubators, brooders, and parts; Composting machine, tractors (except road tractors above 1800 cc), self-loading/unloading trailers for farming, and hand-pulled or animal-drawn carts are also included.
In addition, several farm goods have seen their GST rates reduced from 18% to 5%. These include tractor tyres, tubes and rear wheels, agricultural diesel engines (above 250cc) for tractors, hydraulic pumps for tractors, key tractor parts: wheel rim, centre housing, transmission, front axle, bumpers, brakes, gearboxes, transaxles; as well as radiators, silencers, clutches, steering wheels, fenders, hoods, grills, side panels, extension plates, fuel tanks.
In the fertiliser sector, the GST on several chemicals has been reduced. Rates on sulphuric acid, nitric acid, ammonia have been cut from 18% to 5%. Meanwhile, GST on gibberellic acid, various bio-pesticides— including bacillus thuringiensis (var. israelensis, kurstaki, galleriae), bacillus sphaericus, trichoderma viride, trichoderma harzianum, pseudomonas fluorescens, beauveria bassiana, NPV of Helicoverpa armigera, NPV of Spodoptera litura, neem-based pesticides, and cymbopogon—and micronutrients listed under the Fertiliser Control Order, 1985, produced by registered manufacturers, has been reduced from 12% to 5%.
Balancing Farmers & Manufacturers
According to Business Standard, the GST Council has deviced the rate changes to strike a balance between farmers who use the machines and the companies that manufacture them. The government aims to give relief to farmers while ensuring that domestic manufacturers are not harmed.
Businesses that manufacture farm machinery cannot recover the GST they have already paid on the components and supplies needed to construct it if it is made tax-free. Their production costs rise as a result, and farmers would ultimately still have to pay more for the machines rather than have them become less expensive.
Meanwhile, small tractors have not been fully exempted to encourage local producers while supporting farmers. If small tractors are made completely tax-free, manufacturers lose the tax credit benefit on raw materials. This raises their production costs, which will eventually be passed on to farmers as higher prices. So, the exemption could actually hurt farmers instead of helping them.
Manufacturers lose the raw material tax credit benefit if small tractors are made totally tax-free. Their production costs go up as a result, and farmers will eventually pay more for their goods. Therefore, rather than benefiting farmers, the exemption may actually harm them.
