India is an agrarian economy where agriculture supports more than 50% of the population either directly or indirectly. When GST was introduced in 2017, one of the biggest concerns was its impact on farmers, agri-businesses, traders, and the food supply chain. This comprehensive guide by CleverCoins explains every aspect of GST on Agricultural Produce in India — from exemptions and rates to ITC, transportation, warehousing, and 2026 updates — in clear, simple language.

1. What is Agricultural Produce Under GST? – Definition & Scope

Before understanding the GST treatment, it is essential to know exactly what qualifies as ‘Agricultural Produce’ under the GST law. A precise definition avoids confusion between exempt produce and taxable processed food items.

Legal Definition Under GST

As per the GST Act and the accompanying notifications, ‘Agricultural Produce’ means any produce out of cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done, or such processing is done as is usually done by a cultivator or producer which does not alter its essential character, and includes produce out of horticulture, floriculture, animal husbandry or aviculture.

What is Included in Agricultural Produce?

• Cereals and pulses: Rice (unbranded), wheat, maize, barley, jowar, bajra, ragi, chana, moong, urad, masoor
• Oilseeds: Mustard, groundnut, sunflower seeds, soybean, sesame, linseed
• Fruits & vegetables: Fresh tomatoes, onions, potatoes, leafy vegetables, mangoes, bananas, apples, grapes, citrus fruits
• Spices (raw / unprocessed): Turmeric (raw), ginger (raw), garlic (raw), pepper, cardamom, coriander
• Sugarcane (in raw form)
• Raw cotton, raw jute, raw silk
• Tea leaves (unprocessed green leaves from plantation)
• Coffee beans (unprocessed, before roasting)
• Milk (in natural, unprocessed state)
• Live animals for food (poultry birds, pigs, goats, sheep)
• Fish, prawns, and aquaculture produce (fresh / frozen, unprocessed)
• Eggs (fertilized and unfertilized)
• Honey (raw, unprocessed)
• Flowers and plants for horticulture / floriculture

What is NOT Included (Processed Agricultural Products)

• Branded rice or flour in retail packaging
• Roasted or ground spices (powder form)
• Refined edible oils (groundnut oil, sunflower oil, soybean oil, mustard oil — refined)
• Processed dairy: paneer, cheese, ghee, butter, ice cream, flavoured milk
• Processed fish, prawns in masala / batter
• Packaged tea, coffee powder, cocoa powder
• Branded flour (atta, maida, suji) with registered brand name
• Refined sugar, sugar syrup, molasses

The Critical Threshold – ‘Essential Character’ Test

The key to determining whether a product is ‘Agricultural Produce’ under GST is the ‘Essential Character Test.’ If the processing done on the raw produce DOES NOT alter its essential character, it remains agricultural produce (exempt). If the processing DOES alter the essential character (e.g., turning wheat into biscuits), it becomes a processed food item and is taxable under the applicable GST rate.

2. GST Rate Structure on Agricultural & Food Products 2026

The GST rate structure for agricultural and food products is spread across multiple slabs — from complete exemption (0%) to 28% for certain processed luxury food items. Understanding which rate applies to which product is critical for agri-businesses, traders, and food manufacturers.

GST Rate Slab: NIL / Exempt (0%) Category

The following key agricultural produce and food items are fully exempt from GST under Schedule I of Notification No. 2/2017-CT(Rate) and subsequent amendments:

GST Rate: 5% Category (Processed & Semi-Processed Agricultural Products)

GST Rate: 12% and 18% Category

• Ghee, butter, cheese: 12% GST
• Fruit juices (not concentrates): 12% GST
• Namkeens, bhujia, mixture (non-fried): 12% GST
• Sauces, ketchup, vinegar, mustard: 12% GST
• Breakfast cereals (corn flakes, muesli, etc.): 18% GST
• Chocolate & cocoa-based products: 18% GST
• Aerated drinks (flavoured water): 12–18% GST
• Instant noodles (rice/wheat-based): 18% GST

GST Rate: 28% Category

• Aerated drinks with added sugar (Cola, Soda): 28% GST + 12% Compensation Cess
• Pan masala (without tobacco): 28% GST
• Tobacco products: 28% GST + additional cess

3. GST Across the Agricultural Supply Chain – From Farm to Fork

Understanding GST implications at each stage of the agricultural supply chain is essential for farmers, traders, processors, and retailers. Each link in the supply chain has distinct GST treatment.

Stage 1: Farmer (Producer)

Individual farmers selling their own agricultural produce are NOT required to register under GST, regardless of their turnover, as long as they are selling raw, unprocessed agricultural produce. This is because the supply of agricultural produce by an agriculturist (a person who cultivates land personally) is specifically exempted from the requirement of GST registration.

• Registration: NOT required for individual agriculturists
• GST on sale of raw produce: NIL (exempt)
• ITC benefit: Not applicable (no tax paid on exempt output)
• Key condition: The farmer should not be conducting any other taxable business activity

Stage 2: Agricultural Produce Commission Agent / Arhatiya

Commission agents operating at mandis (agricultural markets) under the APMC Act are a key intermediary in the agricultural supply chain. GST has specific provisions for them:

• Commission earned by agents from the sale of agricultural produce on behalf of farmers: EXEMPT from GST
• Notification No. 12/2017-CT(Rate), Serial No. 54: Services provided by commission agents for sale / purchase of agricultural produce are exempt
• Commission agents must register under GST if their other taxable services exceed the threshold (Rs. 20 lakh for most states, Rs. 10 lakh for special category states)
• Agents dealing in taxable goods must register regardless of turnover (as they make inter-state supplies)

Stage 3: Trader / Wholesaler (Mandi / Wholesale Market)

Traders who buy from farmers and sell to processors or retailers occupy a critical position. Their GST obligations depend on:

• Type of produce: Exempt produce (fresh vegetables, grains) → No GST on sale
• Turnover threshold: Traders with taxable supply turnover exceeding Rs. 40 lakh (goods) must register
• Inter-State supply: Any trader making inter-state supply of taxable goods must register regardless of turnover
• E-Way Bill: Mandatory for movement of goods (including agricultural produce) valued above Rs. 50,000 across state borders

Stage 4: Food Processor / Manufacturer

Food processors transform raw agricultural produce into processed food products. This is where GST typically becomes applicable:

• Purchase of raw agricultural produce: 0% GST — no input tax paid
• Manufacture of processed food: Attracts GST at 5%, 12%, or 18% depending on the product
• ITC on packaging materials, machinery, fuel, factory services: Eligible for ITC credit
• ITC reversal: ITC on inputs used for exempt agricultural produce is NOT eligible (Rule 42/43 apply)

Stage 5: Retailer / Supermarket

Retailers selling food and agricultural products have mixed supplies — some exempt, some taxable. Key points:

• Fresh fruits, vegetables, grains, eggs, milk (loose): 0% GST
• Branded packaged food items: 5% to 18% GST depending on product
• Restaurants and eateries serving agricultural produce as cooked food: 5% GST (without ITC)
• Retailers with mixed supplies must maintain accurate records segregating exempt and taxable sales for ITC purposes

4. GST on Warehousing & Storage of Agricultural Produce

Warehousing and cold storage of agricultural produce are critical parts of the food supply chain. GST exemptions on these services were introduced to reduce post-harvest losses and ensure food reaches consumers at reasonable prices.

Exemption on Warehousing of Agricultural Produce

As per Notification No. 12/2017-CT(Rate), Serial No. 54, storage or warehousing of cereals, pulses, fruits, nuts, vegetables, spices, copra, sugarcane, jaggery, raw vegetable fibres such as cotton, flax, jute, etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves, coffee and tea — all in their unprocessed state — are EXEMPT from GST.

• Services by Cold Storage facilities for fresh fruits, vegetables, meat, fish, eggs, milk: EXEMPT (0% GST)
• Warehousing of paddy, wheat, pulses (in raw/semi-processed state): EXEMPT (0% GST)
• Warehousing of processed / branded food items: TAXABLE at 18% GST (SAC Code: 996712)
• Warehousing for Food Corporation of India (FCI): GST exempt under government contract provisions

GST on Cold Storage Services (2026 Position)

GST on Agricultural Warehousing Infrastructure

Importantly, the construction of warehouses and cold storage facilities for agriculture is subject to GST:

• Construction of warehouses / godowns for agricultural produce: 18% GST (on construction service)
• ITC on construction: The warehousing operator can claim ITC on GST paid for construction, if they provide taxable warehousing services
• For operators providing only exempt agricultural warehousing: ITC on construction cost is NOT available (blocked credit under Section 17(5))

5. GST on Transportation of Agricultural Produce

Transportation of goods, including agricultural produce, by road, rail, air, or water is subject to GST under Goods Transport Agency (GTA) provisions. However, significant exemptions exist for transportation of agricultural goods.

GST Exemption on GTA Services for Agricultural Produce

As per Notification No. 12/2017-CT(Rate), the following transportation services are EXEMPT from GST:

• Transportation of agricultural produce by any vehicle: EXEMPT (0%) — This exemption applies regardless of mode of transport
• Specifically exempted: transportation of rice, wheat, pulses, flour, milk, vegetables, fruits, eggs, meat, fish in fresh/unprocessed state
• Transportation by a goods transport agency (GTA) of agricultural produce to any location within India: EXEMPT
• Transportation by agricultural cooperative societies: EXEMPT

Conditions for Transportation Exemption

• The goods being transported must genuinely qualify as agricultural produce (unprocessed / minimally processed)
• Transportation of branded, processed food items does NOT qualify for this exemption
• Transportation of agricultural machinery, fertilizers, pesticides: TAXABLE at 5% (GTA) or 18% (courier/specialized transport)

GST on Different Modes of Agricultural Transport

E-Way Bill for Agricultural Produce

E-Way Bill (EWB) rules for agricultural produce:

• Inter-State movement of all goods (including agricultural produce) valued over Rs. 50,000: E-Way Bill MANDATORY
• Intra-State movement: Rules vary by state — most states have set threshold at Rs. 50,000 for general goods; many states EXEMPT agricultural produce from intra-state E-Way Bill requirements
• Movement by non-motorized conveyance (bullock cart, hand cart): E-Way Bill NOT required
• Goods transported by government railways: E-Way Bill NOT required (as of 2026)
• Perishables like milk, curd, fresh vegetables: Many states provide E-Way Bill relaxations for short-distance transport

6. GST on Agricultural Services – Detailed Analysis

A wide range of services related to agriculture and farming are either exempt from GST or subject to reduced rates. Proper classification of agricultural services can significantly reduce the tax burden for farmers and agri-businesses.

Services Exempt from GST Under Notification No. 12/2017

The following agricultural services are fully exempt from GST (NIL rate):

1. Services related to cultivation of plants, rearing of animals, etc. including services of agricultural labourers
2. Supply of farm labour
3. Processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations — which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market
4. Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use
5. Loading, unloading, packing, storage or warehousing of agricultural produce
6. Agricultural extension services (advisory services to farmers)
7. Services provided by an Agricultural Produce Market Committee (APMC) or Board or any services provided by a Commission Agent for the sale or purchase of agricultural produce
8. Services by way of fumigation in a warehouse of agricultural produce
9. Carrying out intermediate production processes as job work in relation to cultivation of plants and rearing of animals

GST on Rental of Agricultural Machinery

GST on Seeds, Fertilizers & Pesticides (Inputs to Agriculture)

Agricultural inputs like seeds, fertilizers, and pesticides have specific GST rates:

GST on Plantation Crops – Tea, Coffee, Rubber, Spices

Plantation crops have a unique value chain that stretches from raw cultivation to manufactured products. GST treatment differs at each stage:

• Green tea leaves (unprocessed) collected from plantation: EXEMPT
• Tea processed at estate level (withered, rolled, fermented, dried — orthodox tea): 5% GST
• Packaged branded tea (retail packs): 5% GST
• Instant tea / flavoured tea premix: 18% GST
• Raw rubber (field latex, cup lump): EXEMPT (0%)
• Processed rubber (ribbed smoked sheets, crepe rubber): 5% GST
• Rubber products (tyres, tubes, gloves): 28% GST
• Raw coffee beans (green): EXEMPT
• Roasted coffee beans: 5% GST
• Instant coffee powder: 18% GST

7. Input Tax Credit (ITC) for Agricultural Businesses Under GST

ITC is the mechanism under GST that allows businesses to offset the GST paid on inputs against the GST payable on outputs. For agricultural businesses, ITC rules are complex because the sector involves a mix of exempt and taxable supplies.

General ITC Rule for Agricultural Businesses

Section 16 of the CGST Act allows ITC only on inputs used for taxable supplies. Since most raw agricultural produce is exempt from GST, businesses primarily selling exempt agricultural produce CANNOT claim ITC on their business inputs.

ITC Eligibility Matrix for Agricultural Sector

ITC Reversal Under Rule 42 – Proportionate Reversal for Mixed Businesses

When an agricultural business makes both exempt (e.g., selling raw produce) and taxable supplies (e.g., selling processed food), ITC reversal under Rule 42 is mandatory:

10. Calculate total ITC on all inputs: (T)
11. Identify ITC directly attributable to taxable supplies: (T1) — Fully eligible
12. Identify ITC directly attributable to exempt supplies: (T2) — Not eligible, must reverse
13. ITC on common inputs: (T3) = T – T1 – T2
14. Exempt Supply Ratio = Exempt Turnover / Total Turnover
15. ITC to reverse on common inputs = T3 × Exempt Supply Ratio
16. Net ITC = T1 + (T3 – Amount reversed)

ITC on Agricultural Machinery & Equipment

• ITC on agricultural machinery purchased by a farmer: NOT eligible (farmer is not a taxable person)
• ITC on machinery purchased by a food processor for processing taxable food: ELIGIBLE
• ITC on tractors / farm vehicles (not used for transporting goods in commerce): NOT eligible (blocked under Section 17(5))
• ITC on refrigerated trucks used by a cold storage operator for taxable storage: ELIGIBLE
• ITC on construction of warehouse for agricultural produce: NOT eligible (blocked credit under Section 17(5)(c) for immovable property)

ITC on Export of Agricultural Produce

Export of agricultural produce is a zero-rated supply under the IGST Act. Exporters can claim a refund of:

• ITC accumulated on inputs, input services, and capital goods used for export
• IGST paid on exported goods (if IGST was paid at the time of export)
• Refund claim to be filed in Form RFD-01 on the GST portal
• Refund is typically processed within 60 days of filing (as per 2026 portal provisions)
• LUT (Letter of Undertaking) can be filed to export without payment of IGST and claim ITC refund

8. APMC, Mandi System & GST – Impact on Agricultural Trade

The Agricultural Produce Market Committee (APMC) system governs the wholesale trade of agricultural produce in India. GST has significantly impacted how APMCs and traders operate within this system.

GST on Services Provided by APMC / Mandi

• Market fees / mandi tax charged by APMC to traders for selling agricultural produce: EXEMPT from GST (as APMC is a government body and the service relates to agricultural produce)
• However, if APMC charges fees for other services (warehousing, loading, unloading of non-agri goods), such fees attract 18% GST
• Commission agents / Arhatias operating within the APMC: Their services related to agricultural produce are exempt; their services for non-agricultural goods are taxable

APMC Levy vs. GST — Dual Taxation Concern

One of the key concerns post-GST implementation was the continuation of APMC market fees alongside GST. Under the Constitution, APMC fees are state-levied charges independent of GST. This means agricultural traders may face both APMC mandi charges AND GST on processed goods, increasing the compliance burden. However, for raw agricultural produce that is exempt from GST, only the APMC levy applies — reducing dual taxation.

Impact of Farm Bills (Amended Position 2026)

While the three farm bills of 2020 were repealed in 2021 following farmer protests, the underlying debate around APMC reform continues. As of 2026, several state governments have implemented partial APMC reforms allowing farmers to sell directly to private buyers. From a GST perspective:

• Direct farmer-to-consumer or farmer-to-retailer sales of exempt produce: No GST implication
• Sales through FPOs (Farmer Producer Organizations) of exempt produce: No GST on the produce itself
• FPO selling processed produce: GST applicable at applicable rates
• FPO providing services (like grading, sorting, packaging for a fee): GST at applicable service rate

9. Composition Scheme for Agricultural & Food Businesses

The GST Composition Scheme is a simplified tax payment mechanism for small businesses, requiring them to pay GST at a flat rate on their turnover instead of the regular GST mechanism. For small agri-businesses and food traders, this scheme can significantly reduce compliance burden.

Who Can Opt for Composition Scheme?

• Turnover limit (FY 2025-26 onwards): Rs. 1.5 crore for most states (Rs. 75 lakh for special category states)
• Manufacturers of goods (including processed food): Eligible
• Traders dealing in goods (including food products): Eligible
• Restaurants / eateries (not serving alcohol): Eligible — flat 5% on turnover
• Service providers with turnover up to Rs. 50 lakh: Eligible under special composition (6% GST)
• NOT eligible: Businesses making inter-state supply of goods, businesses supplying through e-commerce operators, businesses supplying exempt goods only

Composition Scheme Rates for Agricultural Businesses

Advantages of Composition Scheme for Agri Businesses

• Simplified compliance: Only one quarterly return (CMP-08) and one annual return (GSTR-4)
• Lower GST rate (1%) compared to regular GST rates (5%–18%)
• No requirement to maintain detailed invoice-level records
• No E-Way Bill requirement for supplies within the state (for most states)

Disadvantages & Restrictions

• Cannot collect GST from customers (GST is paid out of pocket)
• No ITC available on purchases
• Cannot supply inter-state: Major limitation for agri-produce exporters
• Cannot supply through e-commerce platforms like Amazon, Flipkart, BigBasket (as marketplace sellers)

10. GST for Farmer Producer Organizations (FPOs) & Agricultural Cooperatives

Farmer Producer Organizations (FPOs) and agricultural cooperatives play a vital role in aggregating farm produce and providing market linkage to small and marginal farmers. GST has specific implications for these entities.

GST Registration for FPOs

• FPOs incorporated as companies under the Companies Act, 2013: Must register under GST if aggregate taxable turnover exceeds Rs. 40 lakh (goods) or Rs. 20 lakh (services)
• FPOs selling only exempt agricultural produce: Registration NOT mandatory (turnover of exempt supply is excluded from GST threshold calculation)
• FPOs providing taxable services (processing, grading, packaging for a fee): Must register if threshold is crossed

GST Exemptions Benefiting FPOs & Cooperatives

• Sale of raw agricultural produce by FPO on behalf of member farmers: EXEMPT (same as individual farmer sale)
• Services provided by FPO to member farmers for cultivation, harvesting, sorting: EXEMPT
• Cold storage services provided by dairy cooperatives for fresh milk: EXEMPT
• Inter-cooperative sale of raw agri produce: EXEMPT

Government Incentives for FPOs Under GST (2026)

As part of the Government of India’s FPO promotion scheme (target of 10,000 FPOs by 2027-28), certain GST relaxations and compliances are streamlined for FPOs:

• Simplified quarterly GST filing for FPOs with turnover below Rs. 5 crore
• FPOs eligible for QRMP (Quarterly Return Monthly Payment) scheme
• Special GST help desk for FPOs at district level (under Agri Ministry initiative)

11. Reverse Charge Mechanism (RCM) in Agricultural Transactions

Under the Reverse Charge Mechanism (RCM), the liability to pay GST shifts from the supplier to the recipient of goods or services. Several agricultural transactions trigger RCM.

Key RCM Applicable in Agricultural Supply Chain

Raw Cotton — A Special RCM Case

One of the most discussed RCM provisions in agriculture relates to raw cotton. When a registered ginning mill or textile manufacturer purchases raw cotton from an unregistered farmer, RCM applies at 5% GST on the purchase value. The buyer (registered manufacturer) pays the GST and can claim ITC of the same. This provision ensures GST compliance even when the seller (farmer) is unregistered.

12. GST on Export of Agricultural Produce

India is a major exporter of agricultural products including rice (non-basmati and basmati), spices, fruits, vegetables, cotton, tea, coffee, marine products, and processed food. Exports are treated as zero-rated supplies under GST.

Zero-Rated Supply – Export Provisions

• All exports of goods (including agricultural produce) are zero-rated under Section 16 of the IGST Act
• Zero-rated means GST is not charged on the exported goods — unlike exemption, zero-rating allows ITC refund
• Two options for exporters: (a) Export under LUT without payment of IGST and claim ITC refund; (b) Export with payment of IGST and claim refund of IGST paid

Top Agri-Exports & GST Refund Implications (2026)

Procedure for GST Refund on Agricultural Exports

17. File shipping bill at the port of export (integrated with GSTN)
18. File GSTR-1 declaring the export invoices
19. If exported under LUT: File Form RFD-01 for ITC refund within 2 years of export date
20. If exported with IGST payment: IGST refund is automatically processed based on shipping bill and GSTR-1 matching
21. For delays exceeding 60 days: Interest at 6% p.a. is payable by the government on pending refunds

13. Recent GST Updates Affecting Agricultural Sector (2025-2026)

The GST Council and CBIC have been actively refining GST provisions related to agriculture. Here are the most significant updates for 2025-2026 that every agri-business must be aware of:

GST Council 55th Meeting – Agricultural Produce Clarifications (2025)

The 55th GST Council meeting (held in December 2025) issued key clarifications on agricultural produce taxation:

• Millets-based food products: Clarified that millet flour (mixed) with 70% or more millet content in retail packs up to 25 kg attracts NIL GST; in packs above 25 kg: 5% GST
• Edible oils fortification: Edible oils fortified with vitamins A & D to remain taxable at 5% GST (not re-classified as medicines)
• Jaggery powder: Reclassified — pre-packaged and labelled jaggery (including powder): 5% GST; loose jaggery without branding remains at NIL

CBIC Circular on Poultry Feed, Animal Feed Exemption (2025)

CBIC clarified in Circular No. 211/5/2025-GST that:

• Aquatic feed, poultry feed, cattle feed (including processed pellets): EXEMPT at 0% GST
• Feed supplements / premixes for animals containing vitamins, minerals: 5% GST (not exempt)
• Pet food (dog food, cat food): 18% GST — NOT exempt

Rationalisation of GST Rates on Processed Food (Budget 2026)

Union Budget 2026-27 announcements impacting food sector GST:

• Ready-to-eat packaged meals (tiffin services): Rationalized from 18% to 12% GST for meals below Rs. 200 per pack
• Millets-based snacks: Reduced from 12% to 5% GST to promote millet consumption under PM Shri Anna Yojana
• Organic food products certified by APEDA: Eligible for reduced GST rate (5%) even when branded and packaged

Digital Compliance for Agricultural Businesses (2026)

• E-invoicing threshold: From April 2026, e-invoicing mandatory for all GST-registered businesses with turnover above Rs. 5 crore (includes agri-processors and food manufacturers)
• QR code on B2C invoices: Mandatory for large agri-businesses (turnover > Rs. 500 crore) with dynamic QR code on B2C invoices for digital payments
• GSTN integration with APMC: In 2026, GSTN is being linked with APMC mandi records in major states (Maharashtra, Haryana, UP) for automatic reconciliation of agri-trade data

GST on Organic Farming & Certifications (New in 2026)

A key development in 2026 is the government’s push for organic farming. GST implications for organic agriculture:

• Certified organic agricultural produce (NPOP certified): EXEMPT from GST (same as regular produce)
• Organic certification services by APEDA-accredited bodies: 18% GST on certification fees
• Organic inputs (bio-pesticides, bio-fertilizers — unbranded loose): EXEMPT
• Branded organic inputs (certified organic compost, vermicompost): 5% GST
• Organic food processing equipment: 12–18% GST depending on the equipment

14. Common GST Mistakes in Agricultural Businesses & How to Avoid Them

Mistake 1: Claiming GST Exemption on Branded Processed Agricultural Products

Many food businesses assume that because the raw material is agricultural produce, the processed output is also exempt. Wrong. Once the essential character of the produce changes (e.g., fresh tomatoes → tomato ketchup), the product becomes taxable. Always verify the HSN code and applicable GST rate before treating any product as exempt.

Mistake 2: Not Reversing ITC When Making Both Exempt and Taxable Supplies

Businesses that simultaneously sell raw exempt produce and processed taxable food often fail to apply Rule 42 proportionate ITC reversal. This leads to excess ITC claims that are recoverable by GST authorities with 24% interest and penalties. Conduct monthly ITC reconciliation if your business has mixed supplies.

Mistake 3: Ignoring E-Way Bill Requirements for Inter-State Agri Movement

While fresh agricultural produce may be exempt from GST, E-Way Bill requirements for inter-state movement still apply for goods valued above Rs. 50,000. Trucks carrying even exempt agricultural goods (wheat, paddy, vegetables) across state borders without an E-Way Bill are liable to be detained and penalized under Section 129 of the CGST Act.

Mistake 4: Treating All Cold Storage as GST-Exempt

Cold storage for fresh, unprocessed agricultural produce is exempt. But cold storage for processed food (frozen meals, branded dairy, beverages) attracts 18% GST. Cold storage operators serving both types of clients must carefully segregate and charge GST only on the taxable portion of their services.

Mistake 5: Incorrect HSN Classification of Agricultural Products

Many agricultural products sit at the border between exempt and taxable categories. Common misclassifications include: dried ginger (classified as fresh ginger — wrong), branded jaggery (classified as raw jaggery — wrong post-2023 clarification), fortified rice kernels (classified as simple rice — wrong). Always verify with a GST expert when in doubt about HSN classification.

Mistake 6: FPOs Not Registering When Required

FPOs often assume they don’t need GST registration because they deal in agricultural produce. However, if an FPO provides processing services (sorting, grading, packaging for a fee) to non-members, or sells non-agricultural goods (packaging material, tools), it crosses into taxable territory. Timely GST registration avoids penalties and protects the FPO’s legal standing.

15. Frequently Asked Questions (FAQs) – GST on Agricultural Produce

Q1: Is a farmer required to register under GST?

No. An agriculturist who cultivates land personally and sells the produce is specifically excluded from the definition of ‘taxable person’ under Section 9 read with Schedule III of the CGST Act. Therefore, individual farmers do not need to register under GST, regardless of their annual turnover from sale of agricultural produce.

Q2: Is fresh milk subject to GST?

No. Fresh milk (not undergoing any further processing like ultra-pasteurization or sweetening) is exempt from GST. However, flavoured milk, UHT milk in tetrapacks with added sugar, and milk-based beverages attract 12% GST. Plain pasteurized milk in pouches without sugar or flavouring remains exempt.

Q3: Do restaurants need to pay GST on food made from agricultural produce?

Yes. When agricultural produce (vegetables, grains, meat, fish) is used in a restaurant to cook and serve food, the restaurant is providing a service (restaurant service), and GST applies: 5% GST (without ITC) for most restaurants; 18% GST (with ITC) for restaurants in 5-star hotels and specified premium categories.

Q4: What is the GST rate on rice — plain, parboiled, and branded?

Unbranded rice (not put in a unit container with registered brand): NIL (0%) GST. Branded rice put in a unit container with a registered brand name: 5% GST. Rice sold in bulk by traders to restaurants or food processors: Depends on whether it is branded or unbranded. Parboiled rice (semi-processed) in unbranded form: NIL GST.

Q5: Are services of crop insurance subject to GST?

No. Insurance services provided under government-sponsored crop insurance schemes like Pradhan Mantri Fasal Bima Yojana (PMFBY) are exempt from GST. General crop insurance services by private insurers are also exempt from GST as per Notification No. 12/2017-CT(Rate) which exempts all life insurance and general insurance services to farmers under government schemes.

Q6: What is the GST on Kisan Credit Card (KCC) interest?

Interest on loans — including Kisan Credit Card (KCC) and agricultural loans — is exempt from GST. However, processing fees, documentation charges, and other service charges on KCC loans may attract 18% GST. Bank charges like SMS alerts and account maintenance fees may also attract GST at 18%.

Q7: Is drip irrigation installation service taxable under GST?

The drip irrigation and sprinkler irrigation system (equipment/material) attracts 12% GST on purchase. However, if a company provides only installation / erection services for drip irrigation systems to farmers, such services may be treated as ‘agricultural services’ and exempt from GST, subject to the specific nature and scope of the service contract. Always seek expert advice for complex service contracts.