GST Returns

Impact of GST on the Agricultural Sector

GST on Agricultural Sector

GST or the Goods and Services Tax is the recent modification to the tax regime followed in India. This particular amendment to the taxation laws has been introduced via the Constitution (One Hundred and First Amendment) Act 2016. The Goods and Services Tax would be governed by the GST Council whose chairman would be the Union Finance Minister of the Indian Republic. Let’s have a look at the impact on GST on Agricultural Sector.

The introduction of Goods and Services Tax is considered to be a reform in the scheme of indirect taxation followed by India. India has been following a federal structure where certain rights and responsibilities are assigned to the states and the rest of the rights and responsibilities have been reserved by the centre. Indirect taxes happened to be a state subject. Therefore the states had the sole rights to fix the tax limits for various services and goods within the boundaries of the state. This made the taxation structure highly non-uniform across the country. Further, this also led to multiple taxations across states.

Objective of GST

The GST regime seeks to unify all of the states of the largest democracy of the world at least in terms of the indirect taxes paid by the people residing in the country. While previously each individual state of this huge democracy had their discretion in terms of fixing the percentage of taxes for each service, goods, and commodity; under the GST regime[1], several central and state taxes have been amalgamated into one single tax. This single tax system would lead to easier enforcement and administration of the tax system apart from reducing multiple taxing for the consumers. This would also enable free movement of goods and services from one state to the other while reducing overall paperwork.

Overview on Agricultural Sector in India

India is primarily an agriculture-based society. This agrarian society is one of the largest contributors to the Indian GDP (Gross Domestic Product). It is estimated that more than 58 per cent of the rural household depends on the agriculture sector for earning their livelihood. The definition of agriculture includes the breeding and cultivation of plants, animals, and fungi for the purpose of food, medicine, clothing, fuel, and other allied purposes. Therefore, the agriculture sector not only includes merely farming, horticulture or animal breeding. The agriculture sector includes everything under agriculture including the allied sectors such as forestry and fisheries.

Impact of GST on Agricultural Sector

The overall impact of GST is foreseen to be positive for almost all of the sectors including the agriculture sector. The agriculture sector contributes more than 15 per cent of Indian Gross Domestic Product. This is among the largest contributing sectors of India’s economy.

Some of the positive indicators for the agriculture sector due to the implementation of GST include:

GST on Agricultural Sector
  • Resolving the issue of transportation:  Implementation of GST is supposed to improve the mobility of goods and services from one state to the other. This would, in turn, improve the transportation of agricultural products between states and different parts of the country. This would further improve the overall revenue generation for the sectors and the individuals involved in the sector particularly.
  • Creation of a National Market for Agricultural products: This free flow of agricultural produce within states and from one state to the other would help in creating a national market for agricultural produce. This National Agricultural Market (NAM) proposed by the central government would involve the farmers and the traders of the agricultural produce market. The purpose of this National Agricultural Market is to create a centralized regulated marketplace and a common e-commerce platform for conducting impartial, transparent, and free trade of agricultural products. Creation of NAM would help in subsuming all the different indirect taxes implemented in the agriculture sector, thus creating a hassle-free and transparent supply chain by providing due input credit for the taxes paid for each value addition in the supply chain. This would further enable the free flow of agricultural commodities across India. Further, this free flow of agricultural commodities due to an improved supply chain would help in reducing the waste of agricultural produce which usually enjoys a lower shelf life. This reduction in the waste of produce and time of supply would, in turn, benefit the farmers and the traders involved in the sector. Thus, the agricultural sector is bound to become more efficient and effective under the GST regime.
  • Gains for the Farmers: Farmers or those who are involved in the creation of all the agricultural products have always been at the lagging end of the supply chain. This lagging end has always been neglected and poverty has almost been synonymous with this end of the supply chain. Implementation of GST would reduce the time of the supply chain which is bound to reduce waste of agricultural produce. This clearly indicates that more products would reach the market and reap benefits for the farmers. Further, the farmers would also be benefited by the creation of National Agricultural Market by selling their produce at the best price directly.
  • Efficient Supply Chain: While GST is bound to create shorter, efficient and effective supply chains for the agricultural market, implementation of GST would also ensure an increase in transparency, increase reliability, increase in the effective sale and purchase, and reduce in the supply chain timeline by ensuring smooth flow of agricultural produce from the farms to the marketplace.

Challenges due to the Impact of GST on the Agricultural Sector

Changes are often resisted and such resistance arises because of the challenges faced while implementing the change or the struggle of coming out of the comfort zone during the process of change. Some of the changes, which are being pre-empted while implementing GST specifically in the Agricultural Sector include:

Challenges due to the Impact of GST on the Agricultural
  • Hassle in the creation of National Agricultural Market: Implementation of NAM can be challenging because of the existing differential Value Added Tax implemented by the respective states. This, when accompanied by Agricultural Produce Market Committee Law of the state, can actually make the implementation of GST in the agricultural sector quite tedious.
  • Coordination between the states and the centre: Implementation of GST would have an impact on the state revenues, which in fact has delayed the process of implementation of GST across states and sectors of industry. Therefore, political will and state support would be required in synergy for implementing an effective GST regime across sectors.
  • Creation and Availability of Infrastructure: In order to have an effective and efficient supply chain in the agricultural sector, infrastructure needs to be in tune with the increased volume of supply and trade. This would require some time and effort of the central government, state government, and all the individual stakeholders of the agricultural sector.


As per experts the impact of GST on agricultural sector would be positive however, it should not cause us to ignore the challenges and steps must be taken to address those.

Read our article:Composition scheme under GST & Presumptive Taxation Scheme

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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