GST Vidhi | GST Articles

Major GST Relief for Agriculture Sector: Rate Reduced from 12% to 5%

The 56th GST Council meeting held on 3rd September 2025 brought welcome relief to India’s agricultural economy by recommending a substantial reduction in GST rates for a wide range of agricultural equipment and machinery—from 12% to 5%.

This move is expected to directly benefit farmers, agri-entrepreneurs, and rural communities by lowering the cost of essential machinery, improving mechanization, and supporting modern, sustainable farming practices.

Key Items Covered Under the Reduced Rate

The Council has specifically identified several agricultural tools and machines that are now taxed at a concessional rate of 5% GST instead of the earlier 12%. These cover irrigation systems, soil preparation equipment, harvesting machinery, tractors, trailers, and even composting machines.

To give clarity, here is the summary of revised rates:

Impact on Farmers

This reduction directly translates to lower prices for essential agricultural machinery. With machinery becoming more affordable, farmers will have better access to modern tools such as drip irrigation systems, harvesters, and tractors, which are vital for improving productivity and reducing manual effort.

By cutting the GST rate to 5%, the Council has ensured that small and marginal farmers also benefit from mechanization without facing a heavy financial burden.

Frequently Asked Questions

Has GST on all agricultural machinery been reduced?

Yes. The new rate of 5% applies to a wide spectrum of agricultural machinery including sprinklers, drip irrigation systems, soil preparation equipment, harvesting and threshing machines, composting machines, and tractors.

Why has agricultural machinery not been made fully exempt from GST?

While the government is committed to supporting farmers, a complete exemption would have unintended consequences. If GST were fully waived, manufacturers and dealers would lose the benefit of Input Tax Credit (ITC) on their raw materials and inputs. This would increase their cost of production, which might eventually get passed on to farmers in the form of higher market prices.

Thus, the 5% concessional rate strikes a balance — it ensures affordability for farmers while protecting domestic manufacturers from cost escalation.

FAQs on Revised GST Rates

1. When will the changes in GST rates come into force?

As per the recommendations of the GST Council in its 56th meeting, the revised GST rates be effective from 22nd September 2025.

2. Which notification provides for the revised rates?

The revised rates will be notified through the official rate notification issued by CBIC, which will be uploaded on the CBIC website.

3. What happens if goods/services were supplied before 22nd September 2025 but invoices were issued later?

As per Section 14(a)(i) of the CGST Act, 2017:

• If payment is received after the rate change, time of supply will be the earlier of payment receipt date or invoice date.
• If payment is received before the rate change, time of supply will be the date of receipt of payment.

4. What will be the applicable GST rate if advances were received before rate change but supply happens later?

GST liability will be determined based on time of supply provisions under Section 14 of the CGST Act.

5. What about Input Tax Credit (ITC) on purchases made before rate change?

A registered person can avail ITC of the tax actually charged at the time of supply, subject to Section 16(1) of the CGST Act. The ITC once availed in the e-credit ledger can be used for discharge of any future output liability, even if the outward supply attracts a reduced rate later.

6. Can refund of accumulated ITC due to inverted duty structure be claimed for supplies before 22nd Sept 2025?

As clarified by Circular No. 135/05/2020-GST, refund of accumulated ITC is allowed only when the rate of tax on inputs is higher than the rate of tax on output supplies. Since input and output in these cases are the same (only rates differ at different times), refund is not admissible.

7. If I have stock as on 22nd Sept 2025, should I apply the new rate?

Yes. GST is applicable on supply. Therefore, goods supplied on or after 22nd September 2025 will attract the revised rates.

8. Will e-way bills need to be re-generated for goods in transit when new rates take effect?

No. As per Rule 138 of CGST Rules, there is no requirement to cancel and re-generate e-way bills for goods already in transit. The existing e-way bill remains valid as per its original validity.

Conclusion

The GST Council’s decision to reduce the tax burden on agricultural machinery from 12% to 5% is a forward-looking step. It will help farmers modernize their operations, lower costs of essential equipment, and increase agricultural efficiency. At the same time, it sustains a fair tax structure for manufacturers, ensuring that the benefits of lower GST reach farmers without disrupting the supply chain.

This move reinforces the government’s commitment to making farming more sustainable, affordable, and future-ready.

Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.

Press On Click Here To Download Order File