The one Indian bizman who can not declare enter tax credit score beneath GST

That the farmer has traditionally had probably the most unrewarding and thankless jobs in India is pretty widespread data. Knowledge units after knowledge units present how Indian farmers have remained hopelessly caught between ineffective coverage and equally ineffective implementation — via the 5-Yr-Plans period, via successive governments, and thru myriad coverage recasts since Independence.

The plight of the farmer has modified little even beneath GST, the brand new oblique tax regime that goals to revolutionise all types of companies. Right here is one piece of statistics that underlines how GST has to date dealt a uncooked deal to agriculture, the sector that accounts for half the nation’s whole employment.


Like within the pre-GST period, agriculture continues to be on the receiving finish of hazy insurance policies even now: Within the new regime, farmers are the one businessmen who cannot declare enter tax credit score — the mechanism that enables a producer/producer to regulate tax liabilities on output (gross sales) towards GST paid on inputs.

A bitter harvest

Right here is an instance that makes clear how enter credit score bypasses the farmer.


Because the sowing season approaches, a farmer goes to a store to purchase pesticides, fertilizers and different farm inputs. He comes again, makes use of all these inputs to supply the output. If issues go properly, he harvests his crop and sells it to earn cash.

When the farmer is shopping for pesticides and fertilizers, he’s shopping for all the things in retail and paying an excellent quantity of GST on his purchases. On pesticides, he’s paying a GST price as excessive as 18%.

Equally, the enter producer — the businessman the farmer is shopping for his inputs from — can also be paying GST on the uncooked materials he makes use of to supply his items.

However that is the place the similarities finish. The enter producer would go on to scale back his liabilities by means of enter credit score — s/he can set off the tax legal responsibility on sale proceeds towards the GST paid on uncooked materials. In stark distinction, the farmer has that door closed on him.

Why cannot the farmer declare enter credit score for the GST he paid whereas shopping for his inputs? The reason being easy: The farmer’s produce — like all farm produces — attracts zero GST, which implies GST will not come into the image when he’s promoting his items.

It is so simple as this: When the GST price is zero, the enter credit score that may be claimed would even be zero.

It means the producer of fertilizers and all different farm inputs can declare ITC, however the farmer can not. That makes farmers the one businessmen in India for whom the largest bonus of the GST mechanism is out of bounds.

Some analysts view this as one thing that quantities to travesty of coverage. Based on Bhagirath Choudhary, founder-director of South Asia Biotechnology Centre (SABC), “The lack of farmers to say enter credit score tax paid on farm inputs violates the spirit and foundational rules of the GST system in India.”

Troopers of the wasteland

Smallholder farmers engaged within the manufacturing of cereals, pulses, edible oilseeds, fruits & greens, and different commodities pay about Rs 14,500 crore of GST yearly on farm inputs, SABC has discovered.

These farm commodities feed 135 crore Indians and in addition contribute considerably to the export of agriculture and processed meals merchandise.

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“The smallholder farmers ought to, subsequently, be offered a good remedy in advantage of GST rules as they buy farm inputs for elevating crops, and don’t eat them as remaining items. Due to this fact, there have to be a mechanism for availing enter tax credit score,” says Choudhary.

“It’s a profound tragedy that the hardworking farmers are unable to reap advantages from the declare of enter credit score tax on paid GST because of the nature of their enterprise, exclusion of farm commodities from GST, and non-enrolment of farmers on GST,” says Dr CD Mayee, former Chairman ASRB, Govt of India and President of South Asia Biotechnology Centre, New Delhi.

The complexity of GST can also be one cause, says Mayee. This complicated nature means farmers organizations together with farm our bodies of various political events are unable to get a grip on the system’s nuances; they haven’t been capable of assist the farming group who’s dropping Rs 14,500 crore yearly as a consequence of incapability to say enter tax credit score, he provides.

Some put a part of the blame on the final lack of expertise of the Indian farmer. Based on P Chengal Reddy, Chief Advisor, Consortium of Indian Farmers Associations (CIFA), “99% of farmers are unaware of governmental insurance policies together with GST or export bans or import insurance policies.”

CIFA, the organisation he advises, has many leaders conscious of crop-related points however not many with complete data, Reddy says.

Reddy reckons that sensitising farmers could also be tough however not not possible. Efforts are already being made in the direction of that finish, however one shouldn’t be certain how lengthy it would take, he provides.

How to not chunk the hand that feeds

Many specialists agree that the primary concern shouldn’t be the complexity of GST or the lack of expertise of the Indian farmer, somewhat it is the GST rulebook itself that places all agricultural merchandise within the zero-tax slab. It signifies that when the farmer is making a sale, s/he has no choice to say credit score, which, in case of another businessman, would have offset the GST paid whereas buying the enter supplies.

Is there a manner out? SABC’s Choudhary cites a selected exemption rule to counsel one: “That is in step with the GST precept that items and/or merchandise consumed as intermediaries are eligible for enter tax credit score. Therefore, GST exemption on farm inputs must be exempted in step with the exemption granted on seeds, animal & poultry feed – different two crucial farm inputs.”