The 56th meeting of the Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman in New Delhi, has approved sweeping reforms aimed at simplifying India’s tax system and reducing costs for farmers. With most agricultural machinery, inputs, and allied goods now brought under the 5% GST slab, the reforms are expected to improve farm productivity, strengthen rural livelihoods, and encourage sustainable practices. The changes will be implemented from 22 September 2025.
Farm Machinery and Irrigation Equipment Made Cheaper
Mechanisation, considered critical for modern agriculture, has been made more affordable under the new GST structure. Rates on tractors (with engines below 1800 cc), harvesting machines, threshers, straw and fodder balers, grass and hay mowers, composting machines, and other equipment used in agriculture, horticulture, and forestry have been reduced from 12% to 5%.
Tractor tyres, tubes, and hydraulic pumps, previously taxed at 18%, are now in the 5% slab, reducing maintenance costs for farmers. Diesel engines of up to 15 horsepower have also been shifted to the 5% category, supporting small scale farmers who rely on them for irrigation and rural enterprises.
Sprinklers and drip irrigation systems now attract only 5% GST, a move expected to encourage wider adoption of water efficient farming methods. Composting machines and horticultural tools also benefit from the revised rates, making them more accessible to small farmers and cooperatives.
The Council clarified that full exemption was not granted to farm machinery to preserve input tax credit (ITC) claims for manufacturers, ensuring affordability without raising production costs.
Fertiliser Inputs and Bio Pesticides Under 5% GST
Addressing long pending issues in the fertiliser sector, the GST Council reduced rates on raw materials such as ammonia, sulphuric acid, and nitric acid from 18% to 5%. This correction in the inverted duty structure is expected to stabilise fertiliser prices during sowing seasons.
Further, twelve bio pesticides and a range of micronutrients were moved from 12% to 5%. This supports eco friendly and natural farming practices, offering farmers cost effective alternatives to chemical pesticides. However, chemical pesticides will continue to attract 18% GST, leaving the tax benefit primarily for bio based products.
Dairy Sector Sees Price Cuts on Everyday Products
The dairy industry, a crucial source of livelihood for millions of rural households, received substantial relief. Butter, ghee, condensed milk, and cheese have all been moved from 12% to 5% GST. Milk cans now fall under the 5% slab, reducing packaging costs for dairy farmers and cooperatives.
Basic products such as milk and paneer remain exempt, while UHT milk and prepackaged chena or paneer have been brought down from 5% to a Nil GST rate, making them fully tax free. These measures are expected to benefit consumers while supporting women led rural enterprises and dairy cooperatives.
Food Processing Sector Gains Tax Reductions
Prepared and preserved fruits, vegetables, and nuts, which previously attracted 12% GST, will now be taxed at 5%. The revised rates apply to a wide range of products, including dried fruits such as dates, figs, guavas, mangoes, citrus fruits, avocados, mixtures of nuts, and other processed agro produce.
These changes are expected to reduce post harvest losses, boost cold chain and storage infrastructure, and improve competitiveness for Farmer Producer Organisations (FPOs) and small agro processing industries. The reforms also align with the government’s agenda of promoting food exports and strengthening agri based value chains.
Fisheries, Apiculture and Forest Based Livelihoods Supported
The Council extended tax relief to fisheries and apiculture by reducing GST on prepared or preserved fish and natural honey to 5%. This measure will benefit fish farmers, beekeepers, and tribal communities engaged in honey production and related rural enterprises.
Animal and microbial fats, oils, and similar substances derived from fish and marine sources, along with wool grease, have also been moved from 12% to 5%, supporting multiple small scale agro allied industries. Additionally, bidi wrapper leaves (tendu/kendu leaves), crucial for tribal economies and forest based livelihoods, now attract 5% GST instead of 18%. Minor forest produce and solar powered irrigation devices were also brought under the 5% slab, promoting renewable energy adoption in agriculture and ensuring sustained income for forest dependent communities.
Logistics and Transport Costs Reduced
Logistics, a vital component in farm economics, has been given due attention. The GST Council reduced rates on commercial trucks and delivery vans from 28% to 18%. Insurance for goods carriers was lowered to 5%, with input tax credit available, reducing transport related costs for farmers and agri supply chains.
Cheaper logistics are expected to cut farm to market expenses, improve rural supply chain efficiency, and make Indian agricultural products more competitive both domestically and internationally.
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Part of Broader Simplification of GST
These reforms are part of a broader restructuring that has rationalised the GST system into a two rate structure: a Merit Rate of 5% and a Standard Rate of 18%, with a special 40% slab reserved for demerit goods. For agriculture, this means most farm essentials have been shifted into the lowest tax bracket.
The Council emphasised that the changes are in line with the government’s vision of supporting the “common man, labour intensive industries, and farmers,” while ensuring a simplified tax system that balances affordability with industrial growth.
“We welcome the next-generation GST reforms which focusses on rate rationalization, improving the quality of life of citizens including farmers; and ease of doing business. At a time when geo-political uncertainties threaten to slow India’s growth momentum, this move assumes importance as it will provide the much-needed fillip to the Indian economy through increased consumption, savings and investment. We would also take the opportunity to call for resolution of the inverted duty structure on edible oils. We are extremely hopefully that the Government will support the domestic industry, and the MSME ecosystem, and allow refund of the accumulated tax credits.”
Impact on Farmers and Rural Enterprises
With GST rates on tractors, irrigation systems, fertilisers, bio inputs, dairy, processed food, fisheries and renewable energy devices all reduced to 5%, the overall cost of cultivation and rural production is expected to decline. Farmers will benefit from more affordable machinery and inputs, while cooperatives, FPOs, and small enterprises will gain from reduced costs in processing, packaging, and logistics.
The changes are expected to encourage mechanisation, promote water efficient irrigation, strengthen cold chain infrastructure, reduce wastage, and boost exports of processed agricultural products. Allied sectors such as dairy, fisheries, apiculture, and forest produce will also benefit from reduced taxes, providing direct relief to rural households and tribal communities.
Looking Ahead
By placing agriculture and allied activities at the centre of the GST reforms, the Council has addressed long standing demands from farmers and industry stakeholders. The balance between reduced taxation and retention of input tax credits ensures both affordability for farmers and sustainability for manufacturers.
The reforms represent a comprehensive step towards strengthening agricultural productivity, lowering input costs, and improving competitiveness in the global agri trade ecosystem, while easing financial pressures on rural communities across India.