Skip to main content

GST makes inroads into agriculture sector


Asubtle change in the definition of an “agriculturist” in the draft Central GST Bill, currently under consideration of Parliament, has brought absentee landlords under the ambit of the goods and services tax (GST).
Also, a farmer who is involved in sericulture — the rearing of silkworms — may be required to register for GST under the new indirect tax regime, following the tweak in the definition. The jury, though, is still out on whether bringing sericulture farming under the ambit of GST will increase the price tag of your favourite silk sari.
The definition of an "agriculturist" according to section 2(8) of the draft Central GST (CGST) Bill has been amended to cover an individual or any Hindu Undivided Family cultivating land either through own labour or hired labour under individual or family supervision. The draft model GST Bill introduced last November referred to sn “agriculturist” as “any person” cultivating land.
“The government intends to cover only the barebones or actual farmers under the definition of agriculturist,” said L Badri Narayanan, partner, Lakshmikumaran & Sridharan.
Tax experts say absentee landlords do not fall under the definition of agriculturists as they do not undertake cultivation on their own accord. They give their land for cultivation to other agriculturists who, in turn, pay rent by means of cash or a share in the crop. “Absentee landlords would therefore be liable to pay GST on rent received in cash or in kind as a share of crop,” said Dinesh Agrawal, executive director, Khaitan & Co.
Agreed Satya Poddar, partner, EY India: “Rental from land leased for agriculture could be taxable under GST in whatever form it is received, provided it is not exempted under subsequent rules.”
Schedule II of the draft CGST Bill lists lease, tenancy, easement and licence to occupy land as supply of service. Experts say in case of absentee landlords, providing land for cultivation would be construed as supply of service under the GST regime. However this would be subject to the absentee landlord crossing the ~20 lakh annual turnover threshold for GST registration, pointed out Narayanan of Lakshmikumaran & Sridharan. For northeastern states, the threshold for GST registration is ~10 lakh.Tax experts, like Poddar, feel keeping agriculture produce under the tax-exempt list does not bode for the farming community. The typical inputs for farmers, such as fertilisers, seeds, tractors are taxable under GST. However, as farming produce is largely exempt from GST, the farmer is not in a position to claim any input tax credit. “This could breed inefficiency,” Poddar said. Most experts expect the government to exempt rental income from agriculture from GST in subsequent rules, given the widespread impact of this measure.
Agriculture experts point out the land lease model is a widely prevalent practice, accounting for more than half the land under cultivation.
According to a study on agricultural land leasing by T Haque, head of NITI Aayog's land policy cell, about 57 per cent of leased area in the kharif season (sown in July and harvested from October) and 54 per cent in the rabi season (sown and harvested in October-March period) where operating under short-term leases.
The narrowing down of the definition of an agriculturist in the draft CGST Bill means activities such as sericulture and grazing may not be treated as cultivation of land. “Thus a farmer who indulges in sericulture is required to take GST registration,” said Narayanan. This could have an impact on the price tag of silk products, depending on the rate charged, experts said.
Business Standard New Delhi,01th April 2017

Comments

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...

Luxury carmakers urge clarity on GST rates to boost festive season sales

  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...

Sebi proposes tighter norms for green bond third-party reviewers

  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...