As per Section 2(7) CGST Act 2017, “Agriculturist” means an individual or a Hindu Undivided Family who undertakes cultivation of land :-
- by own labour, or
- by the labour of family, or
- by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family.
In this article, we will go through the provisions of exemption from GST on Agriculturists.
From the above definition, followings are important points to consider a person as Agriculturist :-
- Only Individual or a HUF can be categorised as an Agriculturist. Other persons like Partnership firms, LLP, companies, societies, trusts, AOP, BOIs, Governments, etc. shall not be considered as Agriculturist.
- Where such person is undertaking activites of cultivation of Land, only then, a person can be considered as Agriculturist. Rearing of cattles, pisciculture, poultary, processing of produce after cultivation shall not be considered.
- Such cultivation of land must be done under his own account. Sale of produce by commission agents shall not be considered.
- It is not necessary that an Agricuturist have his own piece of land or he is doing agriculture activities on leased land.
Exemption from GST Registration for an Agricuturist
Section 23 of CGST Act, 2017 provides that “an agriculturist, to the extent of supply of produce out of cultivation of land” shall be exempted from GST registration.
As per this provision, where an agriculturist is supplying his produce which comes out of cultivation of land, is exempted from registration under the GST laws. Even though the produce is liable to tax under GST, he is exempted from registration for the said supply.
The exemption is based on the nature of activity being carried out by a person and his status.
Any further processing of the primary produce from cultivation will lead to lose the exemption (like paddy to rice).
Point of Dispute
Generally in India, the produce of agriculturists is sold by the Commission Agents/brokers/arthias.
So, while a person buys produce from such Commission Agents/brokers/arthias, it becomes a taxable activity, because the exemption of registration depends on status of person and not on commodities.
Many of Agriculture produce items are taxable under GST even though they are directly transported from Farms in original raw form.
When a purchaser bought the goods from the Agriculturist without the cover of proper documents, it is difficult for field officers of GST to decide the actual status of transaction. In that case, a dispute arises between such purchaser and GST officer.
Where the GST officer assumes that the transaction is done through Commission Agents, and, he raises the demand order along with interest and penalties for movement of goods without payment of GST.
So, here, it is advisable that the purchaser must have all the documents to prove the actual status of transaction.
While a person buys agriculture produce from an Agriculturist, he must have an agreement or a MOU signed with such agriculturist along with the documents proving him as agriculturist like Patwari Records, agriculture land title documents, any registration with authorities for cultivation of produce or other legal documents to prove the same.
Further, the payment of such purchase must be deposited in the Bank account of such Agriculturist. A field level planning may be opted here to save GST.
Other Relevant Points for exemption to Agriculturists
As the exemption is provided to the extent of supply of produce out of cultivation of land by Agriculturists, any other commercial activity by such agriculturist may lead to lose the benefit of exemption from registration.
It is common in nature that an agriculturist rear the cows, buffalows from milk. In this case also, the benefit of exemption may be rejected. Even though the “Milk” is an exempt item, however, he is not only an agriculturist for the purpose of exemption.
Like earlier said, if an Agriculturist is also doing any other commercial activity, his exemption from registration is upto the turnover of Rs 20 lakh. This threshhold limit includes sale of agricultural produce also.
So, A purchaser, before buying produce from an Agriculturist, should get a declaration and an undertaking from said person that he is not doing any other commercial activity.
And, if he is doing, his overall turnover during the year, including the value of supply to such purchaser, is not more than Rs 20 lakh.
Inter-state movement of Agriculture Produce under GST
Where a person fulfils all the criterias for being an Agriculturist and being exempt from registration under GST, he may even sell his agriculture produce in other states/UT.
For this, there would be no GST on such sale transaction.
In this para, we are talking about the exemption from the point of GST laws only. Any restriction/exemption in other laws may be suitably followed.