GST Exemptions in Agriculture: How to Document the Claim to Survive Scrutiny
Agricultural Sector Tax Benefits and the Role of Documentation in Claiming Exemptions
Agriculture is the primary sector of our country, India. According to the Economic Survey 2023-24, agriculture provides livelihood support for 42.3% of population and 18.2% of GDP at current prices at 2023-24. The term agriculture is defined under Notification No. 11/2017- Central tax (Rate) and 12/2017- Central tax (Rate) dated 28-6 2017, which says “agricultural produce means...
Agriculture is the primary sector of our country, India. According to the Economic Survey 2023-24, agriculture provides livelihood support for 42.3% of population and 18.2% of GDP at current prices at 2023-24.
The term agriculture is defined under Notification No. 11/2017- Central tax (Rate) and 12/2017- Central tax (Rate) dated 28-6 2017, which says “agricultural produce means any produce out of cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market”
The agricultural sector enjoys special status and has enjoyed various benefits from Indian Government Policies including taxation. According to section 10(1) of the Income Tax Act, 1961, agricultural income is exempted from tax.
The term agricultural income includes income derived from renting of land in India used for agricultural purposes, income from such land by way of agriculture, income from sale of the produce by the cultivator.
GST Exemptions in Agriculture
In order to support farmers and agricultural businesses, there are various exemptions provided to agricultural activities under Notification No. 2/2017-Central Tax (Rate) and Notification No. 12/2017-Central Tax (Rate).
Examples of exemptions are supply of fresh fruits and vegetables, supply of unprocessed agricultural produce, agricultural services such as cultivation, harvesting, threshing and plant protection, and Renting or leasing of agricultural land.
However, If the processing carried out on agricultural produce alters its essential characteristics, the product may no longer qualify as agricultural produce and may become taxable. Therefore, businesses engaged in agricultural activities must maintain sufficient documentation to establish that the supplies qualify for exemption.
Documentation Requirements under GST
GST Law has a common standard for maintenance of books of accounts subjected to few exceptions. The uniform framework has enabled better tax administration and compliance through great consistency and transparency.
As similar to the Income Tax Act, 1961, the Companies Act. 2013, a registered person has to maintain the accounts and records under the provisions of GST Laws. The books of accounts must contain the records such as scrutiny, audits and investigations.
Section 35 and 36 of the Central Goods and Service Tax (CGST) Act, 2017 provides statutory provisions regarding the maintenance of accounts and retention of the accounts. The central goods and service tax rules, 2017, provides rule 56,57,58 related to maintenance of accounts by a registered person and maintenance of electronic records.
Who has to maintain the books of accounts.
According to section 35 of CGST act, every registered person has to keep and maintain the true and correct accounts. It also envisages that every registered person has to maintain the principle place of business as mentioned in the certificate of registration.
- Maintenance of Books of account by Agent
The agent of the principal has to maintain accounts depicting the particulars of authorization received from agents, including the descriptions of value and quantity of goods and services on behalf of every principal.
The agent has to maintain receipts of tax paid on supply of goods and services on behalf of the principals.
- Maintenance of Books of Accounts by Manufacturer
Every registered manufacturer, manufacturing the goods and services must maintain the book of accounts and there should be monthly production of quantitative details of raw materials or services used to manufacture including the waste and by products produced by the manufacturer
- Maintenance of Books of Accounts by the Service Provider
Every registered person supplying services shall maintain the accounts showing quantitative details of goods used in the provision of services, details of input services utilised and the services supplied.
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