The one Indian businessman who can’t declare enter tax credit score beneath GST

The only Indian businessman who cannot claim input tax credit under GST

That the farmer has traditionally had one of the vital unrewarding and thankless jobs in India is pretty frequent data. Knowledge units after information units present how Indian farmers have remained hopelessly caught between ineffective coverage and equally ineffective implementation — via the 5-12 months-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 every kind 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 permits 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 provide the output. If issues go properly, he harvests his crop and sells it to generate profits.

When the farmer is shopping for pesticides and fertilizers, he’s shopping for every little thing in retail and paying quantity of GST on his purchases. On pesticides, he’s paying a GST fee as excessive as 18%.

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

However that is the place the similarities finish. The enter producer would go on to cut 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 fee 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’t. That makes farmers the one businessmen in India for whom the most important bonus of the GST mechanism is out of bounds.

Some analysts view this as one thing that quantities to travesty of coverage. In accordance with Bhagirath Choudhary, founder-director of South Asia Biotechnology Centre (SABC), “The lack of farmers to assert enter credit score tax paid on farm inputs violates the spirit and foundational ideas 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.


“The smallholder farmers ought to, due to this fact, be supplied a good remedy in advantage of GST ideas as they buy farm inputs for elevating crops, and don’t devour them as ultimate items. Due to this fact, there should 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 be one cause, says Mayee. This advanced 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 neighborhood who’s shedding Rs 14,500 crore yearly as a result of incapability to assert enter tax credit score, he provides.

Some put a part of the blame on the overall lack of expertise of the Indian farmer. In accordance with P Chengal Reddy, Chief Advisor, Consortium of Indian Farmers Associations (CIFA), “99% of farmers are blind to 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 inconceivable. Efforts are already being made in the direction of that finish, however one shouldn’t be certain how lengthy it’d take, he provides.

How to not chunk the hand that feeds

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

Is there a approach out? SABC’s Choudhary cites a particular exemption rule to recommend one: “That is according to the GST precept that items and/or merchandise consumed as intermediaries are eligible for enter tax credit score. Therefore, GST exemption on farm inputs ought to be exempted according to the exemption granted on seeds, animal & poultry feed – different two important farm inputs.”

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