Agriculture has always been the backbone of India’s economy, employing nearly half of the population and contributing significantly to the nation’s GDP. Recognizing its vital role, the government has ensured that most agricultural services remain outside the GST tax net.
Let’s explore the meaning of agricultural produce, the scope of exemptions, and the practical examples.
1. Why Agricultural Services Are Exempt under GST
The GST framework aims to ensure that the tax system is fair and inclusive. Taxing the farming sector would indirectly burden farmers and increase the prices of basic food commodities.
Therefore, the GST Council, under Section 11 of the CGST Act, exempts most agricultural services to:
- Protect the interests of farmers
- Keep food prices stable
- Promote rural employment
- Simplify compliance for small agricultural traders
2. Meaning of Agricultural Produce
The term “agricultural produce” is defined under the notification as:
“Any produce out of cultivation of plants and rearing of all life forms of animals, except 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.”
In simple words:
- It covers products directly from farming or rearing activities.
- Only minimal processing (like drying, cleaning, grading, or packing) is allowed.
- Once it undergoes manufacturing or deep processing, it ceases to be agricultural produce.
Example 1:
- Raw paddy → agricultural produce ✅
- Rice (after milling) → not agricultural produce ❌
Similarly:
- Raw turmeric → exempt
- Ground turmeric powder → taxable (since it’s processed beyond primary market stage).
3. Major Exempt Entries Related to Agriculture
The key exemption entries under Notification No. 12/2017 are Entries 24, 24A, 24B, 54, 55, and 55A. Let’s understand each one in detail with examples.
Entry 24 – Services Related to Agricultural Produce
This is the broadest exemption entry, covering multiple services related to agricultural produce.
It includes services like:
- Cultivation, harvesting, threshing, plant protection, or testing
- Supply of farm labour
- Warehousing, loading, unloading, and storage
- Agro-extension services
- Renting or leasing of agro-machinery or vacant land
Basically, all services directly connected to production, processing, and preservation of farm goods are exempt.
Illustration Examples (as per ICAI PDF):
1. Warehousing of Rice
A farmer or trader stores rice in a government-approved warehouse.
👉 Exempt, because rice is a direct agricultural produce.
2. Loading and Unloading Services
A transport contractor hired for loading wheat bags at an APMC market yard.
👉 Exempt, as it’s related to handling agricultural produce.
3. Agro-Machinery Rental
A cooperative society rents tractors and harvesters to farmers.
👉 Exempt, since it supports agricultural operations directly.
4. Agricultural Extension Services
Government or private organizations providing advisory and technical services to farmers about crop planning, pest control, or soil management.
Entry 24A – Services by Agricultural Produce Marketing Committees (APMCs)
Agricultural Produce Market Committees (APMCs) play a vital role in regulating and facilitating trade of farm goods in India. Recognizing their importance, GST exempts most of their services.
What’s Covered:
Services provided by an APMC or Commission Agent in relation to the sale or purchase of agricultural produce.
Example:
An APMC charges a small fee from farmers and buyers for providing a platform for sale of vegetables and grains.
👉 The service is exempt from GST, as it facilitates trade in agricultural produce.
Even commission agents working under the APMC system are exempt when they mediate between farmers and buyers for the sale of crops.
Entry 24B – Services by FPOs or Agricultural Boards
Recognizing the role of Farmer Producer Organizations (FPOs), the government inserted Entry 24B to extend exemption to FPO-related services.
What’s Covered:
Services by FPOs, Agricultural Boards, or similar government bodies to farmers for:
- Collecting produce,
- Assisting in marketing or storage, and
- Providing infrastructure support like grading or transportation.
Example:
An FPO organizes transportation and sale of sugarcane for its member farmers and charges a nominal facilitation fee.
👉 The fee is exempt under Entry 24B.
Entry 54 – Lease of Agricultural Land
Agricultural land leasing is one of the most common activities in the rural sector.
What’s Covered:
Services by way of lease or letting out of agricultural land are exempt from GST.
This means farmers who lease their land to another cultivator for farming activities do not have to pay any GST on rent or lease charges.
Example:
A farmer leases 2 acres of land to another person for growing vegetables.
👉 Lease rent is exempt from GST.
However, if the land is leased for commercial use (like a warehouse, factory, or petrol pump), it becomes taxable.
Entry 55 – Agricultural Extension Services
Agricultural extension services refer to technical assistance, training, and education provided to farmers to improve productivity and sustainability.
What’s Covered:
Services by way of agricultural extension, which include:
- Crop planning and soil management
- Fertilizer and pest control guidance
- Use of new technology or machinery
- Water management practices
Example:
A private agri-consultancy firm conducts a free training session for farmers on integrated pest management.
👉 Exempt from GST under Entry 55.
If the same firm provides paid consultancy to an agro-company for commercial farming, that service becomes taxable.
Entry 55A – Agricultural Insurance & Loan Support Services
This is a newer insertion that extends the exemption to insurance and financial support related to agriculture.
What’s Covered:
Services provided by:
- Insurance companies under government-notified agricultural schemes (like PMFBY), or
- Government agencies providing subsidies or financial aid to farmers.
Example:
Premium collected under Pradhan Mantri Fasal Bima Yojana (PMFBY) for crop insurance is fully exempt from GST.
Likewise, interest subvention or loan waiver services for farmers are not taxable.
4. Activities Not Covered under Agricultural Exemption
While most direct agricultural services are exempt, some activities are excluded from the exemption list because they involve processing beyond the primary market stage.
Examples:
- Milling of paddy into rice – taxable (not an exempt agricultural service).
- Processing of tea leaves into packaged tea – taxable (since manufacturing alters nature).
- Manufacture of sugar from sugarcane – taxable (industrial activity).
- Cold storage of processed fruits or vegetables – taxable if not in their natural state.
The key rule: if the activity changes the essential nature of the produce or adds commercial packaging, GST applies.
5. Case Illustrations
Case 1 – M/s GreenGrow Warehousing
- Provides warehousing services for paddy and milling facilities for rice. 👉 Warehousing of paddy – exempt, 👉 Milling (processing to rice) – taxable (not agricultural produce).
Case 2 – AgriServe Consultants
- Offers training and soil testing services for farmers. 👉 Exempt, since it qualifies as agricultural extension services.
Case 3 – FreshRoots Pvt. Ltd.
- Leases agricultural land for cultivation of vegetables.
- Also sublets a portion for a commercial warehouse. 👉 Land for cultivation – exempt, 👉 Land for warehouse – taxable.
6. Input Tax Credit (ITC) Implications
Suppliers of exempt agricultural services:
- Cannot collect GST from farmers or FPOs.
- Cannot claim ITC on goods or services used for providing such exempt services.
- Must maintain separate records if they supply both exempt and taxable services.
7. Distinction Between Exempt and Taxable Agri Activities
| Activity | Status under GST | Reason |
| Warehousing of paddy | ✅ Exempt | Agricultural produce |
| Milling of paddy into rice | ❌ Taxable | Processing beyond essential nature |
| Lease of farmland for cultivation | ✅ Exempt | Entry 54 |
| Fertilizer distribution by govt agency | ✅ Exempt | Public interest |
| Agro consulting for commercial firms | ❌ Taxable | Not for farmers directly |
| Cold storage of processed juice | ❌ Taxable | Not primary produce |
8. Importance of These Exemptions
These exemptions play a huge role in:
- Keeping agricultural prices stable
- Reducing compliance for small farmers
- Supporting rural employment
- Avoiding double taxation on basic food items
In short, they help maintain a tax-free ecosystem for genuine agricultural operations.
9. Key Takeaways
- Agricultural services are exempt under Notification No. 12/2017 (Entries 24–55A).
- The term “agricultural produce” covers minimally processed farm outputs.
- Warehousing, loading/unloading, and agro-extension services are fully exempt.
- Milling or manufacturing activities lose exemption status.
- Leasing of agricultural land and crop insurance under PMFBY are exempt.
- FPOs, APMCs, and co-operatives enjoy special exemptions.
- Exempt suppliers cannot claim ITC on related inputs or services.
10. Conclusion
The GST exemption structure for agriculture shows how India’s tax laws balance economic logic with social responsibility. By exempting genuine farming activities, small producers, and rural cooperatives from GST, the government safeguards the sector that feeds the nation.
From leasing farmlands to warehousing paddy and promoting crop insurance — every exemption is designed to reduce the tax burden on farmers while keeping agricultural goods affordable for consumers.
These exemptions not only support the backbone of India’s economy but also strengthen its commitment to inclusive growth and food security.
