Uplifting Farmers and Agriculture Through Next-Gen GST Reform in India

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September 4, 2025

Alankar Mishra

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Basics of GST

Uplifting Farmers and Agriculture Through Next-Gen GST Reform in India

The Next-Gen GST Reform in India, launched as a Diwali gift, cuts farm taxes to make agriculture more affordable. Key changes include:

Tractors, tyres & parts – 5% GST.
Farm equipment – From 12% down to 5%.
Irrigation systems – From 12% down to 5%.
Agri inputs – Bio-pesticides, micronutrients, fertiliser components at 5%.

These reforms will bring direct savings for farmers, reduce cultivation costs, and make modern tools and practices more accessible. In the long run, they aim to boost productivity, encourage mechanisation, and support inclusive rural growth.

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What Is Next-Gen GST Reform?

Following the recent GST Council meeting, Next-Gen GST brings together tax rates by removing the 12% and the 28% slabs and keeping only two simplified tiers—5% and 18%—and a special 40% rate for sin and luxury goods. The strategy, which will come into force from September 22, 2025, aims to simplify tax rates, bring transparency in taxation and provide reliefs across all sectors, including agriculture.

How Do Farmers Benefit?

1. Steep Cuts in Farm Machinery & Inputs

a. Tractors and Parts: GST on tractors, tractor tyres and parts of tractors has been reduced to 5% from higher slabs.

b. Farm Equipment: Major implements for soil preparation, like harvesters, threshers, composting units, balers, and mowers, are now taxed at 5% down from 12%.

c. Irrigation Equipment: Drip irrigation, sprinklers, and water-efficient equipment are now at 5% down from 12%, giving a boost for resource-constrained farmers.

d. Agri Inputs: GST on bio-pesticides, micronutrients, and key fertiliser components (sulphuric acid, nitric acid, ammonia) is now 5%.

2. Broader Sectoral Impact

These reductions are not only about making farmers feel empowered to professionalise their business, change their sustainable farming practices, and lessen dependence on antiquated or bulk practices.

3. Strong Support from Leadership

National leaders have hailed this reform as a game-changer for affordability and income, especially for smallholder and tribal communities. Reducing taxes on people's daily necessities and key input costs is a game-changer for inclusion, growth, and ease of doing business.

Why This Matters for Agriculture

1. Reduced Input Costs = Improved Profitability: Each percentage point saved on equipment, irrigation, fertilisers, or pesticides adds up over time. This leads to better margins and an opportunity to reinvest in productivity and sustainability.

2. Encouraging Sustainable Practices: The reform promotes sustainable practices by reducing taxes on green alternatives such as bio-pesticides and drip irrigation, thereby encouraging farmers to adopt more green, efficient practices.

3. Inspiring Rural Investments: The reduced machinery/equipment costs remove barriers between smallholders and modernisation, inspiring local agricultural entrepreneurship and stimulating rural economies.

4. Strengthening Rural Resilience: Efficient use of resources and lesser dependence on costly imports make farming communities more resilient to shocks, including climate change and shocks from global trade.

Economic Ripple Effects & Market Response

After the announcement, agricultural and dairy stocks surged noticeably - a clear conclusion regarding the underlying perception of the market. While the reform will ultimately cause a short-term decline in government revenue, it represents a fiscally prudent reform that opts for growth while also taking into account fiscal responsibility. The reform clearly compromises affordability and accessibility to various foodstuffs without sacrificing the certainty of future sustainable economic growth and stability in India’s rural economy.

Aligning With Broader Visions

The reform includes all the elements of Aatmanirbhar Bharat and inclusive development. It provides affordability, efficiencies in our systems, and citizen-centred governance - especially for our emerging (middle class/youth), micro, small, and medium-sized enterprises (MSMEs), and farmers. For our agricultural economy, this reform is much more than just a loss of tax revenue; it understands and acknowledges the role of farmers as the linchpin in India’s journey towards economic growth and development.

Conclusion: A Transformative Diwali for Indian Farmers

Next-Gen GST Reform also signifies a new beginning for Indian agriculture. It signifies:

Simplification of tax slabs.

Significant reductions of tax rates on farm inputs and essential equipment.

Movement towards modern, sustainable and inclusive cultivation.

At implementation on September 22, 2025, farmers will be feeling the benefits with delivery costs reduced in time for festivities—essentially a “Diwali gift” that may catalyse a rural regeneration process. Livelihoods can be made more viable, profitable, and prepared for the future. This reform can change millions of lives for the better and lead to a new era of Indian self-reliant and sustainable development.

FAQs

Q1: What is the new GST rate on tractors and their parts?

GST on tractors, tyres and spare parts has been lowered from the earlier level of 12-18% to 5%.

Q2: How will irrigation equipment benefit from the reforms?

Drip irrigation systems and sprinklers are now also taxed at 5%, thus reducing costs for farmers.

Q3: Are bio-pesticides and micronutrients covered under the GST cuts?

Yes. Bio-pesticides have now been brought down onto the 5% slab along with micronutrients, which will help sustainable farming.

Q4: How will these GST cuts impact rural incomes?

In short, reduced costs of equipment and inputs will result in higher savings for farmers, which will increase rural purchasing power.

Q5: Do tribal farmers also gain from the reforms?

Yes, things such as kendu leaves, which play an important role in tribal living, have had GST reduced from 18% down to 5%.

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