The BRICS TimesRestructuring of GST slabs and lower rates are set to encourage domestic demand while cushioning the impact of declining exports.
The Goods and Services Tax on a wide range of agricultural essentials — including tractors, tyres, pumps, and irrigation equipment — has now been shifted to the lowest slab of 5%, down from rates as high as 18% earlier. Economists and industry experts believe this policy change will significantly bring down the cost of farming operations and at the same time encourage higher levels of mechanisation across rural India.
Under the revised framework, tractors with engine capacity below 1,800 cc will be taxed at 5%, along with their spare parts such as tubes, tyres, and hydraulic pumps, compared to 18% previously. The same reduction applies to harvest machinery, sprinklers, and drip irrigation systems, which have moved from the 12% bracket to just 5%.
As the GST system completed its eighth anniversary on July 1, 2025, the sweeping reforms are being seen as a strategic effort to stimulate domestic consumption and offset the pressure from falling exports following Trump’s 50% tariff announcement.
The government has also undertaken substantial cuts in dairy and nut-based products. Sterilised milk processed through ultra-high temperature methods, along with paneer, has been fully exempted, with GST falling from 5% to zero. Similarly, butter, ghee, and dairy spreads have had their tax rate reduced from 12% to 5%.
In a major restructuring exercise, the GST Council on Wednesday opted to simplify the tax system by settling on just two primary rates of 5% and 18%, except for sin goods, replacing the earlier complex four-tier model. This new structure will officially take effect from September 22.
“Moving everyday staples like paneer to the 0% slab…will have a very broad impact. We shall be passing on the full benefits to our consumers,” said Bhuvaneswari Nara, managing director of Heritage Foods.
Encouraging sustainability in agriculture has also been prioritised, with the GST on solar-powered farm equipment being reduced from 12% to 5%. At the same time, the government has addressed the long-standing issue of inverted duty structures in fertilisers, where inputs like sulphuric acid, nitric acid, and ammonia were previously taxed higher at 18%. Bringing these down to 5% is expected to lower production costs and benefit farmers directly.
Tax reductions have also been extended to processed fruits, vegetables, and nuts, slashing rates from 12% to 5%. This is seen as a significant boost for the food processing industry, particularly since India continues to lose agricultural produce worth over ₹1.5 lakh crore annually due to insufficient processing facilities, as highlighted in a 2022 NABARD Consultancy Services report.
“The GST reduction on key raw materials, decrease in farmer retail prices and increase in competitiveness are all expected to contribute to the growth of the industry,” said Pushan Sharma, director, Crisil Intelligence.
