Agricultural land taken on lease and produce sold directly to wholesalers

[Raam Srinivasan Swaminathan Kalpathi]

Suppose I take an agricultural land on lease and produce agricultural commodity (GST to the trader will be 5%) and sell the same to a wholesaler. Experts, please elucidate on the GST and Income-tax implications. Would I be termed as an agriculturist and is the produce when sold in the market exempt from GST? Is there any other implication to this. Thanks

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Entry 54 of Notification No. 12/2017-CT (Rate) lease of agriculture land and crop grown and sold without refining in the market

(a) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing;

(b) supply of farm labour;

(c) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;

(d) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

(e) loading, unloading, packing, storage or warehousing of agricultural produce;

(f) agricultural extension services;

(g) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce all are exempted from GST.

[YAGAY and SUN]

Where agricultural land is taken on lease for cultivation, the lease of such land is exempt from GST under Entry 54(d) of Notification No. 12/2017-CT (Rate), which exempts renting or leasing of vacant land for agricultural purposes.

If the lessee undertakes cultivation and grows crops on such land, the lessee would qualify as an agriculturist under section 2(7) of the CGST Act. The definition does not require ownership of the land; cultivation on leased land is sufficient, provided the person carries out agricultural operations by own labour, family labour, or hired labour under personal supervision.

The sale of agricultural produce grown by the agriculturist is generally not liable to GST, provided the produce is sold in its primary form and only those processes are undertaken which are ordinarily carried out by the cultivator to make it marketable for the primary market, such as cleaning, drying, grading, sorting or packing, without altering its essential characteristics. Thus, if crops grown on the leased land are sold without manufacturing or further processing, GST would ordinarily not apply. The 5% GST rate on certain agricultural commodities becomes relevant only where the exemption is unavailable, such as supplies by persons other than an agriculturist or where the commodity has undergone taxable processing.

Under the Income-tax Act, income derived from cultivation and sale of crops grown on leased agricultural land generally qualifies as agricultural income and is exempt under section 10(1), subject to satisfaction of the prescribed conditions. However, where the assessee also has non-agricultural income, the provisions relating to partial integration may apply for rate purposes.

The assessee should maintain the lease agreement, proof of cultivation, input purchase records, and sale invoices to establish that the produce sold is self-cultivated agricultural produce. If any processing beyond ordinary agricultural operations or trading in purchased produce is undertaken, the GST and income-tax implications would require separate examination.

[KASTURI SETHI]

Dear Sir,

Virtually, your reply is the first reply to the query. First reply to any query is always torch-bearer.

[KASTURI SETHI]

First reply implies who solves the problem first.

[KASTURI SETHI]

The query was complicated but your message is loud and clear by way of simple language. Needless to say that simple language attracts more visitors to this forum which, in turn, will be beneficial for TaxTMI website.

[KASTURI SETHI]

The query was complicated but your message is loud and clear by way of simple language. Needless to say that simple language attracts more visitors to this forum which, in turn, will be beneficial for TaxTMI website.

[Raam Srinivasan Swaminathan Kalpathi]

Profuse thanks for the erudite replies. Most obliged

[Sadanand Bulbule]

I welcome the replies.

[Ryan Vaz]

Yes, by leasing agricultural land and cultivating commodities, you would generally be termed an "agriculturist" under both GST and Income Tax laws. The sale of primary agricultural produce by you as an agriculturist is exempt from GST. Consequently, the income derived directly from such agricultural operations is exempt from Income Tax under Section 10(1) of the IT Act, 1961. The 5% GST mentioned by you would typically apply only if the agricultural produce undergoes significant processing that changes its essential character, making it a different commodity, which does not appear to be the case from your query.

[Shilpi Jain]

The rate of tax on the goods sold by this person will be based on the entries in the rate notification and under GST does not matter whether these are sold by agriculturist or otherwise

AI Summary

Agricultural land lease and self-cultivation can support GST exemption on primary produce and agricultural income treatment.
Lease of agricultural land for cultivation may be exempt from GST, and a lessee who personally cultivates crops can be treated as an agriculturist even without owning the land. Sale of primary agricultural produce grown on such leased land is generally outside GST if only ordinary marketable processes are undertaken and the essential character of the produce is not changed. Income from cultivation and sale of such produce is generally agricultural income exempt under the Income-tax Act, subject to the applicable conditions and records of cultivation.