Like a retro Bollywood film with a number of double acts and plot twists, the controversy surrounding the three farm legal guidelines isn’t just restricted to the particular legislations per se, however there’s extra to it, far more sinister. When the Earnings Tax Act, 1995 (ITA) and Central Items and Providers Tax Act, 2017 (CGST) are learn along with the brand new farm legal guidelines, the sinister plot begins to unravel.
As per Part 2 (1A) within the ITA, agricultural earnings means any lease or income derived from land positioned in India, together with lease on agricultural land and buildings, and is tax-exempt. The Supreme Court docket’s determination within the Commissioner of Earnings Tax vs Raja Benoy Roy (1957) case additionally defines agricultural earnings.
To qualify, it’s important to have two sorts of operations on the land, fundamental and subsequent. Fundamental operations embrace our traditional understanding of agriculture of cultivation, tilling, sowing, planting, and so on., and calls for labour and talent to make the crop sprout.
Subsequent operations embrace the extra demanding acts of weeding, digging, elimination, tending, pruning, slicing, prevention from bugs, pests, cattle, illness, and so on., after the crop sprouts.
Underneath contract farming, a farmer might undertake many of those operations and qualify for earnings tax exemption. Underneath company farming, the place the farmer is only leasing land and the company is performing fundamental and subsequent operations, the farmer at present continues to qualify for earnings tax exemption.
Hidden guidelines within the wonderful print
It’s only when the villainous double position of the CGST Act involves mild that the storyline pivots to one thing extra sinister. Underneath Para No.2 (a) of Schedule II of CGST Act, 2017, any lease, tenancy, easement, and license to occupy land are handled as provide of providers and topic to 18% CGST.
On the similar time, the CGST nil charge band contains,
“the providers regarding: cultivation of crops and rearing of all life types of animals, besides the rearing of horses, for meals, fiber, gas, uncooked materials or different related merchandise or agricultural produce by means of
(a) agricultural operations straight associated to manufacturing of any agricultural produce together with cultivation, harvesting, threshing, plant safety or testing;
(b) provide of farm labour;
(c) processes carried out at an agricultural farm together with tending, pruning, slicing, harvesting, drying, cleansing, trimming, solar drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which don’t alter the important traits of agricultural produce however make it solely marketable for the first market;
(d) renting or leasing of agro equipment or vacant land with or with no construction incidental to its use;
(e) loading, unloading, packing, storage or warehousing of agricultural produce;
(f) agricultural extension providers;
(g) providers by any Agricultural Produce Advertising and marketing Committee or Board or providers supplied by a fee agent on the market or buy of agricultural produce”.
The CGST Act could have implied that there’s nil CGST tax on leasing of agricultural land, by together with agricultural operations. However it additionally specifies that operations solely straight associated to manufacturing qualify.
Although renting and leasing of agricultural equipment are coated, there is no such thing as a particular point out of renting or leasing of agricultural land. This leaves room for doubt about how agricultural leases are handled, and it must be unambiguous within the context of the three farm legal guidelines.
Due to this fact, a farmer giving out agricultural land on thekha or lease beneath company farming whereas not endeavor fundamental or subsequent operations themselves might nicely be interpreted as offering a provide of providers.
As per the clarification from the finance ministry on Could 28, 2018, “Agriculturists are exempted from GST registration. Agriculturist has been outlined to imply a person or a HUF (Hindu Undivided Household) who undertakes cultivation of land – by personal labour or by the labour of household or by servants or wages payable in money or sort or by employed labour beneath private supervision or, the non-public supervision of any member of the household.”
This assertion additional bolsters the argument that an agriculturalist not engaged in fundamental or subsequent operations personally is just not exempted from GST registration and therefore liable to pay the 18% tax. The matter of an agricultural land lease being a provide of providers would have been higher clarified with a notification, as a substitute of a press launch by the ministry of finance.
It’s not clear how lease from agricultural land, beneath the company farming mannequin, with out the agriculturalist endeavor fundamental or subsequent operations shall be taxed and at what earnings threshold.
The farmer is already saddled with unpredictable climate, soil circumstances, water tables, enter costs and minimal assist costs. Decoding tax legal guidelines through which they’ve completely no expertise or assist is a plot twist.
These central farm legal guidelines with taxmen as stars could flip right into a horror movie for farmers. Even when the farm legal guidelines are repealed, there is no such thing as a focus to deal with or make clear the CGST remedy of agricultural lease earnings, which is already legislation.
The state governments and farmers’ unions must be partaking with the Centre on the necessity to difficulty a transparent notification to designate all agricultural land and constructing lease earnings with and with out fundamental or subsequent operations within the nil band for CGST.
Farmers primarily from Punjab, Haryana and western Uttar Pradesh are being solid as villainous agitators. However farmers countrywide must be very apprehensive concerning the CGST Act when they’re required to pay tax.
Jaimal Shergill is an ex-banker-turned-entrepreneur based mostly within the United Arab Emirates.