GST on Tractors and Parts Reduced to 5% to Boost Agriculture

Tax Relief for Farmers and Tractor Industry

The GST Council has cut the tax rate on tractors and farm machinery from 12% to 5%, this decision is expected to increase the use of farming equipment in rural areas and make buying more affordable for farmers. This tax reduction also applies to tractor tyres and parts, all of these now attract only 5% GST instead of 18%

Under the new structure, tractors used for agriculture and off-road purposes are taxed at 5% GST. Road tractors used for pulling semi-trailers with engine capacity above 1800 cc are taxed at 18%, down from the earlier 28%.

Wider Coverage for Farm Equipment

The tax cut extends beyond tractors. Implements used for soil preparation, cultivation, harvesting, threshing, baling, hay moving and composting will all see lower GST. The correction of rates is expected to improve affordability and help farmers adopt more advanced machinery at a time when input costs are rising.

Finance Minister Nirmala Sitharaman, after the 56th GST Council meeting, said the decision is meant to support the “common man, labour-intensive sectors, and agriculture,” while resolving long-pending anomalies in the tax structure.

Tractor Industry Welcomes the Reform

Leaders from the tractor industry have welcomed the step, calling it timely and growth-oriented.

Anish Shah, CEO and MD of Mahindra Group, said, "The rationalisation measures will not only provide immediate relief to households but also strengthen key sectors such as automobiles, agriculture, healthcare, renewable energy, and MSMEs — all of which are vital to job creation and sustainable growth. The correction of long-pending inverted duty structures in critical industries is welcome."

Narinder Mittal, President and Managing Director of CNH India, added, "These GST reforms will accelerate mechanization by making tractors, harvesters, balers and implements more affordable, while lowering overall operating costs for farmers. This empowers industry players to address labour shortages, enhance farmer’s productivity, and promote sustainable practices."

He also noted, "For CNH, it provides the right environment to further localize, innovate, and expand our offerings, strengthening India’s role as a global CNH hub for farm machinery. As a leader in the harvesting and post harvesting segment, we see this reform as particularly timely ahead of the harvesting season, as lower costs will enable more farmers to adopt baling solutions, reducing crop residue burning and its impact on the environment."

Impact on Farmers and Commercial Vehicle GST

Lower GST on tractors and tractor parts is expected to encourage mechanisation among small and marginal farmers. It comes at a crucial time when many face rising input costs. Improved affordability could help increase productivity across rural India.

According to ICRA, the tractor industry is expected to grow between 4 and 7% in 2025–26, supported by favourable monsoons and positive farm sentiment. Retail tractor sales dipped slightly in 2024–25, but wholesale volumes in July 2025 were already up 8% year-on-year.

The relief is part of broader reforms in commercial vehicle GST. Rates on some of the passenger vehicles, three-wheelers, buses, trucks, and ambulances have been cut from 28% to 18%.

Conclusion

Finance Minister Sitharaman summed it up: “Every tax levied on the common man’s daily use items and essential sectors has been reviewed, and in most cases, rates have come down drastically.”

The government’s decision to ease GST on tractors and commercial vehicles is being seen as a strong step toward supporting agriculture, boosting affordability, and giving momentum to the tractor industry as it enters a growth phase.

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