Tractor GST May Be Reduced to 5% — A Boost for Farmers and Tractor Makers | Auto

Tractor GST May Be Reduced to 5

The government is likely to reduce the Goods and Services Tax (GST) on tractors to 5%, a move that could make these essential machines more affordable for farmers and provide a growth boost for tractor manufacturing companies, according to JM Financial report.

According to recent media reports, the upcoming GST Council meeting may consider removing the 12% GST rate on some items, including tractors. These items could be shifted to either the 5% or 18% tax slabs. However, experts believe that the government is more likely to lower the rate to 5% instead of increasing it to 18%.

Why? Because tractors play a crucial role in farming, and farming is very important to India’s economy. In fact, agriculture contributes around 18% to India’s total GDP (Gross Domestic Product). Cutting the GST to 5% would support farmers, help keep rural communities happy, and show the government’s commitment to rural development — especially as several state elections are coming up in the next 8 to 10 months.

If GST on tractors is reduced to 5%, it will make tractors cheaper for farmers. This is especially helpful as many farmers will soon need to spend more due to new emission rules (called TREM-V) that will apply to tractors starting in April 2026. These new rules may increase the price of tractors, so a lower GST rate could help reduce the burden on farmers.

Lower tractor prices mean that more farmers might decide to buy new tractors, leading to better farm productivity, more efficient farming, and stronger rural income.

Even if the GST rate is lowered, the impact on the government’s earnings from taxes will be very small. Around 987,000 tractors are expected to be sold in the financial year 2025–26, making it a significant market segment.

With the average price of a tractor estimated at around ₹6 lakh, any change in tax rates could have a noticeable impact on both buyers and the government’s tax revenues.

If the GST rate on tractors is reduced from 12% to 5%, the estimated revenue loss would be about ₹4,100 crore. However, when compared to the government’s total expected GST collection of ₹22 lakh crore in FY25, this accounts for just 0.2%.

This minimal impact shows that the government can realistically afford to lower the GST on tractors without putting much pressure on its overall budget or fiscal planning.

The tractor manufacturing companies, also known as OEMs (Original Equipment Manufacturers), are likely to benefit from this potential GST cut. A lower tax rate could boost demand by making tractors more affordable, especially for farmers.

Key companies expected to gain from this include Mahindra & Mahindra (M&M), Escorts, and VST Tillers Tractors. While most of the tax benefit is likely to be passed on to the end consumers, companies could still enjoy improved pricing flexibility and better operating margins due to increased sales volumes.

While these companies will have to deal with some delays in getting GST refunds (because they pay higher taxes on raw materials, usually at 18–28%), they are expected to pass most of the tax savings to customers. This will likely lead to increased demand, improved profits due to higher sales, and better efficiency in their operations.

Reducing the GST rate on tractors would help farmers, support India’s agricultural economy, and give a lift to tractor companies.

It also aligns with the government’s goals of rural development, farmer support, and sustainable economic growth. With elections around the corner and rising input costs for farmers, this GST cut could prove to be a timely and smart move.

If approved, this decision may be a small change in tax policy — but one with big benefits for millions in rural India.

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