The fertilizer and pesticide traders are the backbone of India’s agri-hydro value chain. The traders, though, have a sequence of conformity challenges due to the introduction of Goods and Services Tax (GST). The 5% GST rate difference for fertilizers and 18% for pesticides and GST registration issue, return filing, ITC reversals, and interest taxation is a cause of concern for most of the traders who are actually small units in rural and semi-urban areas.
In this article, the author has pointed out the main issues of GST on fertilizer and GST on pesticide traders and suggested workable solutions to the same.
Rate Differences in GST on Fertilizer and Pesticide:
The GST system keeps the fertilizers at a concessional rate of 5% for their critical application in agriculture. The pesticides are charged at 18% as they are chemical products with higher revenue-generating for the government.
This rate disparity causes cost and operational issues to the traders dealing in both products on a day-to-day basis. The higher tax rate on pesticides increases farmers’ input cost, primarily compelling traders to absorb the price difference in an attempt to hold onto clients. Furthermore, processing invoices and compliance on items with different tax slabs increase administrative hassle.
A Mandatory Step of GST Registration
Such traders whose total turnover exceeds the threshold amount (Rs 20 lakh general category states and Rs 10 lakh special category states) are compulsorily needed to register under GST. Voluntary registration would otherwise be even more desirable to below threshold because it enables input tax credit and sale to registered customers.
Some of the common registration problems are:
- No documents, especially in rural belts.
- Mismatch of documents, leading to delays in verification.
- Errors in the selection of proper HSN codes for pesticides and fertilizers.
Solutions:
- File proper and updated documents such as PAN, Aadhaar, electricity bills, and bank statements.
- Take the assistance of professionals in selecting the proper HSN codes.
- Create e-copies of all the documents in hand for easy validation.
GST Return Filing Issues
Traders post-registration need to file periodic GST returns such as:
- GSTR-1 for outward supplies.
- GSTR-3B for payment of tax on a monthly basis.
- Annual returns (GSTR-9) as and when necessary.
- All such returns will be actual sales amounts, precise GST rates (5% vs 18%), invoice-matching and input tax credit utilized.
Issues problematic found:
- Classification errors of tax by virtue of diversity of product mixes.
- Seasonal nature of business resulting in delay of filing.
- Discrepancy between GSTR-1 and GSTR-3B or purchasers’ GSTR-2B resulting in rejection of ITC.
Solutions:
- Apply GST-compliant billing software with auto-classification of products and determination of payable tax.
- Maintain electronic records of sales and purchases on a real-time basis.
- Clear returns periodically so that problems are not piled up in the future.
Rule 37 Issues on Input Tax Credit (ITC) Reversal:
As per Rule 37 of the CGST Rules, if the payment from the dealer to the supplier is overdue by more than 180 days from the date of the invoice, the input tax credit availed on the invoice will have to be reversed along with interest.
This will also add to the burden of such traders who already have long credit periods, especially during the lean season when there are very few sales.
Example:
A customer buys pesticides for Rs 1 lakh and Rs 18,000 GST. In case of default payment in 180 days, recover the Rs 18,000 ITC along with interest.
Solution:
- Check due payments on a regular basis.
- Settle the payables whose payment is nearing 180 days first.
- Create an ITC aging report to track and act on it timely.
Managing Product Returns and Credit Notes:
Returns are widespread in the pesticide and fertiliser sector due to overstocking, weather, or quality. The GST rules, however, specify that credit notes must be issued by the original seller and not the buyer.
It is the some traders who issue debit notes or do not issue credit notes on their returns inadvertently, leading to mismatches and penalties.
Correct Approach:
- The supplier (say, wholesaler) needs to issue the credit note.
- Dealer (retailer) is required to adjust ITC in matching GSTR-3B.
- Credit note to be submitted prior to due date: 30th November of previous financial year if original supply is already made.
Solution:
- Capacity building of staff regarding credit/debit note procedure.
- Accounting software having tracing return and reminder for issuing credit notes be adopted.
- Sync suppliers for issuing proper credit notes.
GST on Late Payment Interest
But another very under-employment sector is GST on interest on late payment. If the dealer is charging customers late payment interest, even late payment interest paid by the customers are chargeable to GST at the same rate where original supply takes place (5% when fertiliser, 18% when pesticide).
Problem:
- Late payment charge is never asked on bills and invoices and no GST is charged thereon, which remains unassesessed till audit.
- Use interest terms uniformly on invoices.
- Charge the same rate of GST as the original item.
- Release such amounts through return filings.
Conclusion
Following GST on fertilizer and pesticide, comes a series of dealer compliance measures. Proper documentation for GST registration to proper filling up of the return, use of benefit of the ITC, and credit note processing, the process is long but can be done with care and use of the right software.
The solution is in education, e-accounting, and timely compliance. Companies opting for automation of GST processes will not only save the penalties but also create a wiser and better business model for the agrarian industry.
FAQs
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The rate of GST on fertilizers and pesticides.
Fertilizers would be taxed at 5% under GST, and pesticides would be taxed at 18% GST.
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Do all fertilizer and pesticide dealers need GST registration?
Registration under GST is mandatory if the dealer’s turnover in a year is more than Rs 20 lakh (Rs 10 lakh in special states), but voluntary registration can also be made for ITC advantage.
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Is input tax credit on fertilizers and on pesticides allowed?
Yes, facility of ITC can be taken both, provided purchase from registered dealers is done and valid GST bills are kept.
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Where payment to suppliers is still outstanding after 180 days?
The input tax credit availed on such purchases has to be recovered along with interest, if it is not paid within 180 days from the invoice date.
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What to do in the event of the return of products?
The purchaser has to alter the credit note given by the supplier, and that too has to be altered by the buyer in his GST return. Credit notes within a reasonable time interval have to be made saleable to be offset by way of ITC.
If you need further assistance or have any doubts, our experts are here to help you. Call us: 8881-069-069.
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