Only off-road tractors are taxed at 5% GST, while road tractors used for semi-trailers, with engine capacity over 1800 cc, are taxed at 18% GST, down from 28% earlier.
03 Sep 2025 | 35799 Views | By Yukta Mudgal
The GST Council on Wednesday reduced the tax rate on tractors and farm machinery from 12% to 5%, marking a 7 percentage point drop aimed at lowering costs for farmers and boosting rural mechanisation.
Tractors (except road tractors used for pulling semi-trailers and having engine capacity over 1800 ...
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The GST Council on Wednesday reduced the tax rate on tractors and farm machinery from 12% to 5%, marking a 7 percentage point drop aimed at lowering costs for farmers and boosting rural mechanisation.
Tractors (except road tractors used for pulling semi-trailers and having engine capacity over 1800 cc) are taxed at 5% GST.
However, road tractors used for semi-trailers, with engine capacity over 1800 cc, are taxed at 18% GST. Earlier, this rate was 28%, so it has been reduced.
The cut applies not only to tractors but also to equipment used for soil preparation, cultivation, harvesting, threshing, and other machines such as balers, hay movers, and composting equipment. For tractor tyres and parts, the rate has come down from 18% to 5%.
Finance Minister Nirmala Sitharaman, at the 56th GST Council meeting said the decision is aimed at supporting the “common man, labour-intensive sectors, and agriculture,” while also correcting long-pending anomalies in the tax structure.
Bharat Madan, Whole Time Director and Chief Financial Officer, Escorts Kubota Ltd. (EKL):
“The reduction of GST on tractors from 12% to 5% is a positive move and is likely to have a positive impact on the demand. Before this announcement, we had anticipated industry growth of around 4–7% for the year. With this change, the outlook improves significantly. For farmers, the reduction is substantial, about ₹40,000 to ₹60,000 per tractor, which is a meaningful saving and will support fresh buying decisions by making tractors affordable and helping in boosting farm mechanisation and improving productivity and farmers’ income.
We also expect most manufacturers to pass on the full benefit, ensuring that the farming community sees the maximum advantage.
In the short term, there could be some disruption as consumers may defer purchases during the transition period up to September 22. Dealers may also face some working capital pressure due to inventories held by them at the peak of the festive season since input tax credit accumulation will take longer to adjust. However, these are temporary issues. From a medium- to long-term perspective, the GST reset not only strengthens rural sentiments but likely to be demand accretive. Overall, this is a welcome structural change, coming at the right time for the industry and for farmers”
Anish Shah, CEO & MD, 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 & Managing Director, CNH India, welcomes the step. He said, "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."
Mittal added, "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.”
Lower GST is expected to make tractors more affordable at a time when farmers are facing rising input costs. It is believed the move will particularly help small and marginal farmers adopt mechanisation, which is crucial for improving farm productivity.
The tractor industry is expected to grow 4–7% in 2025-26 according to ratings agency ICRA, supported by good monsoons and strong farm sentiment. Retail tractor sales dipped by a percent in 2024-25. The sector is already seeing signs of recovery, while the July 2025 wholesale volumes up 8% on-year.
GST on small cars, motorcycles up to 350cc, three-wheelers, buses, trucks, and ambulances has also been reduced, from 28% to 18%. “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 finance minister said.