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.
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.”
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.