Looking for expert help with Income tax and GST for oil mill owners India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Key Takeaways
- Edible vegetable oils (headings 1507 to 1516) are 5% GST, refined or not (Notification 9/2025-Central Tax (Rate), Schedule I).
- Groundnut, soya and most other oil cakes are 5%. Cottonseed oil cake and de-oiled rice bran are exempt (Notification 10/2025-Central Tax (Rate)).
- Excess credit from 18% packaging can't be refunded on edible oils (Notification 9/2022-Central Tax (Rate)). It only carries forward.
- Oilseeds bought from farmers carry no GST and no reverse charge. Cash paid to the farmer stays deductible under Rule 6DD(e), but counts in the tax audit cash test.
- Audited mills: the AY 2026-27 audit report is due 21 October 2026 and the ITR 21 November 2026 (CBDT Circular 07/2026).
What is the GST rate on edible oil for an oil mill? 5% (2.5% CGST plus 2.5% SGST). Groundnut, sunflower, mustard, sesame, coconut, soya-bean, palm and other vegetable oils of headings 1507 to 1515, refined or not, are in Schedule I of Notification 9/2025-Central Tax (Rate), in force from 22 September 2025. Inter-State sales carry 5% IGST.
An oil mill buys from farmers who never issue a bill and sells to wholesalers, retailers and refineries who want a proper tax invoice. In between it makes two products, oil and oil cake, which don't always share a GST rate. Add 18% packaging, a refund that the law blocks, and cash-heavy seed buying, and you've got the compliance problems this guide covers. It's written for owners of expeller mills, wood-press (ghani) units, solvent and rice bran oil plants, and the CAs who audit them. GST rates are as in force from 22 September 2025. Income tax is for FY 2025-26 (AY 2026-27) under the Income-tax Act 1961, with the 2025 Act section numbers that apply from 1 April 2026.
What GST rate applies to oil, oil cake and oilseeds?
Almost everything an oil mill buys and sells is 5%. The exceptions are on the residue side: cottonseed oil cake and de-oiled rice bran are exempt, which matters for your input tax credit.
Comparison
GST on Oilseeds, Edible Oils and Oil Cakes from 22 September 2025
| Product (HSN) | GST | Notification entry |
|---|---|---|
| Groundnuts, not of seed quality (1202) | 5% | 9/2025-CT(R), Schedule I, S. No. 62 |
| Copra (1203) | 5% | 9/2025-CT(R), Schedule I, S. No. 63 |
| Mustard, sesame, castor, cotton, sunflower and other oilseeds, not of seed quality (1204 to 1207) | 5% | 9/2025-CT(R), Schedule I, S. Nos. 64 to 67 |
| Any oilseed of seed quality (Chapter 12) | Nil | 10/2025-CT(R), S. Nos. 77 to 83 |
| Soya-bean, groundnut, palm, sunflower, cotton-seed, coconut, mustard and other vegetable oils, refined or not (1507 to 1515) | 5% | 9/2025-CT(R), Schedule I, S. Nos. 84 to 92 |
| Hydrogenated vegetable oil, vanaspati (1516) | 5% | 9/2025-CT(R), Schedule I, S. No. 93 |
| Rice bran, other than de-oiled (2302) | 5% | 9/2025-CT(R), Schedule I, S. No. 155 |
| Soyabean meal (2304), groundnut oil cake (2305) | 5% | 9/2025-CT(R), Schedule I, S. Nos. 157, 158 |
| Other oil cakes, such as mustard, sesame or sunflower (2306) | 5% | 9/2025-CT(R), Schedule I, S. No. 159 |
| Cottonseed oil cake (2306) | Nil | 10/2025-CT(R), S. No. 107 |
| De-oiled rice bran (2306) | Nil | 10/2025-CT(R), S. No. 106 |
Source: Notifications 9/2025 and 10/2025-Central Tax (Rate), 17 September 2025, in force 22 September 2025. Rates shown are CGST plus SGST. Inter-State sales carry the same total as IGST.
Buying seeds from farmers. A farmer selling produce from land they cultivate doesn't need to register (Section 23(1)(b), CGST Act), so their sale carries no GST. Oilseeds aren't on the reverse charge list in Notification 4/2017-Central Tax (Rate), so you don't pay GST on the farmer's behalf either. That's different from cotton ginning, where kapas bought from farmers is under reverse charge. Seeds bought from a registered trader or commission agent come with a 5% invoice, and that 5% is your credit.
Exempt residue means split credit. A cottonseed crusher sells 5% oil and exempt oil cake. A rice bran oil plant sells 5% oil and exempt de-oiled rice bran. Credit on common inputs such as power, repairs and services has to be split, and only the share for taxable supplies can be claimed (Section 17(2), CGST Act). Groundnut and mustard crushers don't face this, because both their oil and their cake are 5%.
Example (October 2026, a Telangana groundnut oil mill):
- Groundnuts from farmers: Rs 40,00,000. No GST.
- Groundnuts from a registered trader: Rs 20,00,000 plus 5% GST of Rs 1,00,000.
- Tins, PET bottles and labels: Rs 4,00,000 plus 18% GST of Rs 72,000.
- Sales: groundnut oil Rs 60,00,000 (5%, Rs 3,00,000) and groundnut oil cake Rs 12,00,000 (5%, Rs 60,000).
Output tax is Rs 3,60,000. Credit is Rs 1,72,000. You pay Rs 1,88,000 in cash with the month's GSTR-3B. Most of your seed came from farmers, so most of the 5% on sales is paid out of pocket rather than set off.
Why can't an oil mill get its ITC refunded?
Because edible oils are on the government's no-refund list. Section 54(3)(ii) of the CGST Act normally lets you claim a refund when credit piles up because inputs are taxed at a higher rate than outputs. The proviso lets the government notify goods for which that refund isn't allowed. Notification 9/2022-Central Tax (Rate), in force since 18 July 2022, added headings 1507 to 1518 to that list in Notification 5/2017-Central Tax (Rate). No later amendment has taken them out.
This bites refineries and packers hardest. They buy crude oil at 5% but pay 18% on tins, jars, cartons and most services.
Comparison
Example: Monthly Credit Build-up at an Oil Packing Unit
| Item | Value (Rs) | GST (Rs) |
|---|---|---|
| Crude sunflower oil bought at 5% | 50,00,000 | 2,50,000 |
| Tins, jars and cartons at 18% | 6,00,000 | 1,08,000 |
| Freight, repairs and other services at 18% | 1,00,000 | 18,000 |
| Total credit | 3,76,000 | |
| Refined, packed oil sold at 5% | 62,00,000 | 3,10,000 |
| Excess credit left in the ledger | 66,000 |
Source: Rates: Notification 9/2025-Central Tax (Rate). Refund block: Notification 5/2017-Central Tax (Rate) as amended by Notification 9/2022-Central Tax (Rate).
The Rs 66,000 can't be refunded. It stays in the electronic credit ledger and you use it against future output tax. If this happens every month, the balance only grows, so it's working capital you won't get back in cash. You can't stop paying 18% on packaging, but you can check that every packaging and service invoice really carries the right GSTIN and shows in GSTR-2B, so that at least the credit is valid. Our inverted duty refund guide explains the refund rules for businesses that aren't blocked.
The block applies only to the inverted duty route. If you export oil, the refund for zero-rated supplies falls under Section 54(3)(i), which this notification doesn't touch.
Crushing charges for other people's seeds: 5% or 18%?
Many small mills crush seeds that customers bring in and charge per kilo or per bag. The rate depends on who owns the seeds.
From 22 September 2025, S. No. 26 of Notification 11/2017-Central Tax (Rate), as substituted by Notification 15/2025-Central Tax (Rate), taxes job work on "all food and food products falling under Chapters 1 to 22" at 2.5% CGST. Edible oil is Chapter 15, so crushing for a registered oil brand or trader is 5%. But "job work" under Section 2(68) of the CGST Act means processing goods belonging to another registered person. When a farmer or household brings seeds for crushing, the charge falls under item (vii), "treatment or process on goods belonging to another person", at 9% CGST, or 18% in all.
That's our reading of the notification text, and we didn't find a CBIC circular on custom oil crushing. If a large share of your income is crushing for farmers, get your CA's written view before you decide what to bill. Our job work guide covers the challan rules when a registered principal sends you seeds.
Registration and the composition scheme
When must you register? A supplier of goods only is exempt from registration up to Rs 40 lakh of aggregate turnover (Notification 10/2019-Central Tax). Ten States and Union Territories, including Telangana, are outside that notification, so the general Rs 20 lakh limit of Section 22(1) applies there. Crushing charges are a service, so a mill that also crushes for customers isn't a goods-only supplier, and the Rs 20 lakh limit applies anywhere. Any inter-State sale requires registration whatever your turnover (Section 24(i)). See our GST registration limit guide for the full State list.
Composition for small mills. A manufacturer whose aggregate turnover in the previous year was up to Rs 1.5 crore can opt for composition (Notification 14/2019-Central Tax). Oil isn't on the excluded list in that notification. The rate for manufacturers is 0.5% CGST plus 0.5% SGST of turnover (Rule 7, CGST Rules), so 1% in all. The conditions matter more than the rate:
- No inter-State sales at all (Section 10(2)(c)).
- You can't charge GST to buyers or claim any input tax credit (Section 10(4)).
- Services, such as crushing charges, are allowed only up to 10% of last year's turnover or Rs 5 lakh, whichever is higher (second proviso to Section 10(1)).
Example (a wood-press unit with Rs 90 lakh of local retail sales): under the regular scheme you add 5% GST to your prices and pay Rs 4,50,000, less Rs 54,000 of credit on Rs 3,00,000 of packaging, so Rs 3,96,000 goes to the government out of what customers paid you. Under composition you can't add GST. You pay 1%, or Rs 90,000, out of your own margin and lose the Rs 54,000 credit, a real cost of Rs 1,44,000. In return your shelf price can be up to 5% lower than a regular-scheme competitor's. It suits a unit that sells loose oil to households in one State. It doesn't suit one that sells to registered shops or distributors, who can't claim credit on your bill. Our composition scheme guide has the detail.
Income tax: presumptive tax, audit and AY 2026-27 dates
An oil mill's profit is business income under the head "Profits and gains of business or profession". If the owner also farms, keep the farm's accounts apart from the mill's.
Presumptive tax suits only small units. Section 44AD covers resident individuals, HUFs and partnership firms (not LLPs) with turnover up to Rs 2 crore, or Rs 3 crore if cash receipts don't exceed 5% of turnover. Deemed profit is 6% of turnover received through banking channels and 8% of the rest. A village ghani unit can fit. A commercial expeller mill usually crosses Rs 3 crore. See our Section 44AD guide.
The audit limit depends on your cash payments too. Under Section 44AB(a), a business with turnover above Rs 1 crore needs a tax audit. The limit rises to Rs 10 crore only if cash receipts and cash payments are each within 5% of the total.
Example (partnership firm, FY 2025-26): turnover Rs 6,00,00,000, all received by bank transfer. Total payments Rs 5,70,00,000, of which Rs 45,00,000 was cash to farmers for seed. Cash payments are 7.89% of total payments, above 5%. So the Rs 10 crore limit doesn't apply, turnover is above Rs 1 crore, and the firm needs a tax audit. Had cash to farmers been Rs 25,00,000 (4.39%), the firm would have stayed outside audit.
For AY 2026-27, CBDT Circular No. 07/2026 dated 28 September 2026 extended the due dates for audit cases:
Comparison
AY 2026-27 Due Dates for an Audited Oil Mill
| Filing | Original date | Extended date |
|---|---|---|
| Tax audit report (Form 3CA/3CB with 3CD) | 30 September 2026 | 21 October 2026 |
| ITR for audit cases (Explanation 2(a) to Section 139(1)) | 31 October 2026 | 21 November 2026 |
Source: CBDT Circular No. 07/2026 dated 28 September 2026, incometax.gov.in Latest News
From FY 2026-27 the Income-tax Act 2025 applies. Presumptive tax moves to Section 58 (Table, S. No. 1) and the audit limits to Section 63 (Table, S. No. 1), with the same rupee figures.
Cash to farmers and TDS from refineries
Cash for seed. Section 40A(3) disallows an expense where you pay one person more than Rs 10,000 in cash in a day. Rule 6DD(e) of the Income-tax Rules 1962 exempts payments for agricultural produce made to the cultivator, grower or producer. Rs 60,000 in cash to the farmer who grew the groundnuts stays deductible. The same Rs 60,000 to a trader or commission agent doesn't. Keep the farmer's name, village and a signed receipt with each cash payment. From FY 2026-27 the cash disallowance is in Section 36(4) of the 2025 Act, with the exceptions to be prescribed under Section 36(7). Check the matching rule in the Income-tax Rules 2026 with your CA before relying on it for the new year.
The Rs 2 lakh ceiling. Section 269ST (Section 186 of the 2025 Act) bars anyone from receiving Rs 2 lakh or more in cash from one person in a day, for a single transaction, or for one event. That binds the farmer when you pay them, so a Rs 2,50,000 seed lot can't be settled in cash. See our cash limits guide.
TDS on your oil sales. A refinery or FMCG packer whose turnover exceeded Rs 10 crore in the previous year deducts 0.1% on what it pays you above Rs 50 lakh in the year. Say a refinery buys crude groundnut oil worth Rs 2,00,00,000 from you in FY 2026-27. TDS is 0.1% of Rs 1,50,00,000, or Rs 15,000, under Section 393(1), Table S. No. 8(ii), of the 2025 Act (Section 194Q of the 1961 Act until 31 March 2026). Claim it in your ITR from Form 26AS or AIS. If your own turnover crossed Rs 10 crore, you deduct on large purchases too. Our Section 194Q guide covers both sides.
Common mistakes oil mills make
- Expecting a refund of packaging credit. Edible oils are on the no-refund list. Plan for the credit to sit in the ledger, not come back as cash.
- Treating all oil cake as exempt. Only cottonseed oil cake and de-oiled rice bran are exempt. Groundnut, soya, mustard and sesame cakes are 5%.
- Claiming full credit with an exempt by-product. Cottonseed and rice bran plants must split common credit between 5% oil and exempt cake or bran (Section 17(2)).
- Billing farmers' crushing at 5%. The 5% job-work rate needs a registered owner. For an unregistered farmer the entry points to 18%.
- Ignoring farmer cash in the audit test. Rule 6DD(e) saves the deduction, but the cash still counts toward the 5% payment test in Section 44AB.
How Tax Garden helps oil mills
We file your GSTR-1 and GSTR-3B, track the credit that edible oil can't refund, and split credit where you sell exempt cake or bran, through our GST return filing service. At year end we prepare the books, run the cash tests, complete the tax audit and file the return through our ITR filing service. Starting a new mill? Our GST registration service gets you registered before your first sale. We also file the TDS returns for 194Q deductions through our TDS filing service. Related reading: our guides for cotton ginning mills, flour and rice mills and kirana store owners.
