Looking for expert help with GST and income tax for tractor dealers 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
- Tractors are 5% Goods and Services Tax (GST) from 22 September 2025. Only road tractors for semi-trailers above 1800 cc are 18% (Notification 9/2025-Central Tax (Rate)).
- Rotavators, cultivators, harvesters, threshers, sprayers and their parts are also 5%. A listed set of tractor parts, tyres and tubes is 5%, but batteries, filters, bearings and engine oil stay at 18%.
- Trolleys split: self-loading or self-unloading agricultural trailers are 5%, other trailers 18%.
- Input tax credit (ITC) on showroom rent and advertising can pile up, and the inverted duty refund doesn't cover it (Section 54(3) and Rule 89(5), CGST).
- Take less than Rs 2 lakh in cash per tractor, counting booking and delivery together (Section 269ST, Income-tax Act 1961).
What is the GST rate on tractors in India? Tractors are taxed at 5% GST from 22 September 2025 under Schedule I, S. No. 442 of Notification 9/2025-Central Tax (Rate). The only exception is road tractors for semi-trailers with engine capacity above 1800 cc, which are 18%. Agricultural machinery such as rotavators, harvesters and sprayers is also 5%.
A tractor dealership looks simple on the GST side: one rate on the main product. The trouble sits around it. Your workshop sells parts at two different rates, trolleys go either way, and the GST you pay on rent and advertising is charged at 18% while most of what you sell goes out at 5%. On the income tax side, farmers often want to pay part of the price in cash. This guide covers the rates you'll bill, why ITC builds up for many dealers, the cash rules, and how your income is taxed for AY 2026-27.
Which GST rate applies to what you sell?
The farm side of your floor is 5%. Most of the 18% items are consumables and general-purpose parts.
Comparison
GST Rates for a Tractor and Farm Machinery Dealer (from 22 September 2025)
| Item | HSN | GST rate |
|---|---|---|
| Tractors (other than road tractors for semi-trailers above 1800 cc) | 8701 | 5% |
| Road tractors for semi-trailers, engine above 1800 cc | 8701 | 18% |
| Rotavators, cultivators, ploughs, harrows and their parts | 8432 | 5% |
| Harvesters, threshers, balers, mowers and their parts | 8433 | 5% |
| Other agricultural machinery and parts | 8436 | 5% |
| Mechanical sprayers, sprinklers, drip irrigation systems | 8424 | 5% |
| Self-loading or self-unloading agricultural trailers | 8716 20 00 | 5% |
| Other trailers and semi-trailers | 8716 | 18% |
| Listed tractor parts (see next table) | 8708 | 5% |
| Tractor tyres and tubes | 4011, 4013 90 49 | 5% |
| Other parts of vehicles of headings 8701 to 8705 | 8708 | 18% |
| Batteries | 8507 | 18% |
| Engine and hydraulic oil | 2710 | 18% |
| Oil, air and fuel filters | 8421 | 18% |
| Ball and roller bearings | 8482 | 18% |
Source: Notification 9/2025-Central Tax (Rate): Schedule I S. Nos. 269, 271, 273, 430-434, 442-454, 460; Schedule II S. Nos. 29, 410, 467, 480, 531, 544, 549
The official FAQs on the 56th GST Council meeting confirm the split for tractors: 5% for farm tractors and 18% for road tractors for semi-trailers above 1800 cc. They also confirm that agricultural machinery came down to 5%.
Which tractor parts are 5%?
This is where most billing errors happen. Schedule I doesn't say "all tractor parts". It names them. Anything not on the list falls back to the 18% entry for vehicle parts (Schedule II, S. No. 544), or to its own heading if it has one.
Comparison
Tractor Parts Taxed at 5%
| Part | HSN | Schedule I S. No. |
|---|---|---|
| Rear wheel rim, centre housing, transmission housing, front axle support | 8708 | 443 |
| Bumpers and parts | 8708 10 10 | 444 |
| Brake assembly and parts | 8708 30 00 | 445 |
| Gear box and parts | 8708 40 00 | 446 |
| Transaxle and parts | 8708 50 00 | 447 |
| Road wheels, parts and accessories | 8708 70 00 | 448 |
| Radiator assembly, engine cooling system and parts | 8708 91 00 | 449 |
| Silencer assembly and parts | 8708 92 00 | 450 |
| Clutch assembly and parts | 8708 93 00 | 451 |
| Steering wheel and parts | 8708 94 00 | 452 |
| Hydraulics and parts | 8708 99 00 | 453 |
| Fender, hood, wrapper, grill, side panel, extension plates, fuel tank | 8708 99 00 | 454 |
| Agricultural diesel engine above 250 cc for tractors | 8408 20 20 | 424 |
| Hydraulic pumps for tractors | 8413 81 90 | 426 |
Source: Notification 9/2025-Central Tax (Rate), Schedule I
A battery, an oil filter or a bearing doesn't become 5% because it's going into a tractor. Each has its own tariff heading (8507, 8421, 8482), and those headings are 18%. Set up two rate codes in your billing software for the parts counter and map each part number once.
Is your trolley 5% or 18%?
Schedule I, S. No. 460 gives 5% only to "self-loading or self-unloading trailers for agricultural purposes" (tariff item 8716 20 00). Schedule II, S. No. 549 taxes every other trailer of heading 8716 at 18%, and it expressly carves out those agricultural self-loading or self-unloading trailers. So the question for each trolley model is whether it fits that 5% description. Ask the manufacturer which tariff item their invoice uses, and match it.
What does GST look like on a real sale?
A 45 HP tractor. You buy it from the manufacturer for Rs 7,00,000 plus Rs 35,000 GST at 5%. You sell it for Rs 7,40,000 plus Rs 37,000 GST, so the farmer pays Rs 7,77,000. After setting off the Rs 35,000 ITC, you owe Rs 2,000.
A rotavator sold with it. Price Rs 1,10,000, GST at 5% is Rs 5,500. Same rate as the tractor, so a package invoice doesn't change the tax. Show each item on its own line anyway, with its HSN.
A battery from your parts counter. Price Rs 8,000, GST at 18% is Rs 1,440.
Most tractor buyers are farmers without a GST number, so most of your invoices are B2C. If your aggregate turnover crossed Rs 5 crore in any year from 2017-18, invoices to GST-registered buyers (contractors, companies, rental operators) need an e-invoice (Notification 10/2023-Central Tax, from 1 August 2023).
Why does ITC keep building up for tractor dealers?
Your main product goes out at 5%. Your showroom rent, advertising, software and professional fees come in at 18%. When your tractor margin is thin, the 18% credit on those services can be more than the GST you owe.
Example (one month). You sell 8 tractors on the terms above.
- Output GST: 8 x Rs 37,000 = Rs 2,96,000
- ITC on tractors: 8 x Rs 35,000 = Rs 2,80,000
- ITC on showroom rent of Rs 1,00,000: Rs 18,000
- ITC on advertising of Rs 50,000: Rs 9,000
- Total ITC: Rs 3,07,000
You pay nothing in cash this month, and Rs 11,000 of credit carries forward.
Can you get it back as a refund? In most cases, no. Section 54(3) of the CGST Act allows a refund of unused ITC only for zero-rated supplies (exports) or where credit builds up "on account of rate of tax on inputs being higher than the rate of tax on output supplies". Here the inputs (tractors) and outputs (tractors) are both 5%. And the refund formula in Rule 89(5) of the CGST Rules counts only ITC on inputs, not on input services or capital goods. Rent and advertising are input services, so their GST stays out of any refund.
So plan to use the credit. Parts, oil and batteries billed at 18% use it up fastest. A busy parts counter and workshop often absorbs what the tractor sales leave behind. Check your electronic credit ledger every quarter, not once a year.
Old credit from before 22 September 2025
If you still carry ITC from tractors or implements bought at the pre-22 September 2025 rate and sold at 5%, that isn't refundable either. The official FAQs on the GST 2.0 rate changes cite Circular 135/05/2020-GST. Where the input and output are the same goods, taxed at different rates at different times, it doesn't count as inverted duty under Section 54(3). You can only set that credit off against future output GST.
Exchange tractors: GST on the margin
Many sales come with an old tractor in exchange. If you buy the used tractor from a farmer and don't claim any ITC on it, Rule 32(5) of the CGST Rules lets you pay GST on the difference between your selling price and purchase price, not on the full price. If you sell below what you paid, the value is treated as nil. Keep the purchase document for each exchange tractor and its resale invoice together. Our GST margin scheme guide has worked examples.
What are the cash rules when a farmer pays at the counter?
Section 269ST of the Income-tax Act 1961 bars receiving Rs 2 lakh or more in cash from one person in a day, for a single transaction, or for one event.
Say a farmer pays Rs 1,50,000 in cash as booking and Rs 90,000 in cash at delivery a week later, with the rest from a tractor loan. Neither day reaches Rs 2 lakh, but both are for the same tractor: Rs 2,40,000 in cash for one transaction. The penalty under Section 271DA can be Rs 2,40,000, the full amount, unless you show good and sufficient reasons. Take anything above Rs 1,99,999 per tractor by bank transfer, UPI, card or account payee cheque. Our cash transaction limits guide covers the related rules.
Cash also matters for your tax audit, as the next section shows.
Step-by-Step Guide
Before You Deliver a Tractor
Check the HSN line by line
Tractor, implements and listed tractor parts at 5%. Batteries, oil, filters and bearings at 18%. Trolley at 5% only if it is a self-loading or self-unloading agricultural trailer.
Count the cash
Booking, delivery and any instalment for this tractor together must stay below Rs 2 lakh (Section 269ST).
Record the exchange tractor
If you take an old tractor and claim no ITC on it, keep its purchase document for margin valuation under Rule 32(5).
Business buyer?
Take their GSTIN and generate an e-invoice if your turnover has crossed Rs 5 crore in any year since 2017-18.
Watch the credit ledger
If ITC keeps growing, review rent, advertising and parts pricing with your accountant. Rule 89(5) won't refund GST on services.
Source: Notification 9/2025-Central Tax (Rate); Section 54(3), CGST Act; Rules 32(5) and 89(5), CGST Rules; Notification 10/2023-Central Tax; Section 269ST, Income-tax Act 1961
How is a tractor dealer's income taxed for AY 2026-27?
Section 44AD lets a resident individual, HUF or partnership firm (not an LLP or company) declare a deemed profit on turnover up to Rs 2 crore, or Rs 3 crore where cash receipts are within 5% of total receipts. At around Rs 7.77 lakh a tractor, 26 tractors already make about Rs 2.02 crore. Most dealerships are well past that, so you keep full books of account and pay tax on actual profit. See our Section 44AD guide.
Whether you also need a tax audit depends on turnover and your cash mix (Section 44AB(a), Income-tax Act 1961):
- turnover above Rs 1 crore: audit required
- turnover up to Rs 10 crore, with cash receipts within 5% of total receipts and cash payments within 5% of total payments: no audit
- turnover above Rs 10 crore: audit required
Example. A dealer has turnover of Rs 8 crore and receives Rs 60 lakh of it in cash. That's 7.5% of receipts, above the 5% line, so the Rs 10 crore limit doesn't apply and the audit is required. Had cash receipts been Rs 40 lakh (5%) and cash payments within 5% too, there would be no audit. Pushing farmers toward bank payments helps with both Section 269ST and the audit. See our tax audit section 44AB thresholds guide.
Commission from banks, finance companies and insurers for tractor loans and policies you arrange is business income. They'll usually deduct TDS on it. Match those credits with your Form 26AS and Annual Information Statement (AIS) before filing. A proprietor filing on books uses ITR-3, a partnership firm ITR-5 and a company ITR-6.
The Income-tax Act 2025 replaces the 1961 Act from 1 April 2026 with new section numbers. Confirm the current references with your CA for FY 2026-27 sales.
Common mistakes tractor dealers make
- Billing every tractor part at 5%. Only the listed parts are 5%. Batteries, filters, bearings and oil are 18%.
- Billing every trolley at 5%. The 5% entry covers self-loading or self-unloading agricultural trailers. Other trailers are 18%.
- Expecting a refund of credit on rent and advertising. Rule 89(5) counts only ITC on inputs, and tractors in and out are both 5%.
- Claiming a refund for pre-rate-cut stock. The official FAQs say a rate change on the same goods isn't inverted duty.
- Splitting cash between booking and delivery. Section 269ST treats the whole tractor as one transaction.
How Tax Garden helps tractor dealers
We map every tractor, implement and spare to its GST rate, report sales correctly in GSTR-1 and GSTR-3B, and track your credit ledger so ITC doesn't sit idle. See our GST return filing service. We keep your books, coordinate the tax audit and file your ITR; see our accounting and bookkeeping service, ITR filing service and pricing. If you also run a workshop, our auto parts and tyre shop guide covers the parts counter in more detail.
