GST on Leasing of Agricultural Land: Actual Use Decides

GST on Leasing explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The revenue record is irrelevant. A plot classified as agricultural, leased for a warehouse, is taxable at 18% — and the same plot leased for tomatoes is exempt. The exemption attaches to what the land is used for, and it can change mid-lease.

Entry 54 of Notification No. 12/2017-CT(Rate) exempts, within services relating to cultivation of plants and rearing of animals, "renting or leasing of agro machinery or vacant land with or without a structure incidental to its use" — limb (d). The Handbook states the test: "Leasing of agricultural land enjoys a GST exemption, but only when the land is actually used for agricultural purposes… Several AAR rulings have emphasised that actual use, not land classification, decides GST liability." Diversion to commercial or industrial use attracts 18%.

The entry, and its two elements

Limb (d) of entry 54 exempts renting or leasing of:

• agro machinery; and
• vacant land with or without a structure incidental to its use.

The words "incidental to its use" do real work. A structure on the land does not defeat the exemption where it is incidental to the agricultural use — a pump house, a store for implements. A structure that is the point of the letting — a godown, a shed for packing and dispatch — is not incidental.

And "vacant land" is not a bar in itself. The entry contemplates a structure being present.

The classification consequence

The Handbook ties the taxability to the SAC:

"Services relating to the leasing of vacant land incidental to agricultural operations are classifiable under SAC 998619 (Support services to agriculture, forestry, fishing, and animal husbandry), whereas leasing of land for commercial or non-agricultural use is classifiable under SAC 997212 (Renting of non-residential property)."

So the classification is downstream of the use, not the other way round. This matters when drafting: a lease deed that recites "agricultural land" without stating the permitted use leaves the SAC undetermined.

What "actually used" means, and when it changes

The Handbook's worked example is deliberately mid-stream:

"A landowner leases agricultural land to a food-processing company that grows tomatoes for the first 6 months and later uses the same land area to construct a storage shed for packing and dispatch." - "For the first 6 months (agricultural cultivation) → No GST Registration as it is not taxable" - "From the date commercial shed construction starts → GST Registration is applicable (if turnover is above 20 lakhs) as the transaction is taxable" - "Even if the land remains 'agricultural' in revenue records, the change in actual use triggers GST"

Three practical points follow.

The trigger is the date of change of use, not the date of the lease or the date the revenue record is amended.

Partial diversion is enough. The Handbook is explicit: "Any diversion for commercial use — fully or partly — attracts GST at 18%." A tenant who farms four acres and warehouses on the fifth has taken the letting out of the exemption to that extent.

And the exposure sits with the lessor, who is the supplier of the renting service — even though the change of use is the tenant's act. A well-drafted lease puts the reporting obligation and an indemnity on the tenant.

The named examples of taxable use are "warehouses, factories, coaching classes, construction, or other commercial purposes" — note that the last of these is a use, not a structure: land let for a construction activity is commercial use even before anything is built.

What this entry is not

It is not the sale of land. A sale of agricultural land by a farmer is "Not a supply – Schedule III" — paragraph 5 of Schedule III excludes the sale of land from GST altogether, agricultural or otherwise. Leasing is a supply of services; selling is not a supply at all.

It is not the residential dwelling exemption. A farmhouse let for residence is tested under entry 12, on entirely different conditions. Entry 12 and residential dwellings →

And it is not the warehousing exemption. Storage of agricultural produce is exempt under limb (e) of entry 54, and storage of rice under entry 24; letting the warehouse itself is a different supply from storing goods in it, and the warehousing entries do not save a letting of land or a building.

Agro machinery, the other half of limb (d)

Renting or leasing of agro machinery is exempt on the same limb — a tractor, harvester or sprayer let out for agricultural use.

But note the contrast with the general leasing entry. Under entry 17 of Notification No. 11/2017-CT(Rate), "Leasing or renting of goods" carries "the same rate of GST as applicable on supply of like goods involving transfer of title in goods". Most agricultural machinery of headings 8432, 8433 and 8436 is at 5%, so an agro machine let outside the entry 54 conditions carries the machine's own rate rather than 18%.

And the credit position differs sharply. A person renting out agro machinery for exempt agricultural use makes an exempt supply and must reverse credit on the machine under rule 43; one renting it for a non-agricultural use makes a taxable supply and keeps the credit. Rule 43 and agricultural capital goods →

Key takeaways

• Entry 54(d) exempts renting or leasing of agro machinery and vacant land with or without a structure incidental to its use.
• Actual use decides, not the revenue classification — the point on which the AAR rulings turn.
• Agricultural use falls under SAC 998619; commercial or non-agricultural use under SAC 997212 at 18%.
• Partial diversion to commercial use takes the letting out of the exemption to that extent.
• The trigger is the date the use changes, not the date of the lease or of any record amendment.
• Warehouses, factories, coaching classes and construction are the named commercial uses.
• Sale of agricultural land is not a supply at all — Schedule III, paragraph 5.
• Renting agro machinery outside entry 54 carries the same rate as the machine, under entry 17 of Notification No. 11/2017-CT(R).

Read next

• Agriculture Exemptions: Entries 54 to 58 and "Agricultural Produce"
• Classification of Agricultural Goods and Services: HSN and SAC
• Rule 43 and Section 18(6): Agricultural Capital Goods

Disclaimer: Positions stated as on 5 September 2026, based on entry 54 of Notification No. 12/2017-Central Tax (Rate), entry 17 of Notification No. 11/2017-Central Tax (Rate) and paragraph 5 of Schedule III to the CGST Act, 2017, as reproduced in the ICAI Handbook on Applicability of GST on Agricultural Sector (January 2026, law updated to 31 December 2025).