GST inversion leading to input credit buildup, fertiliser industry urges clarification: FAI chief
New Delhi [India], December 10 (ANI): The Fertiliser Association of India (FAI) has sought key GST clarifications to ease financial pressure on the fertiliser sector, flagging that tax rate inversion is continuing to result in the accumulation of input tax credits.
Speaking to ANI, FAI Chairman S. Sankarasubramanian said the industry has been urging the government to align GST rates on key raw materials such as ammonia and sulphuric acid with the 5 per cent tax applicable on finished fertiliser products. He said this alignment would help reduce production costs and improve the competitiveness of fertiliser manufacturers, particularly in the phosphatic segment.
While recent GST reforms have offered some relief, Sankarasubramanian noted that they have not fully resolved the issue of unutilised credits.
“At present, phosphatic fertilisers attract GST at 5 per cent, while several inputs were earlier taxed at 18 per cent and have now been corrected to 5 per cent. Despite this reduction, a structural inversion remains because fertiliser prices include a subsidy component that falls outside the GST value. This leads to continued accumulation of input tax credit,” he explained.
Finished phosphatic and potassic (P&K) fertilisers are taxed at 5 per cent, whereas major inputs such as ammonia and sulphuric acid were taxed at higher rates. Combined with subsidies not forming part of the GST supply value, this mismatch has resulted in large volumes of blocked ITC, straining working capital and affecting industry efficiency.
Speaking on the sidelines of the FAI Annual Seminar 2025, the FAI Chairman welcomed the recent changes introduced by the finance ministry.
“The reduction of GST on raw materials like ammonia and sulphuric acid from 18 per cent to 5 per cent has helped ease the problem of credit accumulation,” he said, while adding that the core imbalance between input and output taxation still persists.
He said the industry has consistently sought government intervention and has approached the finance ministry through the Department of Fertilisers, requesting a mechanism to refund accumulated input tax credit for phosphatic fertilisers. “We are hopeful that this issue will be addressed soon,” he said.
On subsidy reforms, Sankarasubramanian welcomed the government’s proposal to move towards direct benefit transfer (DBT) to farmers instead of routing subsidies through fertiliser manufacturers.
“Under the existing DBT framework, subsidies are paid to the industry while farmers receive fertilisers at subsidised prices,” he said.
He added that the Department of Fertilisers is planning pilot projects in select states and districts. “We have read about the recent announcement. Pilot trials are likely to be conducted in some states in South India and a few districts. This could be a game changer,” he said.
According to him, the move would give farmers greater choice and control. “It places decision-making power directly in the hands of farmers regarding the fertilisers they use. As an industry, we support this initiative and welcome the government’s approach,” Sankarasubramanian said. (ANI)