farmer producer company tax benefits

Tax Benefits Available to the Farmer Producer Company

Online Legal India LogoBy Online Legal India Published On 26 Apr 2023 Category Taxation

Producer companies are inextricably connected to the Indian agriculture sector. It is worth noting that each producer enterprise is associated with Indian agriculture and contributes to national productivity. According to data from current economic forecasts, India is an agriculture-intensive country. Readers should be aware that agriculture provides a living for over 66% of the national population. In terms of the value chain, producer companies, and farmers play an essential role.

What is a Producer Company?

A producer company is a legally recognized body of farmers/agriculturists aiming to improve their standard of living and ensure the viability of their available support, revenue, and profitability. According to Section 465(1) of the Companies Act, 2013, the provisions relating to a Production Company under Part IXA of the Companies Act, 1956 would continue to apply. As a result, under the Act, a Producer Company can be founded by ten persons (or more) or 2 institutions (or more), or by a combination of both (10 individuals and 2 institutions), with the defined business aim.               

An Act-registered farmer producer business is a mix of private limited companies and cooperative societies. They are governed democratically, and each member or producer has equal voting rights regardless of the number of shares held.   

List of Approved Activities of Producer Companies

The Producer Company needs to deal with its members produce and is entitled to engage in any of the following activities:

  • Processing (which includes preserving, brewing, venting, drying, distilling, canning, and packaging) of its members' produce;
  • To educate producer members of the producer firm and others on the principles of mutual help;
  • To provide consultation services, technical services, training, R&D, and any other activities necessary to promote the interests of producer members;
  • To provide consultation services, technical services, training, R&D, and any other activities necessary to promote the interests of producer members;
  • Primary commodity and its producer insurance;
  • To foster the method of mutuality and mutual aid;
  • The board may decide on the welfare of members;
  • Funding of procurement, marketing, processing, or other activities such as credit facility extension or other financial support to its producer members.   
  • Any other activity (ancillary to the primary objectives of the producer company) to promote mutual help among producer members and the mutuality principles.

Main Objectives of Farmer Producer Company

The Farmer Producer company’s major goal is to enable the formation of co-operative businesses as companies and to make it easier to convert existing co-operative businesses into companies. 

According to the Act, a production company’s aims should include all or all of the following: (as given in the law) 

1. Production, harvesting, procurement, grading, pooling, handling, marketing, selling, and export of the Members’ primary production or imports of goods or services for their benefit, provided that the Producer Company may carry out any of the activities specified in this clause either directly or through another institution.   

2. Processing of its Members’ produce includes preserving, dying, distilling, brewing, venting, canning, and packaging.    

3. Manufacturing, selling, or supplying machinery, equipment, or consumables to its members.   

4. Educating its members and others on the ideals of mutual assistance. 

5. Providing technical services consulting, training, research and development, and all other activities to further the interests of its members.   

6. Power generation, transmission, distribution, regeneration of land and water resources use, conservation, and communication related to primary produce.     

7. Producer insurance or primary produce insurance.

8. Fostering mutuality and mutual help practises.

9. The Board may decide on welfare measures or amenities for the benefit of Members.

What Are the Tax Benefits for Farmer Producer Company? 

Section 10(1) of the Income Tax Act of 1961 exempts agricultural income. However, the exemption allowed under section 10(1) for agricultural income varies depending on the agricultural activity performed.  

The Income Tax Act does not mention any specific tax benefit that, by definition, gives exceptional tax benefits or exemptions to producer companies. However, depending on the agricultural activity performed by the producer company, certain tax incentives and exemptions may be available.

For example, revenue from the sale of produced green tea leaves is tax-free and classified as agricultural income under the Income Tax Act. If the tea leaves are further prepared, 60% of the income is considered agricultural income, and 40% of the income is taxable. As a result, it is clear that a producer company's tax benefit and exemption depend entirely on its activity. 

Conclusion 

A farmer-producer company establishes a separate legal structure for the firm, as well as specific tax benefits and bonuses. Aside from that, it provides its members with a number of benefits, such as bonuses, quick access to low-interest loans, and much more. Reach out to Online Legal India for more information like this. 
 


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