May 18, 2022
The economy of India is an agricultural centric economy. Around 60% of population depends on agricultural activities for their livelihood. But, the primary producers and farmers have had a long struggle in India. In order to address these problems, the Government of India set up an expert committee, led by Y.K. Alagh (an economist) to look into the matter. In the year 2002, they introduced the Producer companies concept to the Indian economy. Since then, they have helped primary producers gain access to input, credit, production technology, market etc.
A producer company can be defined as a legally recognized body of farmers/ agriculturists with the aim to improve the standard of their living, and ensure a good status of their available support, incomes and profitability. Under Companies Act 1956, a Producer Company can be formed by 10 individuals (or more) or 2 institutions (or more) or by a combination of both (10 individuals and 2 institutions) having their business objective as one of the following:
of the primary produce of the Members or import of goods or services for their benefit.
The main objective of the producer company is to facilitate the formation of co-operative business as companies and to make it possible to convert existing co-operative business into companies.
The objects given under section 581B are as follows:
“The objects of the Producer Company shall relate to all or any of the following matters, namely: (as given in the law)
The Producer Company is required to deal with the produce of its members and is authorized to carry on any of the following activities:
Note: Primary produce has been defined under the Companies Act 1956 as a produce arising from agriculture by a farmer which includes animal husbandry, floriculture, horticulture, viticulture, pisciculture, re-vegetation, bee raising, forestry, forest products and farming plantation products, produce of hand-loom, handicraft and other cottage industries.
Benefits for Producer Companies
The following are the benefits enjoyed by a Producer Company:-
*Patronage bonus signifies a distribution of the surplus income to the members of the producer company in proportion to their respective patronage. Patronage, on contrary, is the participation by members in their business activities by using the services offered by producer company.
As mentioned above the Producer Company consist of individuals who are primary producers, and thus, are in need of financial support from time to time. Hence, a special provision under the companies acts 1956 was passed for giving loans to producer members. A Producer Company can provide financial assistance to its members through:-
The Income Tax Act, 1961 under section 10(1) exempts the agricultural income. However, the exemption provided under section 10(1) for the agricultural income sometimes vary on the basis of the agricultural activity carried out.
The Income Tax Act does not specify any specific tax benefit which essentially provides special tax benefits or exemptions to producer companies by its definition. But subject to the agricultural activity carried out by the producer company, certain tax benefits and exemption can be availed.
For example, income derived from selling the grown green tea leaves is an agricultural income under the Income Tax Act and it is 100 % tax-free. However, if the tea leaves are further processed for the manufacturing of tea, only 60% of such income will be considered as agricultural income and 40% of such income will be taxed.
Thus, it is apparent that the tax benefit and exemption to a producer company is totally depending upon the activity it carries on.
We do what we commit!
We take responsibility of our accountability!
Our values make us customer-centric!
A team with the best!