Is Income of a producer company exempt?

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Income of a producer company exempt?

What is a producer company?

A producer company is a type of company recognized under the Companies Act, 2013 in India, that is formed by a group of producers with the aim of collectively carrying out one or more of the specified activities such as production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the members or import of goods or services for their benefit.

Producer companies are formed to promote the welfare , to empower farmers and other primary producers by providing them with access to resources, technology, and markets, and by enabling them to collectively negotiate better prices for their products. 

A Producer Company can also engage in activities such as processing, packaging, grading, handling, and marketing of the products produced by its members.

Basic requirements for forming a producer company:

I am not going to discuss other general documentation related with formation of a producer company. As other general requirements are similar to formation of private limited company. But here are the specific requirement of forming a producer company:

- Minimum 10 members are required to form a producer company. Member must be a producer.

  • -Producer in simple terms means "the farmer" who is into agricultural activity. (agricultural activity includes animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products) 
  • -Producer also include persons engaged in handloom, handicraft and other cottage industries; or person engaged in any ancillary activity which will increase production of above agriculture or cottage industry.
  • -Any person engaged in activity related to any product or by-product of agriculture or cottage industry.

- Second most important requirement is that the producer company must be formed with object mentioned under "section 378B - Objects of Producer Company"

Point to note: Member can be a person or Producer Institution

Now, important question is whether income of producer company is exempt under the Income Tax Act? 

The answer can not be given in one word like "yes or no", as a producer company can have income from multiple activities as per object clause e.g. income from sale of milk, agri machines to its member etc. But not the entire income of producer company is exempt under the Income tax act. However, agriculture income as defined u/s 10 (1) of the Income tax act is exempt. 

Apart from the exemption u/s 10(1) as stated above, section 80PA of the income tax act gives deduction in respect of certain income of Producer Companies for the period of FY 2018-19 to FY 2023-24 . Like individual taxpayers get deduction u/s 80C, a producer company can get deduction under section 80PA for certain income from eligible business

Next question is What is eligible business? 

As per section 80PA eligible business means 

  • the marketing of agricultural produce grown by the members; or
  • the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to the members; or
  • the processing of the agricultural produce of the members;
One more condition to avail 80PA deduction is that, total turnover of the producer company must be below 100 Crore.

I hope you have get an basic idea of taxation of a producer company under income tax act. It is advisable to take expert opinion for complex tax matters.

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