A producer company is a legally recognized entity established by farmers or agriculturists to enhance their livelihoods and ensure sustainable incomes. Under Indian law, it's a hybrid of a private limited company and a cooperative society.
Producer companies offer farmers a platform to collectively market their produce, negotiate better prices, and access resources and services. They play a vital role in the agricultural sector, empowering farmers and promoting rural development.
Members initially receive the value for pooled and supplied produce, as determined by the directors. This amount is later distributed in the form of cash, kind, or equity shares.
Members are entitled to bonus shares in proportion to their shareholding.
Surplus income, after providing for limited returns and reserves, may be distributed as a patronage bonus to members. Patronage bonus is a distribution of surplus income based on members' participation in the company's business activities through using its services.
Producer companies often require financial support to aid their members, who are primarily producers. To address this need, the Companies Act allows producer companies to provide financial assistance to their members through various means. These include credit facilities for up to six months, loans and advances against security with a repayment period of up to seven years, and NABARD loans. NABARD, a leading agricultural development bank, has established the Producer Organisation Development Fund (PODF) to support producer companies.
Under Section 10(1) of the Income Tax Act, 1961, agricultural income is generally exempt from tax. However, the specific exemption can vary based on the nature of agricultural activity.
While income from selling raw agricultural products (like green tea leaves) is fully tax-exempt, income from further processing (like manufacturing tea) may have a portion taxed. For example, 60% of income from processed tea might be considered agricultural income and exempt, while 40% may be subject to tax.
Depending on the specific activities of the producer company and applicable tax laws, other tax benefits or exemptions may be available.