An Overview on Producer Company and its benefits


An Overview on Producer Company and its Benefits

The economic system of India is an agricultural centric system. Agricultural activities or agricultural-based works are the main source of income for about 60% of the Indian population. Yet, the farmers or the primary producers have experienced a long struggle in India. To eradicate the struggles of the farmers and to address all their problems, the Government of India have assembled an expert committee, headed by Y.K. Alagh a well-known economist, to take the needed measures. Based on the recommendations of the expert committee, the concept of Producer Companies was introduced in 2002 by incorporating a new Part IXA of section 581A to 581ZT into the companies Act,1956. From then on, they have assisted and facilitated all the primary producers across the country to gain access to credit, invest, production technology, marketing, selling, etc.
A Producer Company is defined as a legally acknowledged body of farmers or primary producers or agriculturists with the objective to improve the standard of their living, and to ensure their support, income and profitability in their agricultural activities. A Formal Producer Company can be formed by 10 or more individuals or 2 or more institutions or in a combination of individuals and institutions (minimum10 individuals and 2 institutions are required) and most importantly it should have their business aim from one of the mentioned below:

  • Production
  • Procurement
  • Grading
  • Harvesting
  • Pooling
  • Marketing
  • Handling
  • Selling, or
  • Exporting of the primary produce of the Members or 
  • Importing of goods or services for the member’s gain.

Authorized activities of Producer companies

The Producer Company is a company which should deal with the produce of the members and it is authorized to proceed with any of the following activities:

The Objects Of The Producer Company Shall Relate To All Or Any Of The Following Matters, Namely: (As Given In The Law)

  1. Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary production of the Members or import of goods or services for their benefit, provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institutions.
  2. Processing including preserving, drying, distilling, brewing, vinting, canning, and packaging of the produce of its Members.
  3. Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members.
  4. Providing education on the mutual assistance principles, to its Members and others.
  5. Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members.
  6. Generation, transmission, and distribution of power, revitalization of land and water resources, their use, conservation and communication relatable to primary produce.
  7. Insurance of producers or their primary produce.
  8. Promoting techniques of mutuality and mutual assistance.
  9. Any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner.
  10. Welfare measures or facilities for the benefit of Members as may be decided by the Board.
  11. Financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members.”

Under the Companies Act 1956, the Primary produce has been determined as a matter or produce growing from agriculture by a primary producer or farmer such as animal husbandry, horticulture, floriculture, pisciculture, viticulture, re-vegetation, forestry, bee raising, forest products and producing plantation crops,  handicraft, produce of hand-loom, produce from cottage industries and other products related to agriculture grown or developed by the farmers

Benefits for Producer Companies

Here are the benefits of Producer Company:-

  • Initially, the members of the producer company will get the value for their produce shared and rendered as fixed by the directors. And the calculated amount will be issued to them later in the form of cash or in the form of equity shares.
  • The primary producers of the producer company will get bonus shares in an equal ratio to their shares.
  • After supplying all payment of limited return and stockpiles, the extra amount has been given as patronage bonus to the members of the producer company.
  • Patronage bonus is nothing but the distribution of the surplus amount of the producer company to the members in the ratio of their relevant patronage. Patronage is the level of participation by members in their agricultural and related activities by using the goods and services offered by the producer company.

Loans and Investments benefits

As referred above the Producer Company is a cluster of individuals or primary producers, and hence, are in requirement of financial support on various time depending on various needs. Therefore, a special facility under the companies acts 1956 was authorized for providing loans to primary producers or the members of the company. A Producer Company can offer financial assistance to its members through the following facilities:

  • Credit Facility: This type of funding is available to any member who was associated with the company for a period not exceeding six months. This facility should be connected with the business of the Producer Company.
  • Loans and Advances: This type of funding is the most useful one and it is provided to the member against security. This is a repayable loan which has to be paid within a period of seven years from the date of disbursal.
  • NABARD Loan: NABARD Loan offers all needed support and financial assistance to Producer Companies to meet all their requirements. In the year 2011, NABARD provided Rs. 50 crore Producer Organisation Development Fund (PODF), from its operating surplus.

Tax Benefit of Producer Company

The Income Tax Act, 1961 under section 10(1) relieves the agricultural income but the exemption allowed under section 10(1) for the agricultural income in certain times vary depending on the agricultural activities that are carried out.
There is no specific tax benefits or exemptions to producer companies provided by the Income Tax Act by its definition. But, there are few availabilities of certain tax benefits and exemption depending on the agricultural activity carried out by the producer company
For instance, income gained from trading or selling or marketing the grown green tea leaves by the producer is an agricultural income, so it comes under the Income Tax Act and it is 100 % tax-free. But, the tea leaves if processed further for the manufacturing of tea, then only 60% of that income will be looked at as agricultural income and 40% will be taxed.

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