Benefits of Farmer Producer Company in India

Swarit Advisors
| Updated: Aug 17, 2019 | Category: Producer Company

With 62% of people dependent upon agriculture, India is no doubt an agriculture-based country. But still, farmers in India are unorganized and deprived of the latest technologies and techniques in agricultural sector production. It leads to crop failure due to which farmers have to face great losses and more than 15% of farmers every year accounts for suicide in India. To look into this matter an expert committee has been set up by the Indian government. As a result, the Farmer Producer Company came into existence.

What is the role of Farmer Producer Company?

A farmer producer company is a cluster of farmers that join their hands to improve their income so that they could have a better standard of living. In India, you can set up a Producer Company with just 10 members and 2 institutions.

More than 80% of farmers in India are disorganized and have small & marginal lands. Farmer Producer Company empowers the farmers and helps them achieving their economic scale through their objectives of:

  • Production
  • Procurement
  • Harvesting and Grading
  • Poling and Handling
  • Marketing of agricultural produce
  • Selling or export/import of agricultural produce.

An organization will be defined as a Farmer Producers Organization or Producer Company, only if:

  • It is formed by a group of producers for their farm or non-farm activities;
  • It’s a legal entity and a registered body;
  • Producers in the company are the shareholders in the organization;
  • The company deals with business activities related to the production of the primary produce;
  • The company looks after the requirement of the members and works for the benefit of the producer members;
  • Profit Portions are shared amongst the producers and the balance is made within the share capital or reserves.

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What are the benefits of Farmer Producer Company Registration in India?

The main purpose of the Producer Company is to form a farmer society in the form of a company and conversion of an existing co-operative society into an organized company. For this, they perform certain beneficial activities like production, procurement, pooling, harvesting, grading, handling, marketing, selling and import/export of the primary producers of all the members.

Here are some important benefits of registering a Farmer Producer Company in India:

Benefits of Producer Company

More Credibility

A producer company offers more credibility to the farmers as compared to other unregistered organizations of farmers or agriculturists.

Limited liability and separate legal entity

Registering as a producer company provides a separate legal entity and limited liabilities to its members.

Own a property

A duly registered farmer company has the right to sell or own a property in its name. Furthermore, it is entitled to accept the deposits or to give loans at very reasonable interest rates to its agriculturist members.

Ease in management and registration

Registration as a producer company is an easy process and the company can make changes in the Board of Management through filing some simple forms with the concerned ROC.

Acceptance of Deposits

A registered company can accept deposits in the form of fixed or recurring deposits. Other than that they can also disburse the loan to the members and farmers at a very reasonable rate of interest.

What are the benefits for the members of the Farmer Producer Company?

Here are some chief benefits of the producer company to its own members:

  • The most important benefit is that the members of the Producer Company receive the amount for the produce pooled and supplied after the determination by the directors of the respective producer company. This amount is further disbursed in the form of cash or equity shares to the members of the company.
  • Producer Company members also get bonus shares in the same proportion as equity shares they hold in the producer company.
  • Surplus (after providing provision for the payment of the limited return and reserves) may be given to the members of the producer company as the patronage bonus. Patronage bonus signifies the surplus income distribution among the members of the producer company in the proportion of their patronage. On the other hand, Patronage is the participation of the member in the business activities.

What are the tax benefits for the farmer producer company in India?

Agricultural income is exempted under Section 10(1) of the Income Tax Act, 1961. However, exemption on the agricultural income varies based on the activity carried out by the producers or farmers.

There are no special tax benefits provided by the Income Tax Act to the farmer producer companies while there are certain tax exemptions and benefits that they can be avail with subject to the agricultural activity carried out by the company.

For example, currently, the agriculture income is 100% exempted. Therefore, income generated from the green tea leaves is tax-free but if those tea leaves are used for the purpose of manufacturing tea then 60% income shall be exempted and the other 40% is liable to be taxed.

Therefore it is cleared that the tax benefits and exemption depends upon the activity carried out by the company.

At times of limited return distribution and patronage bonus, the dividend tax at the applicable rates is required to be paid by the Producer Company while it will be tax-free in the hands of the members of the company.

During Bonus Shares’ allotment, members are free from any tax liability. However, provisions regarding the capital gain tax shall apply during the sale or redemption.


The majority of farmers in India find it hard to realize the optimal value for their primary production due to lack of facilities and fragmentation of landholdings. But producer companies in India help them to utilize economies of scale to procure inputs at lowest cost rates, adopt new technologies, easy access to finance and loans, building up direct linkages to the market and develop facilities related to post-harvest processing.

Farmer Producer Company is a cluster of farmers that comes together to make their lives better and to improve their standards of living. Farmer producer company registration provides separate legal entity to the company and provides various tax exemptions and benefits. Other than that it has various benefits for the members including bonus, ease in availability of loans at low-interest rates and many more.


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