Sweet relief: Tax liability of sugar co-operatives to drop

By: |
October 29, 2021 2:30 AM

Currently, the deduction of sugar co-operatives’ expenses from income is computed only based on the fair and remunerative price (FRP) set by the Centre, which is typically lower than the benchmark prices (SAP) fixed by various states in their respective territories.

Currently, the deduction of sugar co-operatives’ expenses from income is computed only based on the fair and remunerative price (FRP) set by the Centre, which is typically lower than the benchmark prices (SAP) fixed by various states in their respective territories.Currently, the deduction of sugar co-operatives’ expenses from income is computed only based on the fair and remunerative price (FRP) set by the Centre, which is typically lower than the benchmark prices (SAP) fixed by various states in their respective territories.

In a move that will reduce the tax liability of cash-strapped sugar co-operatives in the aftermath of the pandemic, the government has clarified that the elevated state-advised price (SAP) paid by these entities to farmers for cane purchases will be allowed as deduction under the income-tax rules.

Currently, the deduction of sugar co-operatives’ expenses from income is computed only based on the fair and remunerative price (FRP) set by the Centre, which is typically lower than the benchmark prices (SAP) fixed by various states in their respective territories.

In a circular dated October 25, the Central Board of Direct Taxes (CBDT) clarified that the “price fixation by state governments through state-level Acts/orders or other legal instruments that regulate the purchase price of sugarcane, including state advised price, which may be higher than the statutory minimum price/fair and remunerative price fixed by the central government” will be considered for deductions. However, it’s unclear if the government will return the additional taxes collected so far on this account since the provision was inserted into the Income-Tax Act in 2016.

The breather comes after a BJP delegation from Maharashtra, led by former chief minister Devendra Fadnavis, met Union home and co-operation minister Amit Shah last week to highlight the issue.

Sugar co-operatives have been seeking relief on the ground that payments to farmers over and above the FRP must not be construed as profit distribution among their members (typically farmers); instead, it must be considered as expenses deductible from income.

Usually, co-operatives in Maharashtra pay the FRP to farmers initially for cane supplies. However, they pay more for cane subsequently if they earn more from their sugar and other by-product businesses. This, they argue, isn’t profit.

In other states like Uttar Pradesh, the traditional epicentre of cane arrears crisis, co-operatives are mandated to pay the SAP to farmers. The SAP in UP stood at Rs 340 per quintal for the current marketing year that started from October 1, compared with the FRP of Rs 290.

The Finance Act 2015 had inserted a clause (xvii) I in sub-section (1) of Section 36 of the Income-Tax Act, 1961, to provide for deduction to the sugar co-operatives based on the FRP (or a lower amount).

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