Deduction 80PA of Income Tax Act, 1961: An Overview

After section 80P of the Income Tax Act, 1961 (Income Tax Act) section 80PA is inserted with effect from 1 April 2019. Section 80PA of the Income Tax Act, 1961 was authorized to encourage producer companies to market and process agricultural produce. It focuses on deducting some of the income of Producing companies. In this article, we will deal with the Deduction 80PA of the Income Tax Act, of 1961.

Short Glimpse

Section 80P of the Income Tax Act provides a tax deduction for co-operative societies engaged in specified agricultural activities. Only primary agricultural credit societies and primary co-operative agricultural and rural development banks are eligible for the Section 80P deduction. When the income earned by the co-operative society from the specified activities is included in the assessee’s gross total income, the deduction is available. This article discusses the amount of deduction available to a specific co-operative society that performs the activities listed in Section 80P of the Income Tax Act.

Deductions under Section 80PA of the Income Tax Act, 1961

Where the total gross income of an assessee, which is a producer company having a total turnover of less than one hundred crore rupees in any previous year, includes any profits and gains arising from an eligible business, subject to and subject to the provisions of this section, in computing the total income of the assessee, allow to deduct the amount equal to 100% of the profits and gains attributable to that business for the previous year relevant to the assessment year beginning on or after 1st April 2019 but before 1st April 2025.

For purposes of this section —

• “Eligible Establishment” means
  • the marketing of agricultural produce grown by members; or
  • the purchase of agricultural implements, seeds, livestock, or other articles intended for agriculture to supply them to members; or
  • Processing of Agricultural Produce of Members.
• “Producer Company” means: A Producer Company is essentially a body corporate registered as a producer company under the Companies Act, 2013 and shall carry on or relate to any of the following activities generally classified:-
  • Production, harvesting, processing, purchase, sorting, pooling, handling, marketing, sale, export primary production of Members or importation of goods or services for their benefit.
  • providing technical services, consulting services, training, education, research and development, and all other activities to promote the interests of its members;
  • Production, transmission, and distribution of energy, revitalization of land and water resources, their use, protection, and communication related to primary production;
  • Support for mutual aid, measures in the field of welfare, financial services, and insurance of producers, or their primary production.
• “Member” means
  Which meets the amount and duration of the Producer Company’s patronage as the bylaws may require?

Conditions for Deduction under Section 80PA

Deduction under Section 80PA is available if the following conditions are fulfilled –

• The assessee is a production company as defined in section 581 A (i) of the Companies Act 1956 (i.e. a corporation that is primarily engaged in the production of its active members. The objects of the production company will relate to all or some of the matters specified in section 581B of the Act companies, 1956).
• The total turnover of the company is below Rs. 100 crores in any previous year.
• The company’s income includes all profit and gains arising from the authorized business. An eligible business for this purpose is–
  • marketing agricultural produce is grown by members; or
  • purchase of agricultural implements, seeds, livestock, or other items intended for agriculture for supply to members; or
  • Processing of agricultural production of members.

Amount of Deduction under Section 80PA

If the above conditions are fulfilled, the production company can claim a 100% deduction for the assessment years 2019-20 to 2024-25 in respect of the profits and income of the “Eligible Business”.

(The deduction is only available to eligible businesses listed above and not to all businesses listed under section 581B of the Companies Act 1956).

Exemptions under Section 80PA of the Income Tax Act, 1961

The Finance Act, 2006 added a specific exemption to the application of the benefits of deduction under Section 80P.

Section 80P does not apply to any cooperative bank (including regional rural banks) which is not a primary agricultural credit society or a primary agricultural cooperative and rural development bank (as defined in the Banking Regulation Act).

The deduction is being removed so that cooperative banks are treated the same as commercial banks, which do not get such a tax benefit.

Tabular format to understand Deductions under Section 80 PA

Takeaways from Section 80PA

A summary of what we understood throughout the article is given below-

• Section 80PA of the Income Tax Act, 1961 allows a 100% deduction of profits and gains attributable to an eligible business of a producer company having a turnover below 100 crore rupees in the previous year.
• This deduction applies to assessment years beginning on or after 1st April 2019 and before 1st April 2025.
• Eligible business as mentioned in Section 80PA of the Income Tax Act 1961 includes agriculture, dairying, processing of agricultural products, fish farming, poultry and hatchery, production, trade, sale, marketing, and other related activities to such items as specified by the Central Government.
• Section 80PA of the Income Tax Act, 1961 allows a deduction to production companies from their total gross income.
• The amount of deduction is equal to 100 percent of the profits and gains derived from the eligible business for the previous year relevant to the assessment year 2019 to 2025.
• The benefits of this tax relief can be availed by all Manufacturing Companies. Eligible businesses include agricultural activities, agricultural operations, production, sale, and export of the produce of Manufacturing Companies, trading in products, and services, income from value-added production and any other activity specified in the rules adopted by the Central Government.
• The deduction is allowed following the provisions of this section, which means that for availing of the benefit of the deduction, the Producer company has to fulfill various conditions mentioned in this section such as filing a return following the rules and regulations of the Income Tax Act, 1961 and concentration limits of producer companies set by the central government.
• In addition, the Producer Company should provide information regarding business activities, nature of business, turnover, profit, etc. within the stipulated time frame to avail the benefit of the deduction.
• It is also important for the manufacturer to obtain a certificate from a chartered accountant to claim this deduction. This deduction will contribute to the reduction of the tax liability of legal entities and will ultimately contribute to the improvement of the business activity of Manufacturing Companies.

Final words

In conclusion, Section 80PA of the Income Tax Act, of 1961 provides for the deduction of certain income of manufacturing companies. This deduction is allowed to support the socio-economic development of agriculture, horticulture, animal husbandry, and fisheries. This deduction is not available to individual producers, but only to registered production companies. It is therefore an important tool to support the socio-economic development of farmers.
You can also refer to our Article on “Section 80PA of Income Tax Act 1961, Inclusive of upgrades and Deduction” or you can simply connect with our Experts at Legal Window in case you need more clarification regarding, Deduction 80PA of Income Tax Act, 1961