FPOs seek MAT exemption to realise ‘full benefit’ from I-T relief

Farmer producer organisations (FPOs) from different States have started approaching the Union Finance Minister to seek exemption from minimum alternate tax (MAT).

A five-year tax holiday, which started in 2018 for FPOs, provided them complete income tax relief; but the law requires them to pay MAT instead.

In the 2018 Union Budget, then Finance Minister Arun Jaitley had announced 100 per cent income tax deductions for these farmer bodies for a five-year period to provide them a level playing field in competing with the private sector while ensuring better agricultural prices to farmers.

Recently, several FPOs across India reported receiving tax notices from the Income Tax department for failing to pay MAT. The FPOs had completed filing of income tax returns for fiscal 2018-19 and 2019-20 with “Nil” tax payable, believing that they were exempted from tax.

But it is learnt that the Income Tax department has issued notices to a large number of FPOs across India, and in certain cases has also begun investigation for a possible tax evasion.

FPOs from across the country are now coming together to raise their demand for a clarity on MAT applicability.

‘Coordination issues’

Kuldeep Solanki, Chief Executive Officer of Gujpro, a consortium of FPOs in Gujarat, stated that while there were no doubts on the government’s intention to provide level-playing field to the FPOs, “it looks like a lack of coordination between the policy intent and the practice. We have spoken to National Association of FPOs to raise it at the highest level in government.”

“This is a genuine concern of the FPOs, because without an actual tax relief, it is difficult for them to compete with private players, who come with expertise and resources. FPOs are new to the game and their objective is different from plain profit motive. They have to ensure higher incomes for farmers too,” said Solanki.

“The purpose of income tax relief to FPOs gets completely defeated with the imposition of MAT,” he added.

MAT was created under the direct tax laws, specifically to bring the ‘zero-tax paying companies’ under the income tax net. Its objective is to collect minimum tax from such companies, which claim exemptions or deductions under various provisions of the Income Tax Act and generate some revenues for the government.

Lack of clarity

In Karnataka, Farmers Producer Company’s Federation, a State-level consortium of FPOs, has written a letter to the Finance Minister Nirmala Sitharaman seeking directions to the concerned authorities in the Income Tax departments to extend MAT benefits to the FPOs.

Citing the Union Budget announcements of 2018, which gave exemption of payment of income tax for a period of five years for FPOs, Kurubur Shanthakumar, the Chief Convenor of the Federation wrote in the letter dated August 17, 2020: “However, we are asked to pay MAT at 19.5 per cent. As you know the income tax is 22 per cent and it amounts to effect where in, we are required to pay 19.5 per cent MAT.... This clause negates the benefit that you wanted to give to FPOs being a farmer-centric organisation.”

Chartered accountants associated with FPOs believe that a confusion may have been caused due to lack of clarity in the Finance Bill on MAT applicability on FPOs. “The Finance Department should have made an insertion in the Finance Bill with regard to MAT, clearly stating that it will not be applicable to the producer companies. But there is no such mention. Therefore, system doesn’t recognise it and generates a query at the assessment level. The assessing officer has to go by the book,” one accountant said.

“The government should clear this confusion and extend the exemption from MAT as well. Only then the actual purpose of the entire exercise will be fulfilled,” the CA informed.