Maha coop sugar mills mull paying more to farmers as tax demand settles

Sugar farmers hold key to several seats in the state

With the Centre clearing the air on the imbroglio over taxes on payments of sugarcane prices over and above the fair and remunerative price (FRP) or statutory minimum price (SMP), several sugar mills in the cooperative sector are now looking to pay a cane price that is Rs. 20-30 per quintal more than the average FRP for the 2023-24 season to farmers, informed industry sources.

This could come as a bonanza for farmers associated with these cooperative sugar mills as members, a significant number of whom are in the politically critical state of Maharashtra.

According to industry sources, there are broadly around 15 million farmers, along with their families, who are dependent on cooperative sugar mills across India, of which almost 8.5 million, or 57 per cent, are in Maharashtra alone.

In Maharashtra, sugarcane farmers and their well-being are also significant political issues, particularly in elections.

In the 2020-21 sugarcane season (October to September), the average FRP paid by cooperative sugar mills in Maharashtra was 319 per quintal, which rose to Rs. 324 per quintal in the 2021-22 season.

And, in the 2022-23 season, cooperative sugar mills in Maharashtra paid an average FRP of Rs. 333 per quintal.

Sources said that in the past few years, cooperative sugar mills in the state were wary of paying anything over and above the designated average FRP that is calculated based on recovery, as there wasn’t any clarity as to whether such excess payment would be considered as distribution of profit or business expenditure.

However, with the income-tax (I-T) department laying down the rules through which cooperative sugar mills can claim past cane prices paid to farmers in excess of the FRP or SMP as business expenditure, several mills are looking to restart making an extra payment to farmers over the designated FRP from the next season onwards.

A few weeks ago, the I-T department laid down the rules through which cooperative sugar mills can offset the payments made over sugarcane FRP or SMP in the past — before the assessment year (AY) 2016-17 — as business expenditure.

This, according to some reports, would mean an indirect benefit of around Rs. 10,000 crore by way of settlement of past claims and litigation for the excess payment made before AY 2016-17.

The Narendra Modi government, in an amendment made to the Finance Act in the 2015-16 Budget, had provided that excess payments made by cooperative sugar mills over the SMP were allowed as business expenditure for computing business income.

However, this amendment was applicable only prospectively from AY 2016-17.

The amendment did not settle the past demands that originated much before AY 2016-17.

Thereafter, numerous representations were made to the Centre, and finally, after the new cooperative ministry was formed under Home Minister Amit Shah, the matter came into focus.

Subsequently, Finance Minister Nirmala Sitharaman in the 2023-24 Budget sought to end the matter and extended the benefit of the deduction to all financial years starting before 2015-16. Some of these demands date back to 1985.

However, in the absence of an SOP, tax officials on the ground were without a clue about how to administer the proposal.

This too was finally settled after the I-T department issued an SOP a few weeks ago that will now start the process of recalculating past business incomes.