India Boosts Cooperative Sugar Mills with Tax Relief
The Government of India has announced significant measures to strengthen Cooperative Sugar Mills (CSMs) across the country. These initiatives include tax relief for sugar factories, a substantial loan scheme, and enhanced support for ethanol production. The aim is to resolve longstanding tax disputes and promote the cooperative movement within the sugar sector.
Tax Relief for Cooperative Sugar Mills
In a move to alleviate financial burdens on Cooperative Sugar Mills, the Indian government has introduced tax relief measures. CSMs often pay sugarcane growers a Final Cane Price (FCP) that exceeds the Statutory Minimum Price (SMP) set by the Central Government. This practice has led to tax litigation, as cooperative factories sought to classify the excess payment as a business expense. However, tax authorities previously disallowed these claims, arguing that the additional payment constituted profit distribution rather than deductible expenditure.
To clarify this issue and encourage cooperative operations in the sugar sector, a new clause was added to the Income Tax Act. This amendment allows CSMs to deduct payments made for sugarcane purchases at prices equal to or lower than those approved by the government. This change is effective from April 1, 2016, and aims to provide certainty in tax assessments for cooperative sugar factories.
Resolving Longstanding Tax Disputes
The recent tax relief measures also address unresolved tax demands related to Cooperative Sugar Mills for assessment years prior to 2016. Although the new provisions clarified the treatment of additional payments for sugar, many tax disputes remained pending. To resolve these issues, the Finance Act of 2023 amended Section 155 of the Income Tax Act, allowing CSMs to apply for reassessment of their income for previous years. This reassessment will enable the deduction of expenses incurred for sugarcane purchases, provided they align with government-approved prices.
The Central Board of Direct Taxes (CBDT) has issued a Standard Operating Procedure to facilitate this process, ensuring that cooperative sugar mills can benefit from the tax relief retroactively. This initiative aims to provide a fair resolution to longstanding tax disputes and support the financial stability of CSMs.
Financial Support Through Loan Schemes
In addition to tax relief, the Ministry of Cooperation has launched a loan scheme to further strengthen Cooperative Sugar Mills. The initiative, titled “Grant-in-aid to NCDC for Strengthening of Cooperative Sugar Mills,” allocates ₹1,000 crore to the National Cooperative Development Corporation (NCDC) for the financial years 2022-23 and 2024-25. This funding will enable NCDC to provide loans up to ₹10,000 crore to CSMs for various purposes, including setting up ethanol plants and enhancing working capital.
To ease the financial burden on CSMs, NCDC has revised its funding pattern, allowing cooperative societies to contribute only 10% of the project cost, with the remaining 90% covered by NCDC. Additionally, the interest rate for term loans has been reduced to 8.50%, making it more accessible for cooperative sugar mills to invest in infrastructure and technology.
Enhancing Ethanol Production and Procurement
The government is also prioritizing ethanol production from Cooperative Sugar Mills. Oil Marketing Companies (OMCs) are now giving preference to CSMs in ethanol procurement cycles, with significant quantities of ethanol already procured. Furthermore, the Ministry of Cooperation is facilitating the conversion of existing molasses-based ethanol plants into multi-feed ethanol plants. This initiative will allow CSMs to operate their distilleries year-round, enhancing their production capacity. Under a newly announced scheme, the Central Government will subsidize interest on loans taken by CSMs for converting their plants, ensuring they receive financial support during the transition. This comprehensive approach aims to bolster the cooperative sugar sector, ensuring its sustainability and growth in the coming years.
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