Introduction
Agriculture and food processing sectors in India comprise farmers, producer organizations, food manufacturers, cold chain operators, micro food processing units, cooperatives, and other entities that add value to agriculture.
Understanding agribusiness tax benefits is important for financial planning for businesses in these sectors. However, tax exemptions and government subsidies are not granted just because a business is in the agriculture or food processing sector.
Eligibility depends on the nature of the business, location, level of investment, project size, product category and applicable government schemes, as well as provisions of the Income Tax Act.
The Government of India has multiple schemes for food processing. Recently, the Ministry of Food Processing Industries (MoFPI) has started various schemes and components of Pradhan Mantri Kisan SAMPADA Yojana and the Production Linked Incentive Scheme for Food Processing Industry. As of now, the MoFPI schemes cover cold chain, food processing and capacity addition, food safety and quality, agro and food processing clusters, and Operation Greens, among others.
From our experience, assessing tax treatment and subsidy eligibility is best done together for food processing units in Bangalore, Karnataka, and other places in India.
What Are Agribusiness Tax Benefits?
Exemptions, incentives, deductions, and other favorable treatments of the Income Tax Act, which are applicable to eligible agricultural and food processing activities, are broadly called agribusiness tax benefits.
The first step is to distinguish agricultural income from business income generated from the processing or other activities.
For instance, producing agricultural produce and running a packaged food processing unit will not be treated the same for income tax purposes.
A business advisor or chartered accountant should be able to advise you on the classification of income based on the activities carried out by the business.
Section 10(27): A Important Clarification
The reference to Income Tax Section 10(27) is sometimes related to agriculture and cooperative activities on the Internet, and this is not to be understood to provide a general exemption from income tax to food-processing units.
As of now, the Income Tax Department’s Explanatory Memorandum to this effect, deals with the income of a cooperative society formed for promoting the interests of members of Scheduled Castes and Scheduled Tribes, and this exemption is not to be understood to cover a general food-processing unit or an agricultural unit.
This differentiation is critical.
A food unit cannot claim an exemption merely because the raw material used is agricultural produce. The legal structure and the business activity has to be evaluated first.
Government Subsidies for Food Processing Units
Tax benefits and subsidies are two different methods of providing support by the government.
In broad terms, a tax benefit changes the manner in which a person computes or pays a tax under the law. A subsidy or incentive, on the other hand, gives a financial benefit under a government scheme.
PMFME and Micro Food Processing
The Pradhan Mantri Formalisation of Micro Food Processing Enterprises (PMFME) Scheme provides support to eligible micro food processing enterprises.
MoFPI scheme details state that credit-linked capital subsidy of 35% of the eligible project cost is available up to a maximum of Rs. 10 lakh for individual micro food-processing units, along with capacity building support.
Ministry of Food Processing Industries
However, applicants should exercise caution while treating the above figures as current available subsidies.
The initial PMFME scheme was planned to be operational for a period of five years from 2020-21 and MoFPI records its implementation up to 2024-25. Thus, applicants in 2026 should check if a relevant application window, extension, state implementation option or other successor support mechanism is available before taking an investment decision.
PM Kisan SAMPADA Yojana
PMKSY has several food processing infrastructure components.
As mentioned by MoFPI, other continued frameworks of PMKSY include schemes related to integrated cold chain and value-addition, food-processing and preservation, agro-processing cluster, food safety and quality assurance, and Operation Greens. The continuation stated by MoFPI is up to 31st March, 2026.
Ministry of Food Processing Industries
Given the continuance of several support mechanisms of MoFPI depends on various existing Government Orders, scheme verification is important to ascertain availability of a particular component.
The Production Linked Incentive Scheme for Food Processing Industry (PLISFPI) is yet another important Central Government Initiative.
MoFPI’s literature states that PLISFPI is a six-year scheme running from 2021-22 to 2026-27, covering select food-processing segments and eligible applicants.
MoFPI
Food Processing Companies
Not every food manufacturer is eligible. Eligibility is determined based on the product category, investment and sales, as well as applicant status and specific conditions of the scheme.
Who Should Assess These Benefits?
Food Processing Companies
Food processing companies involved in processing of fruit, vegetables, grains, dairy, marine products, and other ready to eat food may need to evaluate the available Central and State incentive schemes.
Micro Food Enterprises
Small Food manufacturing enterprises may need support on structuring projects, funding, bookkeeping and other activities.
Start-Ups
Food-tech and Food processing start-ups need to assess incentive schemes available before investing in high cost equipment or expanding their operations.
FPOs
FPOs and producer cooperatives may be eligible for government support for different activities based on the scheme.
MoFPI’s PMFME material, for example, covers support for FPOs, SHGs and producer cooperatives for activities such as sorting, grading, storage, processing, packaging, and marketing.
Some standard requirements may include:
-Constitution and Incorporation Documents of the business
-GST and PAN registrations
-Udyam registration (where applicable)
-FSSAI registration/license
-Detailed Project Reports
-Investment and Funding Plan
-Lease/Land documents
-Quotations for machinery and equipment
-Invoice of Suppliers
-Bank and Loan documents
-Projected Turnover and Production
-Audited Financial Statements (if any)
-Income Tax Returns
-GST Returns
-Promoter/Beneficiary details
-Product and Process details
-Other Subsidy Applications (if any)
The exact documents required may vary based on the tax situation of the applicant, and the scheme and applicant category.
A Practical Approach to Analyze Tax Benefits and Subsidies
Step 1: Define Business Activity
Define the business activity whether it is farming, processing, manufacturing, storage, packaging, cold chain, trading or a combination of activities.
Step 2: Define Legal Structure
The implications of taxes and benefits may differ for a proprietorship, partnership, LLP, company, cooperative and FPO.
Step 3: Identify Applicable Tax Provisions
Consider the relevant provisions of Income Tax Act, GST and other statutes, instead of considering in broad strokes, for instance, “business of agriculture.”
Step 4: Identify Government Schemes
See which schemes are currently notified by MoFPI and state governments. Consider project conditions and determine eligibility and the period within which applications are accepted.
Step 5: Financial Modeling
Project costs, working capital, expected revenue, taxes, financing costs and expected incentives.
Step 6: Compliance and Application Records
If an incentive is available, maintain records of invoices, utilization, bank records and other supporting documents.
Step 7: Review the Tax Treatment of the Incentive
Merely receiving a subsidy does not mean it is exempt from tax. It is important to evaluate the applicable law, purpose, terms and conditions to determine its tax treatment.
Professional review helps avoid mistaken assumptions.
Some Common Mistakes to Avoid
Assuming Every Food Business Gets a Tax Exemption
The businesses of food processing and agriculture are not the same for tax purposes.
Treating Section 10(27) as a General Food-Unit Exemption
As explained above, Section 10(27) covers a specific type of cooperative society and conditions and is not a general food-processing unit exemption.
Relying on Old Subsidy Information
Government schemes change. While implementing PMFME, the government set the initial subsidy at 35%, but businesses should check the current scenario before making plans based on this information.
Starting Investment Before Checking Eligibility
Some schemes have project and eligibility conditions and restrictions. Starting a project without considering these conditions and restrictions may result in the inability to avail the support.
Poor Financial Records
If book-keeping is poor and expenditures are not supported, compliance would be difficult.
GST and Income Tax Records should be consistent.
The benefits of Professional CA & Business Advisory Support
A food processing subsidy CA can help food processing units integrate project and tax planning and compliance.
Professional support includes:
- Analyzing taxability and exemptions
- Reviewing business structures
- Financial planning for projects and assessing eligibility for subsidies
- Document review
- Complying with GST and income taxes
- Accounting and bookkeeping
- Audit support
- Coordinating with the government for applications, where it is within the professional limits
- Review of subsidy accounting and tax treatment
- Monitoring compliance
This is often valuable to startups, small and growing businesses that do not have an in-house finance team.
Why Pavan Kumar & Co?
The practice, located in Seshadripuram, Bengaluru, offers services like GST, income tax, and accounting, bookkeeping, auditing, assurance, and business and corporate services.It has a team of professionals with experience in several areas like tax, finance and accounts.
They focus on practical solutions and ensure timely execution and compliance.
A food-processing enterprise evaluating agribusiness tax benefits in India can benefit from the services as they integrate tax planning, accounting, GST and financial services. The firm is in Seshadripuram, Bengaluru and supports businesses in Bangalore and throughout India.
Frequently Asked Questions
1. What are agribusiness tax benefits in India?
Agribusiness tax benefits can include applicable deductions, exemptions, incentives or other tax treatments available under Indian tax law for qualifying agricultural, food-processing or related activities. Eligibility depends on the taxpayer, activity and applicable provisions.
2. Does Section 10(27) provide an exemption to food-processing businesses?
Not generally. Section 10(27) concerns qualifying cooperative societies formed to promote the interests of members of Scheduled Castes or Scheduled Tribes and is subject to specified conditions. It is not a general exemption for food-processing units.
3. Can a food-processing unit receive a government subsidy?
Some food-processing enterprises may qualify for government schemes, depending on the current scheme, applicant category, project, product, location and other conditions. MoFPI currently lists several food-processing support programmes, but businesses should verify the latest eligibility and application window before relying on any subsidy. Ministry of Food Processing Industries
4. Is the subsidy automatically tax-free?
No. The tax treatment of a subsidy must be determined based on the applicable tax law and the purpose and conditions of the subsidy. Businesses should obtain professional advice before treating an incentive as exempt income.
5. Can a CA help with food-processing subsidy and tax planning?
A qualified CA can help review the business structure, tax position, financial records, applicable incentives and documentation requirements. The CA can also coordinate tax, GST, accounting and compliance work based on the enterprise’s circumstances.
Explore Agribusiness Tax Relief with CA Pavan Kumar & Co
Food businesses can benefit from careful planning, but tax exemptions and government subsidies should never be assumed solely because an enterprise operates in agriculture or food processing.
A structured review can help identify potentially relevant agribusiness tax benefits India, distinguish tax exemptions from government incentives, and assess the compliance requirements attached to each benefit.
Government schemes, eligibility conditions, application windows, deadlines, tax treatment and documentation requirements can change. Businesses should verify the current rules and consult a qualified CA before making investment or tax decisions.
Get an appointment to speak with our expert team and discuss your accounting and compliance requirements.
Pavan Kumar & Co.
Sannidhi, 26, RK Street, Jai Bheema Nagar, Seshadripuram, Bengaluru, Karnataka – 560020
Call: +91 9844081653
Email: capavankumars@gmail.com
This blog is for educational purposes only and should not be treated as tax, legal, or financial advice. Please consult a qualified chartered accountant for advice based on your specific situation.