FPOs should be given exemption from applicability of TDS under section 194O, says Assocham

Stating that a structural shift is underway within India’s economy, industry chamber Assocham in a report on its pre-Budget recommendations, has said that the nation is moving towards greater prominence in manufacturing and services from agriculture.

By 2047, manufacturing and services sectors are projected to employ around 67 per cent of the workforce and contribute more than 75 per cent of the GDP.

The chamber, while supporting the government’s policy approach in addressing potential inflationary trends, suggested that that the government needs to increase investment in agricultural infrastructure, including irrigation, storage, and transportation, to mitigate supply-side bottleneckssince as food inflation has been a persistent concern, though driven by disruptions in supply chains, climatic changes, and global market trends.

Additionally, promoting sustainable farming practices and enhancing resilience to climate change could help stabilize food production and prices in the long term.

The Reserve Bank of India (RBI) has maintained its inflation forecast at 4.5 per cent for the current fiscal, despite significant concerns surrounding rising food and oil prices.

While the RBI’s stance reflects an optimistic outlook on inflation control, it is critical for the government to take proactive steps in mitigating the pressures posed by these inflationary risks.

The following recommendations aim to support the government’s policy approach in addressing potential inflationary trends and ensure long-term economic stability.

The industry body said that the income of farmer producer organisations (FPOs) relating to the eligible agriculture related business is also entitled to 100 per cent deduction under section 80PA of the Income Tax Act till March 31, 2025. Consequently, even FPOs should be given an exemption from the applicability of TDS under section 194O of the Act, it said.

It has also suggested that digital platforms operated for the benefit of farmers/FPOs should be excluded from the purview of Sec. 194O.

As the agricultural income of farmers is completely exempt from tax, It has explained that they should not be subjected to TDS.

Further, many farmers will not have PAN or may not be filing their return of income. In such cases, the burden of TDS will be 5 per cent as per provisions of section 206AA and 206AB of the Act.

In absence of PAN/return filing, deduction of TDS @ 5 per cent u/s 194O from the sale proceeds of farmers, will be an additional cost, thereby reducing their net realisations.

While the percentage of deduction u/s 1940 was reduced from 1 per cent to 0.1 per cent, the percentage of deduction for instances u/s 206AA and 206AB was not changed.

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