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Who is this guide for? If you own or operate a flour mill (atta chakki), rice mill (rice huller), dal mill, or any grain processing unit in India, this guide covers your complete income tax obligations for AY 2026-27 (FY 2025-26): income classification, Section 44AD presumptive taxation, GST rates on loose and packaged grain products, GST on milling services, TDS on milling contracts, machinery depreciation (including the special 40% rate for flour mill rollers), FSSAI requirements, deductible expenses, and which ITR form to file.
India has over 2 lakh rice mills and tens of thousands of flour mills ranging from village-level single-chakki operations to automated multi-product plants. Most are proprietorships or small partnership firms with annual turnover between Rs 5 lakh and Rs 5 crore. Despite the scale difference between a neighbourhood atta chakki and a 50 TPD rice mill, the tax framework boils down to the same three questions: can you use Section 44AD presumptive taxation, what GST rate applies to each product and service, and which ITR form do you file?
This guide answers all three and covers every other tax obligation a mill owner faces. If you run a related food business, see also our guides for bakery owners, restaurant and cafe owners, caterers and food truck operators, and the business structure comparison for proprietorship vs partnership vs LLP vs company.
How Flour Mills and Rice Mills Earn Revenue
Mill revenue comes from two distinct models: own manufacturing (buying grain, processing, selling finished products) and custom milling (job work for farmers, traders, or government agencies).
Tax Rate Chart
Revenue Streams for Flour Mills and Rice Mills
Typical ranges; actual amounts vary by location, capacity, and product mix
Wheat Flour (Atta) - Loose/Packaged
Core product for flour mills; loose commands lower price, branded packaged gets premium
Maida (Refined Flour)
Higher margin by-product of wheat milling; bakery and restaurant demand
Suji and Rava (Semolina)
By-product of wheat milling; steady household and commercial demand
Rice - Milled and Polished
Varies widely by variety: raw rice, parboiled rice, basmati
Broken Rice
By-product of rice milling; sold to poha makers, breweries, animal feed
Rice Bran and Husk
Rice bran for oil extraction; husk for fuel, packaging, and biomass power
Custom Milling Charges (Job Work)
Government PDS milling, farmer custom milling; charged per kg of output
Wheat Bran (Choker)
Flour mill by-product; sold for animal feed and health food products
Source: Industry estimates based on APMC mandi prices, FCI procurement data, and mill operator surveys (FY 2025-26)
A small neighbourhood atta chakki with one or two stone or roller mills typically earns Rs 5 to Rs 20 lakh per year. A mid-size flour or rice mill with 5-10 TPD capacity generates Rs 50 lakh to Rs 3 crore. A large automated rice mill with parboiling, sorting, and packaging lines can exceed Rs 10 crore.
The key cost structure for rice mills: 65 to 75% of revenue goes to paddy procurement, 5 to 10% to power and fuel, 3 to 5% to labour. For flour mills: 60 to 70% goes to wheat procurement, 5 to 8% to power, 3 to 5% to labour. Net profit margins for most small and mid-size mills range from 8 to 20% after all expenses, with by-product sales (bran, husk, broken rice, suji, maida) contributing 15 to 30% of total revenue.
Income Classification: Business Income Under PGBP
Flour mill and rice mill income is classified as business income under "Profits and Gains of Business or Profession" (PGBP). Whether you manufacture finished grain products or provide custom milling services, the income falls under business income. It is not professional income, so Section 44ADA does not apply.
The manufacturing-versus-service distinction matters for GST (see below), but for income tax purposes, both own manufacturing and job work milling are business income computed under the same PGBP rules.
Section 44AD: Presumptive Taxation for Mills
Flour mills and rice mills are straightforward manufacturing businesses. Section 44AD applies if the following conditions are met:
Comparison
Section 44AD Eligibility for Flour Mills and Rice Mills
| Condition | Requirement | Mill Owner Status |
|---|---|---|
| Business type | Any eligible business except agency, commission, brokerage, or profession | Eligible: manufacturing business |
| Entity type | Resident individual, HUF, or partnership firm (not LLP) | Eligible if proprietorship or partnership |
| Turnover limit | Rs 2 crore (Rs 3 crore if cash receipts under 5%) | Most small and mid-size mills qualify |
| Opt-out restriction | If opted in, must continue for 5 years; opt-out bars re-entry for 5 years | Consider before opting in |
How Section 44AD Works for a Mill
Under Section 44AD (mapped to Section 58 under the Income Tax Act 2025):
- Declare 6% of turnover received through digital modes (UPI, NEFT, RTGS, bank transfer, account-payee cheque, credit/debit card) as deemed profit
- Declare 8% of turnover received in cash as deemed profit
- No need to maintain detailed books of accounts
- No need to get a tax audit under Section 44AB
- File ITR-4 (Sugam)
- Pay advance tax in a single installment by March 15
Example: A rice mill with Rs 1.2 crore annual turnover, of which Rs 1.08 crore is received via bank transfer and Rs 12 lakh in cash:
Tax Rate Chart
Section 44AD Computation for a Rice Mill
FY 2025-26 (AY 2026-27)
Digital Receipts (Rs 1.08 crore x 6%)
UPI, NEFT, bank transfers, cheques
Cash Receipts (Rs 12 lakh x 8%)
Cash payments from farmers and local traders
Total Deemed Profit
This is the taxable business income under PGBP
Tax Under New Regime (Rs 7,44,000)
New regime: Rs 4 lakh exempt + Rs 8 lakh at 5% = Rs 40,000 tax, but Section 87A rebate wipes it to Nil
Source: Income Tax Act, Section 44AD / Section 58 (ITA 2025)
In this example, the mill owner pays zero income tax because the deemed profit is below the Section 87A rebate threshold under the new regime.
When Section 44AD Does NOT Work
If your actual profit is lower than 6-8% of turnover, declaring under 44AD means paying tax on inflated income. This commonly happens in milling when:
- Paddy or wheat procurement prices spike due to MSP increases or market shortage
- Power costs are high (milling is energy-intensive, especially rice parboiling)
- Large capital expenditure on new milling machinery reduces actual profit after depreciation
- Custom milling margins are thin (Rs 1-3 per kg on government PDS contracts)
- Wastage and driage losses are above normal (3-5% is typical for rice milling)
In such cases, opt out of 44AD, maintain full books of accounts, claim actual expenses including depreciation, and file ITR-3. You will need a tax audit if turnover exceeds Rs 1 crore (Rs 10 crore if cash receipts and payments are each under 5% of total). Missing the tax audit deadline attracts a penalty under Section 271B of 0.5% of turnover or Rs 1.5 lakh, whichever is lower.
GST on Grain Products: The Loose vs Packaged Distinction
GST on grain products changed significantly from 18 July 2022. The key distinction is whether goods are sold loose or pre-packaged and labelled.
Tax Rate Chart
GST Rates on Common Mill Products
Post GST 2.0 rate rationalisation (from 22 September 2025)
Wheat, paddy, rice, other cereals (loose, unpackaged)
HSN 1001 (wheat), 1006 (rice). Must be sold without pre-packaging
Wheat flour (atta), rice flour, maida, suji (loose)
HSN 1101 (wheat flour), 1102 (other cereal flour). Loose and unbranded
Wheat flour, rice, maida, suji (pre-packaged and labelled)
Packed per Legal Metrology Act, branded or unbranded. HSN 1101/1006
Wheat bran, rice bran (loose)
HSN 2302. Animal feed grade
Wheat bran, rice bran (pre-packaged and labelled)
HSN 2302. Packaged for retail
Rice bran oil
HSN 1515. Edible oil category
Puffed rice (murmura), flattened rice (poha)
HSN 1904. Exempt whether loose or packaged
Custom milling (job work: wheat to flour, paddy to rice)
SAC 9988. Service charge only. PDS milling for government may be exempt
Source: CBIC Notification 1/2017-CT(R) and 2/2017-CT(R) as amended; Notification 6/2022-CT(R)
What Counts as Pre-Packaged and Labelled?
Since 18 July 2022, any commodity packed in a unit container bearing a label with declarations required under the Legal Metrology Act 2009 (weight, manufacturer name, MRP, etc.) attracts 5% GST, even if it does not carry a brand name. This means:
- A flour mill selling 5 kg atta packets with printed weight and mill name: 5% GST
- The same mill selling atta loose from a bulk container into customer's own bag: Nil GST
- A rice mill selling 25 kg branded basmati rice bags: 5% GST
- The same mill selling unpolished rice loose to a local trader: Nil GST
GST on Custom Milling (Job Work)
When a mill processes grain on behalf of someone else (farmer brings wheat, mill returns flour minus milling loss), this is a service, not a sale of goods. GST on job work milling of wheat into flour or paddy into rice is 5% under SAC 9988, charged on the milling fee only.
Special case: milling wheat or paddy for State Government distribution under the Public Distribution System (PDS) is exempt from GST if the value of goods in the composite supply does not exceed 25% of the total supply value.
GST Registration Threshold
GST registration is mandatory once turnover exceeds Rs 40 lakh for goods (Rs 20 lakh for services, Rs 20 lakh in special category states). If your mill sells only loose, Nil-rated products, you may still cross the threshold on aggregate turnover including exempt supplies.
If turnover is under Rs 1.5 crore, the GST Composition Scheme at 1% for manufacturers is available. Under composition, you pay 1% of turnover as GST, cannot claim input tax credit, and cannot collect GST from customers.
TDS on Milling Payments: Section 194C
When a corporate entity, government body, or any person covered under TDS provisions pays a mill for custom milling or contract processing, TDS under Section 194C may apply.
Comparison
TDS on Milling: Works Contract vs Contract for Sale
| Scenario | Classification | TDS Applicable? |
|---|---|---|
| FCI/State agency pays mill for PDS custom milling of paddy into rice | Works contract (job work) | Yes, 194C at 1% (individual/HUF) or 2% (firm/company) |
| Trader gives wheat to mill, gets flour back, pays milling charges | Works contract (job work) | Yes, 194C at 1% or 2% |
| Hotel chain buys 500 kg branded atta packets from mill's stock | Contract for sale (finished goods purchase) | No TDS under 194C |
| Corporate canteen orders custom-ground flour to specification | Works contract | Yes, 194C at 1% or 2% |
TDS Thresholds Under Section 194C
- Single payment exceeding Rs 30,000: TDS applies
- Aggregate payments in the financial year exceeding Rs 1,00,000: TDS applies
- TDS is deducted on the invoice amount excluding GST if GST is shown separately on the invoice (CBDT Circular 23/2017)
By-Products and TDS
In custom milling, the mill often retains by-products (rice husk, bran, broken rice) as part of the milling arrangement. Several tribunal rulings have held that TDS under Section 194C applies only on the actual milling charges paid, not on the value of by-products retained by the miller, because the by-products are not "payment" for the contract.
If your mill receives payments from government agencies or corporate clients, you will see TDS deductions reflected in your AIS/Form 26AS. Claim credit for this TDS when filing your ITR.
Depreciation on Milling Machinery
If you opt out of Section 44AD and maintain full books, depreciation on machinery is a major deduction. Milling equipment has a special depreciation rule that most mill owners miss:
Comparison
Depreciation Rates for Mill Equipment (WDV Method)
| Asset | WDV Rate | Notes |
|---|---|---|
| Flour mill rollers | 40% | Special category under Income Tax Rules. Previously 60% (reduced from 1 April 2017). Applies specifically to rollers used in flour mills |
| Rice hullers, polishers, de-stoners, paddy separators, graders | 15% | General plant and machinery category |
| Parboiling tanks, dryers, boilers | 15% | General plant and machinery |
| Packaging machines, weighing scales | 15% | General plant and machinery |
| New manufacturing plant and machinery (additional) | 20% | Additional depreciation on new assets acquired and installed. First year only |
| Computers and billing software | 40% | Separate block from plant and machinery |
| Delivery vehicles and trucks | 15% | Separate block |
| Furniture and fixtures (office, showroom) | 10% | Separate block |
| Factory building | 10% | Building block |
| Intangible assets (software licenses) | 25% | If purchased separately from hardware |
The 40% Flour Mill Roller Advantage
Flour mill rollers are explicitly listed as a special asset class in the Income Tax depreciation schedule, qualifying for 40% WDV depreciation instead of the standard 15% for plant and machinery. This applies to the rollers specifically, not to the entire milling unit. For a mid-size flour mill that invests Rs 20 to Rs 50 lakh in roller sets, this means significantly higher depreciation deductions in the early years.
Additional 20% Depreciation for New Manufacturing Plant
Under Section 32(1)(iia), a mill that acquires and installs new plant and machinery (other than ships, aircraft, office appliances, or second-hand assets) for manufacturing purposes gets an additional 20% depreciation in the first year. This applies to both flour mill and rice mill equipment. Combined with the regular 15% rate for general machinery, the effective first-year depreciation on a new rice huller or polisher is 35% (15% + 20%). For flour mill rollers, it is 60% (40% + 20%).
The half-year rule applies: if equipment is installed and used for fewer than 180 days in the financial year, only 50% of the depreciation is allowed that year.
FSSAI License and Other Regulatory Requirements
Unlike non-food businesses, mills have additional compliance requirements beyond income tax and GST.
Step-by-Step Guide
Mandatory Licenses for a Flour Mill or Rice Mill
FSSAI License or Registration
Mandatory under the Food Safety and Standards Act 2006. Basic registration if turnover is below Rs 12 lakh. State license for production capacity up to 2 MT per day. Central license for larger operations. Apply online at foscos.fssai.gov.in. License is valid for 1 to 5 years and must be renewed before expiry. Penalty for operating without license: up to Rs 5 lakh and possible closure.
Trade License from Local Authority
Required from the municipal corporation or panchayat where the mill operates. Annual renewal in most states.
Pollution Control Board Consent
Rice mills with parboiling units generate effluent and require Consent to Establish (CTE) and Consent to Operate (CTO) from the State Pollution Control Board. Flour mills without parboiling may fall under green or white category depending on state rules. Check your State PCB classification.
Udyam MSME Registration
Free registration at udyamregistration.gov.in. Required for Section 43B(h) MSME payment protection, priority sector lending, Mudra loan eligibility, and government procurement preferences. NIC code: 10611 (flour milling) or 10612 (rice milling).
Weights and Measures License
Required under the Legal Metrology Act 2009 if you sell packaged commodities. Covers weighing instruments and pre-packaged declarations.
See our detailed guide on FSSAI registration for food businesses for the complete application process and documents required.
Deductible Expenses for Mill Owners
If you file under actual profit (ITR-3) instead of Section 44AD, these business expenses are deductible:
Comparison
Common Deductible Expenses for Flour Mills and Rice Mills
| Expense Category | Typical % of Revenue | Tax Treatment |
|---|---|---|
| Grain procurement (wheat, paddy, dal) | 60-75% | Fully deductible. Maintain purchase bills from APMC mandi or direct farmer purchases |
| Electricity and fuel (diesel, rice husk as fuel) | 5-10% | Fully deductible. Keep meter bills and fuel purchase records |
| Labour and wages | 3-5% | Deductible. Deduct TDS under Section 192 if salary exceeds basic exemption |
| Rent for mill premises | 2-5% | Deductible. Deduct TDS under Section 194I if rent exceeds Rs 50,000/month |
| Repair and maintenance of machinery | 1-3% | Fully deductible as revenue expense (not capital) |
| Packaging material (bags, labels, stitching thread) | 1-3% | Fully deductible |
| Transport and freight | 2-4% | Deductible. TDS under 194C if transporter payment exceeds thresholds |
| Insurance (mill, stock, fire, machinery) | 0.5-1% | Fully deductible as business expense |
| Interest on business loan | Variable | Deductible under Section 36(1)(iii). Maintain loan sanction letter and bank statements |
| Depreciation on machinery | Variable | See depreciation table above. Claimed as per WDV method |
| FSSAI license fees | Nominal | Fully deductible |
| Cash payments above Rs 10,000 | Varies | DISALLOWED under Section 40A(3). Pay by cheque/UPI for amounts above Rs 10,000 per day per person |
Important: Section 40A(3) disallows any single cash payment exceeding Rs 10,000 to a single person in a single day. In the milling business, where grain procurement from farmers often involves cash, ensure payments above Rs 10,000 are made through banking channels. Farmer payments through APMC mandi accounts are typically bank-routed, which satisfies this requirement.
Section 43B(h): MSME Payment Compliance
Under Section 43B(h), if your suppliers are registered MSMEs under Udyam, you must pay them within 45 days (with agreement) or 15 days (without agreement). Payments not made within this period are disallowed as expenses in the current year and allowed only in the year of actual payment. This is particularly relevant for mills that buy from MSME packaging suppliers or hire MSME transport operators.
Business Code and ITR Filing
Business Codes for ITR
Comparison
Business Codes for Mill Owners
| Business Type | ITR Business Code | NIC Code |
|---|---|---|
| Flour milling (wheat flour, atta, maida, suji) | 04008 | 10611 |
| Rice milling (paddy to rice) | 04009 | 10612 |
| Other grain milling (dal, corn, millet flour) | 04011 | 10614 |
| Grain trading (buying and selling without milling) | 09028 | 46309 |
Use the ITR business code when filing your return. Use the NIC code for Udyam MSME registration, company incorporation, LLP registration, and GST registration.
Which ITR Form?
Step-by-Step Guide
Choosing the Right ITR Form for AY 2026-27
ITR-4 (Sugam)
Use if: you are a resident individual, HUF, or partnership firm (not LLP); turnover is under Rs 2 crore (Rs 3 crore digital threshold); you are opting for Section 44AD presumptive taxation; and total income is under Rs 50 lakh. This is the simplest form for most small mill owners.
ITR-3
Use if: you maintain full books of accounts, claim actual expenses and depreciation, or your income exceeds Rs 50 lakh. Required if you have opted out of Section 44AD or declared profit below 6-8% of turnover. Individuals and HUFs with business income.
ITR-5
Use if: you operate as a partnership firm or LLP. Partnership firms cannot use ITR-4.
ITR-6
Use if: you operate as a private limited company. Companies must file ITR-6. New manufacturing companies may qualify for the Section 115BAB 15% tax rate.
For a detailed comparison, see our guide on ITR-2 vs ITR-3 vs ITR-4.
Tax Regime: Old vs New
Most mill owners will benefit from the new tax regime because:
- Section 44AD users cannot claim most deductions under the old regime anyway (no separate depreciation, no rent deduction; these are deemed included in the 6-8% profit)
- The new regime's higher basic exemption (Rs 4 lakh) and Section 87A rebate (income up to Rs 12 lakh is effectively tax-free) cover most small mill owners' deemed profits
- Only mill owners with high actual deductions (Section 80C, interest on housing loan, etc.) exceeding the new regime advantage should consider the old regime
Section 115BAB: The 15% Rate for New Manufacturing Companies
If you are setting up a new flour mill or rice mill as a private limited company, Section 115BAB offers a flat 15% tax rate (effective 17.16% including surcharge and cess). Conditions:
- Company must be incorporated on or after 1 October 2019
- Manufacturing must commence on or before 31 March 2024 (extended deadlines apply; verify for your setup date)
- Cannot claim any deduction or incentive under Chapter VI-A (except Section 80JJAA for new employees) or depreciation-related incentives
- Must not be formed by splitting up or reconstruction of an existing business
For existing companies, Section 115BAA offers 22% (effective 25.17%) without deductions, or the regular rate with deductions. Compare using our guide on MAT under Section 115JB.
Advance Tax for Mill Owners
If your total tax liability exceeds Rs 10,000 in a financial year, you must pay advance tax:
- Section 44AD users: Pay the entire advance tax in one installment by 15 March
- Non-44AD filers: Pay in four installments: 15% by 15 June, 45% by 15 September, 75% by 15 December, 100% by 15 March
Failure to pay advance tax attracts interest under Section 234B and 234C. Late filing of the return attracts interest under Section 234A and a late fee under Section 234F (Rs 1,000 if income is under Rs 5 lakh, Rs 5,000 otherwise).
Common Filing Mistakes for Mill Owners
Step-by-Step Guide
7 Mistakes That Trigger Notices
1. Not Reporting By-Product Revenue
Rice bran, husk, broken rice, wheat bran, maida, and suji are taxable revenue, not just the main product. The AIS will show purchase entries from your buyers. Under-reporting by-product income is the most common mismatch that triggers a Section 143(1) intimation.
2. Claiming 40% Depreciation on All Mill Equipment
The 40% rate applies ONLY to flour mill rollers specifically. Hullers, polishers, graders, and all other machinery are at 15%. Over-claiming depreciation gets caught during assessment.
3. Cash Purchases Above Rs 10,000 Without Banking Channel
Section 40A(3) disallows these entirely. In grain procurement from mandis, always route payments above Rs 10,000 through bank. Keep cancelled cheques and bank statements.
4. Not Deducting TDS on Milling Labour and Transport
If you pay contract labour, transport operators, or rent above TDS thresholds, you must deduct and deposit TDS. Non-deduction leads to 30% disallowance under Section 40(a)(ia).
5. Mixing Personal and Business Expenses
Using the mill's bank account for personal expenses, or claiming personal vehicle fuel as business expense. Maintain separate bank accounts for business and personal use.
6. Ignoring GST on Pre-Packaged Products
Selling packaged atta or rice with labels but not charging 5% GST. The GST authorities check FSSAI license holders against GST registrations. If you have an FSSAI license for packaged goods but no GST registration, expect a notice.
7. Filing Wrong ITR Form
Filing ITR-4 when turnover exceeds Rs 2 crore, or filing ITR-4 as an LLP (LLPs cannot use ITR-4). The return will be treated as defective under Section 139(9).
Pre-Filing Checklist for AY 2026-27
Use this checklist before filing your mill's income tax return:
Comparison
ITR Filing Checklist for Mill Owners
| Item | Action Required | Document |
|---|---|---|
| AIS and Form 26AS | Download from incometax.gov.in. Cross-check TDS credits, turnover reported by buyers, and bank interest | AIS, Form 26AS |
| GST returns reconciliation | Match GSTR-3B turnover with ITR turnover. Both should reconcile | GSTR-3B annual summary |
| Turnover calculation | Include all sales: main product + by-products + milling charges + scrap | Sales register, bank statements |
| Section 44AD threshold | Verify total turnover is within Rs 2 crore (Rs 3 crore digital). If crossed, file ITR-3 with full books | Turnover summary |
| Advance tax payments | Verify challans for advance tax paid during the year. Claim credit in ITR | BSR code, challan serial numbers |
| TDS certificates | Collect Form 16A from all deductors. Match with AIS credits | Form 16A |
| Bank interest income | Include savings account interest and FD interest in total income | Bank certificates, Form 26AS |
| FSSAI and trade license | Keep copies. License fees are deductible business expenses | License certificates |
| Depreciation schedule | If claiming actual depreciation, prepare block-wise WDV schedule. Separate flour mill rollers (40%) from other machinery (15%) | Asset register |
| Section 43B(h) compliance | Verify all MSME supplier payments were made within 45/15 day limit | Payment records, supplier Udyam certificates |
Summary
Flour mills and rice mills are manufacturing businesses eligible for Section 44AD presumptive taxation at 6-8% of turnover. GST on grain products is Nil for loose sales and 5% for pre-packaged and labelled goods. Custom milling services attract 5% GST. TDS under Section 194C applies on milling job work payments. Flour mill rollers get 40% WDV depreciation while other machinery gets 15%. FSSAI license is mandatory. File ITR-4 under 44AD or ITR-3 with full books, and ensure by-product revenue is fully reported.
For personalised filing assistance, reach out to Tax Garden for flat-fee ITR and GST compliance for your mill.
