The present study was conducted to examine the effects of institutional credit on cost, returns and profitability in the Tumkur district of Karnataka State during 2008-09. A sample of 120 respondents was selected in which sixty were the borrowers and sixty were non-borrowers the same area. Sample t-test was used to compare the production and income of beneficiaries. The analysis revealed that the income of beneficiary farm category was higher than that of non-beneficiaries. With credit for paddy, ragi, groundnut, pegionpea, arecanut and coconut was more compared to the non-beneficiaries and which showed a significant difference in yields except coconut yield. The cost and return structure of major crops, viz, paddy and ragi revealed that the total cost of cultivation was to Rs.12045.11 and 11715.84 per acre respectively on borrower farms compared to Rs. 9991.4 and 10056.44 per acre on non-borrowers farms. The net returns derived from paddy and groundnut were Rs. 16,124.33 and 14,809.88 (on borrower farms) and Rs.11, 132.22 and 8,771.34 (on non-borrower farms), respectively. Farm credit has positive impact on the per acre yield of crops under study and also on farmers income.