Direct Taxes

Co-operative Society – Taxation

1. Meaning

Co-operative society means a society registered under Co-operative Societies Act, 1912 or any other law in force in any State for the registration of co-operative societies.
Regional rural bank is deemed as co-operative society (Circular 319 dated 11-1-1982)

2. Rate of Tax

Income up to ₹ 10,000 = 10%
Income ₹ 10,001 up to ₹ 20,000 = 20% of income exceeding ₹ 10,000 + ₹ 1,000
Income ₹ 20,001 onwards = 30% of income exceeding ₹ 20,000 + ₹ 3,000

For A.Y. 2019-20

Health and Education Cess is 4% of Income Tax and surcharge of 12% will be applicable if the total income exceeds ₹ 1,00,00,000/-. Marginal Relief is Available.

Alternative Minimum Tax

Tax payable by a co-operative cannot be less than 18.5% (Surcharge + EC + SHEC) of “adjusted total income” as per section 115 JC since A.Y. 2013-14.

Option of reduced tax rate applicable form A.Y. 2021-22 onwards

Section 115BAD has been inserted by Finance Act 2020 to provide that income tax payable in respect of the total income of a co-operative society resident in India in respect of assessment years commencing on or after 1st April 2021 shall, at the option of such society, be computed at the rate of 22%, if specified conditions are satisfied.
Where the co-operative society fails to satisfy the specified conditions in computing its income in any previous year, the option shall become invalid in respect of assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option had not been exercised for assessment year relevant to that previous year and subsequent assessment years.
The above option is to be exercised in such manner as may be prescribed on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for any assessment year commencing on or after 1st April 2021 and such option once exercised shall apply to subsequent assessment years.
Once the option is exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
Conditions specified for availing the option u/s 115BAD by a resident co-operative society:
1. Income is computed without deductions / exemptions under S.10AA, S.32(1)(iia), S.32AD, S.33AB, S.35(1)(iia)/(iii), S.35(2AA), S.35AD, S.35CCC or provisions of Chapter VI-A except Sec. 80JJAA
2. Income is computed without claiming set-off of any loss carried forward or unabsorbed depreciation, if the same is attributable to above deductions / exemptions. Any such loss or depreciation shall be deemed to have been given full effect to and no further deduction of such loss or depreciation shall be allowed for any subsequent year
3. Income is computed by claiming depreciation, if any, other that under S. 32(1)(iia), in such manner as may be prescribed.
4. Deduction u/s 80LA in respect of a unit in International Financial Service Centre (IFSC) shall be available subject to fulfilment of conditions contained in that section.

Note: Provisions of S. 115JC pertaining to Alternate Minimum Tax shall not apply to co-operative societies exercising the above option u/s. 115BAD

3. Filing of return & due date & PAN/TAN & 269T

It is imperative to apply for PAN by each income earning Co-operative Society.
Since accounts of all co-operative societies are subject to statutory audit provisions under respective governing laws, therefore due date for filing return of income under the Income-tax Act, 1961 is September 30.
If the society has to deduct income tax it must obtain TAN number. The society is also bound by provisions of TAN and filing of return of TDS.

4. Principle of Mutuality

Income of the co-operative society to which the Doctrine of Mutuality applies is not taxable.
A co-operative society is a mutual association. A mutual association is one in which the members of the group come together for a common objective, make contributions for achieving that objective and participate in the surplus arising out of it. It is not necessary that all the members have to contribute to common fund and all the members have to take benefit of the resultant surplus. It is sufficient even if some members may contribute and some members may only take benefit, concept of mutuality will still apply if all members are covered by the same conditions and have the same entitlements. If a society carries on some activities which are mutual and some activities which are not, then the concept would apply to only those activities which are mutual.
In respect of contributions from members concept of mutuality would be applicable. Surplus arising out of contributions would be covered by concept of mutuality and therefore not considered as an income at all.

5. Tax Audit

Tax audit is compulsory if turnover of society (engaged in business) is more than ₹ 1 crore. Tax Audit provisions is generally not applicable to societies which do not carry on any business. For example, housing societies in years of construction of building premises and redevelopments of their properties, provisions of section 44AB would not apply as there is no business activity.

6. Deduction available to co-operative society – Section 80P

Sr. No.	Society engaged in business of Nature of Income	Amount deductible	Applicability & Conditions
1)	Carrying on the Business of Banking or Providing credit facility to members	Entire profit from such business	Deduction not available to co-operative bank. Primary co-operative agricultural & rural development bank & chit funds can claim deduction. Providing credit facility means providing loans & other credit facilities. Does not include selling goods on credit/hire purchase.
2)	Cottage Industry	Entire profit from such business	For qualifying as cottage industry – Business is to be carried on in a small scale, with limited capital, workers & turnover. Business is carried on by members of society (shareholders) & their families. Business must involve activity of manufacture, production or processing and not merely in trade. It is not required to be registered under Factories Act.
3)	Marketing of Agricultural Produce	Entire profit from such business	Grown by its members
4)	Purchase of Agricultural Implements, seeds, livestock, other articles intended for agriculture	Entire profit from such business	If it is for the purpose of supplying them to its members.
5)	Processing Agricultural Produce of Members (without aid of power)	Entire profit from such business	—
6)	Collective Disposal of labour of its members	Entire profit from such business	Deduction is available only when earning of society is through the utilisation of the actual labour of its members Deduction is available provided the rules & bye-laws of the society restrict the voting rights to following class of members – Individuals who contribute their labour Co-op. credit societies which provide financial assistance to the society State Government
7)	Fishing & Allied Activities	Entire profit from such business	It includes catching, curing, processing, preserving, storing or marketing of fish or purchase of materials & equipment in connection therewith for supplying them to its members Deduction is available provided the rules & bye-laws of the society restrict the voting rights to following class of members – Individuals who carry on fishing or allied activities Co-op. credit societies which provide financial assistance to the society State Government
8)	Primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members	Entire profit from such business	Milk, oil seeds, fruits or vegetables are grown or raised by its members Milk, oilseeds, fruits or vegetables are supplied to a federal co-op. society (engaged in similar business), Government or local authority, Government company or a statutory corporation (engaged in similar business)
9)	Engaged in any other activity	₹ 1,00,000 for consumer co-operative society ₹ 50,000 for others	—
10)	Interest income/Dividend income	Entire amount of such income	Such income is received from investment in any other co-operative society
11)	Letting of godowns/warehouses	Entire amount of income derived from such business	Godowns/warehouses are let for storage, processing or facilitating the marketing of commodities
12)	Interest on securities & Income from House property chargeable u/s. 22.	Entire amount of such income	Benefit not available to housing society, urban consumers society, society carrying on transport business, society engaged in manufacturing operations with aid of power Gross total income of such society does not exceed ₹ 20,000.

Note: As per the amendment made by Finance Act, 2015 interest paid by co-operative banks on time deposits including recurring deposits to its members above ₹ 10,000/- as prescribed, TDS provisions will apply.

7. Deduction in respect of certain income of Producer Companies

Section 80PA now extends similar benefit of a deduction of 100% of profits and gains attributable to eligible business of Producer Companies popularly known as Farm Producer Companies (FPC), having a total turnover of less than ₹ 100 crore, for six years starting from assessment year 2019-20 to assessment year 2024-25. However, the Explanatory Memorandum states that the benefit shall be available for a period of 5 years from the financial year 2018-19.

For this purpose, “eligible business” means—

The marketing of agricultural produce grown by the members; or
The purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to the members; or
The processing of the agricultural produce of the members.

It is to be noted that no corresponding exemption is provided in respect of MAT under section 115JB and therefore MAT may be applicable to such entities.