Taxation of Co-operative Society

Are you currently a member of a co-operative society, or are you interested in joining one? Whether you're already a part of one or considering becoming a member, it is essential to have a basic understanding of how co-operative societies are taxed. In this article, we will explore the taxation implications for co-operative societies.

What is meant by a Co-operative Society?

A cooperative is an autonomous association of persons who voluntarily cooperate for their mutual social, economic and cultural benefit.

As per the Income Tax Act, 1961, a co-operative society is an entity registered under the Co-operative Societies Act, 1912, or any other law for the time being in force in any state for the registration of co-operative societies. 

What is the Tax Rate for Co-operative Societies?

The applicable tax and surcharge rate is different for co-operative societies that have opted for a concessional tax rate scheme or those that have not opted for a concessional tax rate scheme.
We first talk about the co-operative society not opting for a concessional tax rate scheme.

The revised tax and surcharge rate for Co-operative Society (Not opted for concessional tax rate scheme), are given in the tables below:

Income Tax Rate

Surcharge rate

Note: Marginal relief and Alternative Minimum Tax (AMT) are available for co-operative societies without a concessional tax rate scheme

Under the Income Tax Act sections 115BAE and 115BAD, introduced as a concessional tax rate scheme for co-operative society residents of India, the applicable tax rate and surcharge rate for the concessional tax scheme are given in the table below:

What are the Deductions Available to Co-operative Societies?

As per sec 80P, if the co-operative society engaged in the following businesses, the whole PGBP amount will be available as a deduction:

• Banking business of providing credit facilities to members 

• Cottage industry  

• Marketing of agricultural produce of members 

• Purchase of agricultural implements and livestock, etc.  

• Processing without the aid of the power of agricultural produce 

• Collecting and disposal of labour of its members 

• Fishing and allied activities  

In the case of a co-operative society engaged in supplying Milk, oil seeds, fruits, and vegetables grown by members, the whole PGBP will be allowed as a deduction. 

A Rs. 1 lakh deduction will be available for a consumer co-operative society, and Rs. 50,000 deductions will be available for any other cooperative society. 

The whole of income will be allowed as a deduction from letting out of godowns and warehouses. 

Note: Sec 80P is not applicable to co-operative banks other than primary agriculture credit societies or primary agricultural and rural development banks. 

Deduction Disallowed for Co-operative Societies

Co-operative societies opted for concessional tax rate scheme under sections 115BAE and 115BAD are not eligible for the following mentioned deductions:

• Section 10AA - Deduction available to SEZs.
• Section 32(1)(iia) - Additional depreciation.
• Section 33AB tea coffee and rubber development account.
• Section 33ABA Site Restoration fund.
• Deduction for payment to any research association, university, etc, for scientific, social science, and statistical research.
• Section 80C to 80U -  Chapter VI-A deductions other than the 80JJAA & 80LA. 
• Section 35AD -  Investment-linked incentives for specified businesses.
• Section 35CCC - Expenditure on agriculture extension projects.
• Expenditure on Skill development projects.
• Not allowed to claim set-off of carried forward (c/f)losses, AMT credit and Unabsorbed Depreciation.
   

Note : Entrance fees received by co-operative society will be taxable as PGBP income.

Relevant Case Laws 

ITO Vs Venkatesh Premises Co-operative Society : 

Transfer Charges, non-occupancy charges, and common amenity charges received from the members are exempt owing to the application of the doctrine of mutuality. 

Sind Co-operative Housing Society Vs ITO : 

Transfer fees received from the incoming & outgoing are exempted.