There are a number of income tax laws in India that encourage specific industries to flourish. Sections 80H to Section 80RRB under Chapter VIA offer deductions for businesses such as housing projects, export businesses, hotels, small-scale industries, etc. Section 80P of the Income Tax Act lays down provisions for income tax deductions for profits and gains earned by cooperative societies, which are engaged in specified agricultural activities.
The following sections will discuss who can claim this deduction and up to what amount. Read along to know everything about Section 80P.
A cooperative society is not defined under Section 80P. However, according to Section 2(19) of the Income Tax Act, 1961, a co-operative society could be an entity registered under the Co-operative Societies Act, 1912 or under any other law governing the registration of co-operative societies in any state.
With the exception of cooperative banks, cooperative societies can claim income tax deductions for certain agricultural activities. Cooperative societies registered under the Co-operative Societies Act, 1912 or other state laws and earning income from such activities can get full deductions from their gross income. Note that Section 80P deduction is available only to primary agricultural credit society or rural development and primary cooperative agricultural banks.
The deductions available under Section 80P as discussed as follows:
Cooperative societies can get 100% of their profits and gains as income tax deductions in the following cases:
Cooperative societies belonging to categories (f) and (g) must fully restrict voting rights to the following people to be eligible for deductions u/s 80P:
The following are some additional deductions allowed for cooperative societies that are not cottage industries:
This includes deductions for any other income than the ones covered from (a) to (k). Consumer cooperative societies refer to those that work for the benefit of consumers. However, it does not include cooperative societies that supply coal and diesel for its members for use in brick and tile production.
Note that cooperative societies that provide banking services are eligible for the additional deductions.
The Finance Act 2016 also introduced some exclusions under Section 80P of the Income Tax Act. It is not applicable to cooperative banks, including regional rural banks. Only the following financial institutions are included:
There are also certain exclusions that apply for deductions against income from securities or house property under Section 80P(2f). With the following exceptions, no other cooperative society can claim a 100% deduction under this subsection.
Section 80P of the Income Tax Act offers tax deductions to cooperative societies for certain economic activities. If you have a cooperative society, you can get up to 100% deduction on profits from certain businesses. For other activities, you can get a deduction worth Rs. 50,000 to Rs. 1,00,000.
Ans: Such societies exist to provide mutual assistance, self-help and increase the marketability of products. In India, cooperative societies are governed by the Cooperative Societies Act of individual states or the Multi-State Cooperative Societies Act, 2002.
Ans: The following are allowable exemptions under Chapter III of the IT Act:
a) Section 10A – Exemption of profits from new industrial undertakings in a free trade zone.
Section 10B – Exemption of profits from a 100% export business for 10 years.
Ans: Under Section 44AA, cooperative societies must maintain books of accounts and other records for tax computation. Moreover, they must have their accounts audited by a chartered accountant u/s 44AB. Their accounts are also subject to audits from the administrative department under respective state cooperative laws. However, cooperative societies not engaged in businesses do not need tax audits u/s 44AB.
Ans: The Finance Act, 2020 introduced Section 115BAD to provide the benefit of a lower tax rate to resident cooperative societies. This allows them to get taxed at a 22% rate plus a 10% surcharge and 4% cess. A cooperative society has to forego various income tax exemptions and deductions such as Section 10AA, Section 32AD, Section 33AB, Section 35(1iia), Section 35(2AA), etc.
Ans: The following are the normal tax rates for cooperative societies:
a) For income up to Rs. 10,000 — 10%
b) Income from Rs. 10,000 to Rs. 20,000 — Rs. 1,000 + 20% on excess of Rs. 10,000
c) For income more than Rs. 20,000 — Rs. 3,000 + 30% on income above Rs. 20,000
Besides these, a surcharge of 12% for total income below Rs. 1 crore and a 4% health and education cess are applicable.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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