Section 80P of Income Tax Act, 1961, is a key player in promoting co-operative societies in India. The recent case of Sardar Patel Co-Operative Credit Society Ltd. highlighted its impact (IT APPEAL NO. 645/SRT/2023). This section offers tax deductions, acting as a boost for the growth of these societies.
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What is Section 80P of Income Tax Act, 1961?
Section 80P of the Income Tax Act permits co-operative societies to claim deductions on particular earnings within a financial year. This section contains multiple sub-sections that address various income types for these societies. Our focus is on sub-section (2)(d) that allows deductions on:
- Interest income obtained from deposits made with other cooperative societies.
- Dividend income accrued from investments made in cooperative societies.
100% Deductions under Section 80P of Income Tax Act, 1961
- Agriculture Produce: If a cooperative society is selling agricultural produce grown by its members, it can claim a 100% deduction under this section..
- Agricultural Tools: If a cooperative society buys seeds, livestock, or agricultural tools to supply to its members, it can claim a 100% deduction under this section.
- Power-Free Processing: If Cooperative societies process agricultural products from their members without using power, it can claim a 100% deduction under this section.
- Cottage Industries: If a cooperative society is engaged in cottage industries, it can claim a 100% deduction under this section.
- Banking and Credit Services: For Cooperative societies in banking or offering credit services to members, it can claim a 100% deduction under this section.
- Collective Labor: If a cooperative society collectively manages member labor, it can claim a 100% deduction under this section.
- Fishing Business: If any business is engaged in fishing and related activities, including purchasing materials and equipment for fishermen, can claim a 100% deduction under this section.
- Government Supplier Advantage: If a cooperative society supplies these products to government bodies, government companies, or federal cooperative societies, it can claim a 100% deduction under this section.
- Investment Returns: If a cooperative society earns any interests and dividends from investments in other cooperative societies, it can claim a 100% deduction under this section.
- Rental Income: If a cooperative society earns income from renting out godowns or warehouses, it can claim a 100% deduction under this section.
- Interest and Property Gains: If a cooperative society generate income from interest or house property, it can claim a 100% deduction under this section.
- Special Categories, Special Deductions: The voting rights of cooperative societies falling under categories (f) and (g) must be limited to the following organizations in order for them to be eligible for these deductions under section 80P:
- The state administration.
- Members who contribute to society through their labor.
- Cooperative societies that offer financial assistance.
Exclusions Under Section 80P
1. Exclusions for Cooperative Banks and Regional Rural Banks:
Cooperative banks, including regional rural banks, remain untouched by these exclusions, retaining their eligibility for deductions.
2. Exclusive Eligibility Criteria:
- Primary Agricultural Society: Defined under the Banking Regulation Act.
- Primary Cooperative Agricultural and Rural Development Bank: Societies providing long-term credit for agricultural and rural development.
3. Fine Print on Deductions (Section 80P(2f))
- Urban Consumer Society
- Housing Society
- Transportation Society
- Cooperative Society Engaged in Manufacturing (Gross total income not exceeding Rs. 20,000 for eligibility).
Key Points for Section 80P
1. Nuances in Terminology
Section 80P employs terms like ‘profits and gains from business related to these activities,’ ‘profits and gains from this business,’ and ‘income generated.’
2. Judicial Clarity on Eligibility
Various high courts have affirmed that, barring cooperative societies under RBI control, all others qualify for Section 80P deductions. It’s crucial to differentiate between a cooperative society engaged in banking activities and an RBI-licensed cooperative bank, as the former can claim Section 80P deductions.
3. Legal Clarifications on Definitions
Legal decisions and interpretations have provided clarity on terms such as ‘cottage industry,’ ‘marketing,’ ‘members,’ ‘industry,’ and ‘investment.’
4. AMT Exclusion for Section 80P Profits
Profits under Section 80P are exempted from calculations for the Alternate Minimum Tax (AMT). This deliberate exclusion ensures that Section 80P deductions do not impact AMT levy on adjusted total income.
Read also: What is TDS on payment to Contractor and Subcontractor u/s 194C
Conclusion
Section 80P of Income Tax Act, 1961 is crucial for India’s co-operative societies, fostering their financial stability and development. By comprehending its subtleties, as seen in the analyzed case and broader exploration, these societies can utilize the benefits and adhere to tax regulations effectively.
Frequently Asked Questions (FAQ)
A cooperative society, as defined by the Co-operative Societies Act of 1912, is a voluntary association of individuals united to meet their shared economic, cultural, and social needs. This collaboration involves a jointly owned and democratically governed enterprise.
In India, the Co-operative Societies Act of 1912 serves as the principal legislation overseeing cooperative societies. However, it’s important to note that specific states may also have their own laws applicable to cooperative societies within their jurisdiction.
Deduction under Section 80P(2)(a)(i) excludes the interest earned from investments in a nationalized bank by a cooperative society offering credit facilities to its members. This specific type of income is not eligible for deduction under Section 80P. However, if the cooperative society has incurred any expenses related to generating this income, and those expenses have not been previously accounted for, there might be a possibility to consider them for allowance.
Yes, cooperative societies enjoy income tax exemption. The Honorable Supreme Court has granted substantial relief to cooperative credit societies across the country. It affirmed that, as per Section 80P(2) of the Income Tax Act, these societies will not be categorized as banks.
Yes, a tax audit is mandatory for a cooperative society falling under Section 44AA of the Income Tax Act, 1961. Such societies are required to maintain books of accounts and relevant documents. Additionally, they must undergo an audit by a chartered accountant in accordance with Section 44AB.