TAXATION OF CO-OPERATIVE

SOCIETIES
CO-OPERATIVE SOCIETY IS A SEPARATE ASSESSABLE
ENTITY
Section 2(19) of the Income Tax Act defines a co-operative
society as a co-operative society registered under the Cooperative Society Act 1912 or under any law for the time being in
force in any State for the registration of Co-operative societies.
For the purposes of the income tax Act, a regional rural Bank is
deemed to be a Co-operative societies- circular No. 319 dated
11.1.1992.Thus only registered co-operative societies are enable
to be assessed under special status of co-operative society under
the Income Tax Act.
This form of organization is normally formed with the
basic idea of uniting various individuals to enable them to get
goods and services at reasonable prices. This form of organization
is best suited for persons with small means to combine their
resources and efforts in the promotion of production, distribution
or consumption of goods or services in which they have a
common interest. Just like any other assessee, a co-operative
society can also carry on business activities, subject of course to
the bye laws, regulations and the legislations governing them.
There are large number of industrial co-operative socities, cooperative consumer stores, co-operative transport societies,
which carry on regular profit-earning activity in the same way as
any other business undertaking. For purposes of taxation, it is
treated as a separate assessable entity.
It may be stated here that though for taxation purposes,
the status of a society is to be taken as an AOP, sections 67A and
86 of the Act have been specifically excluded from application to
the case of its members. Besides, as provided in Part I of the First

Schedule to an annual Finance Act, a co-operative society is taxed

at rates, which are different from those applicable to an AOP. It
may be seen from Part I of the First Schedule to an annual Finance
Act, wherein though individuals, Hindu undivided family, AOPS or
body of individual, whether incorporated or not, or every artificial
juridical person referred to an section 2(31) (vii) of the Act, are
chargeable at the rates prescribed under paragraph B thereof.

PROVISIONS UNDER THE INCOME-TAX ACT, 1961

Under the Income-tax Act, 1961, there are a number of provisions, which
relate to the co-operative societies, and related main provisions are
contained in sections 2(19),80 P and 194, 197. Section 2(19), co-operative
society means a co-operative society, registered under Co-operative
Societies Act, 1912 or under any other law for the time being in force in any
state for the registration of co-operative Societies, Under section 80 P, under
which exemptions and deductions have been provided in respect of various
types of income being earned by co-operative societies.
It may also be noted that the provisions of section 194 A which
require deductions of income tax at source from interest other than interest
on securities, credited or paid, where the aggregate payment in any financial
year exceeds Rs. 10,000/- do not apply to cases of interest paid by cooperative banks (including co-operative land mortgage banks and cooperative land development banks) or to a member of the society on
deposits made with the society.
INCOMES OF CO-OPERATIVE SOCIETY
A co-operative society may mainly have the following types of income :
(I)
(II)
(III)
(IV)

Interest on securities
Income from house property,
Capital gains income,
Income from business,

Most of the societies, now-a-days are found to be carrying on business

activity. The profits and gains from such business are to be determined
according to the regularly employed method for such computation and
according to accepted commercial principles. The method adopted by the

society must be consistently followed every year. Thus a co-operative society

may adopt cash basis method or mercantile basis method. What is required
is that the same system should normally be continued.
EXEMPTION TO CO-OPERATIVE SOCIETY
1. any income of a co- operative society formed for promoting the interests of
the members of either the Scheduled Castes or Scheduled Tribes or both
referred to in clause (26B):
Provided that the membership of the co- operative society consists of only
other co- operative societies formed for similar purposes and the finances of
the society are provided by the Government and such other societies;] .

2. Section 80 P provides certain exemptions to co-operative societies.

Where the co-operative society is also entitled to the deductions
available under sections 80HH, 890HHA, 80HHB, 801, 80J, 80JJ and
80JJA. The deduction under this section [i.e. 80 P (I)] shall be allowed
with reference to the total income as reduced by the deduction
allowable respectively uinder sections 80HH, 80HHA, 80HHB, 80HHC,
80J, 80JJ and 80I.
DEDUCTION UNDER SECTION 80 P
The following amounts are allowed as deduction under this section. However,
from the assessment year 2007-08 onwards, deduction under section 80 P is
not available to a co-operative bank. A primary agricultural credit society, a
primary co-operative agricultural and rural development bank will continue
to get deduction under section 80P.
The whole of the amount of the profits attributable to any one or more of the
following activities in the Case of a co-operative society engaged in:(i)
(ii)
(iii)
(iv)

(v)
(vi)
(vii)

Carrying on the business of banking or providing credit facilities

to its members, or
A cottage industry, or
The marketing of the agricultural produce grown by its members,
or
The purchase of the agricultural implements, seeds, live-stock or
other articles intended for agricultural for the purpose of
supplying them to its members, or
The processing, without the aid of power, of the agricultural
produce of its members, or
The collective disposal of the labour of its members, or
Fishing or allied activities, that is to say, the catching, curing,
processing, preserving storing or marketing of fish or the

purchase of materials and equipment in connection therewith for

the purpose of supplying them to its members,
The whole of the amount of profits and gains of business attributable to
any one or more of such activities
However, in case of a co-operative society falling under sub-clause (vi) or
sub-clause (vii), the rules and bye-laws of the society restrict the voting
rights to the following classes of its members, namely :1. The individuals who contribute their labour or, as the case may be,
carry on the fishing or allied activities;
2. The co-operative credit societies which provide financial assistance
to the society;
3. The state government.
(A)In the case of a co-operative society, being a primary society engaged
in supplying milk, oil-seeds, fruits or vegetables raised or grown by its
members to(i)
A federal co-operative society, being a society engaged in the
business of supplying milk, oil-seeds, fruits or vegetables, as the
case may be ; or
(ii)
The government or a local authority ;or
(iii) A government company as defined in section 617 of the
companies Act, 1956 or a corporation established by or under a
central, state or provincial Act (being a company or corporation
engaged in supplying milk, oil seeds, fruits or vegetables, as the
case may be, to public), the whole of the amount of profits and
gains of such business;
(B) In the case of a co-operative society engaged in activities other than
those specified in clause (A) or clause (B) either independently of, or in
addition to, all or any other activities so specified, so much of its profits
and gains attributable to such activities as does not exceed,(i)
Where such co-operative society is a consumers co-operative
society, Rs.100,000; and
(ii)
In any other case, Rs. 50,000
Here, consumers co-operative society means a society for the benefit
of the consumers;
(C)In respect of any income by way of interest or dividends derived by the
co-operative society from its investments with any other co-operative
society, the whole of such income;

(D)
In respect of any income derived by the co-operative society
from the letting of godowns or warehouses for storage, processing or
faciliting the marketing of commodities, the whole of such income;
(E)
In the case of a co-operative society, not being a housing society
or an urban consumers society or a society carrying on transport
business or a society engaged in the performance of any
manufacturing operations with the aid of power, where the gross total
income does not exceeed Rs.20000/- the amount of any income by
way of interest on securities or any income from house property,
chargeable under section 22.

NO WEALTH-TAX LIABILITY ON A CO-OPERATIVE SOCIETY

As per section 3(1) of the Weath-tax Act, 1957, only individuals.
Hindu undivided families and companies are liable to wealth-tax. It clearly
implies that no wealth-tax is chareable in the case of co-operative society.
LOWER OR NIL RATE OF TDS
A co-operative society like any other assessee may make an
application to the assessing officer under section 197 of the act, fro
deduction of tax at lower rate in case, the income likely to be received so
warrants. The relevant rules are 28, 28AAand 29.
Similarly, a co-operative society may furnish declaration in
duplicate under section 197A (IA) of the act, to the person responsible for
paying any income of the nature referred to section 193 (interest on
security), section 194 A (interest other than interest on securities) for no
deduction of tax at source. The relevant form is 15H, which has to be
verified in the prescribed manner to the effect that the tax on the
estimated total income of the previous year will be nil.
RATE OF INCOME TAX
Rates of income tax applicable to co-operative societies for the
assessment year 2014-2015 are given below for the convenience of cooperative societies to work out their liability to tax.
Income Tax
1. On total income upto Rs. 10,000
2. Total income in excess 10,000 upto 20,000

Rate
10%
20%

3. Total income in excess of 20,000

30%

And education cess is 2% and Secondary higher education cess is

1%.
For the assessment year 2014-2015 surcharge is 10 % of income tax,
where taxable income exceeds Rs 1 crore.
Alternative Minimum Tax :- Tax Payable by a co-operative cannot be less
than 18.5% (surcharge + education cess + SHEC) of adjusted total income
as per see 115 JC Since A.Y. 2013-2014.