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Cooperative societies form an integral part of India's economic structure, playing an important role in encouraging community-driven progress and growth. This guide explores Section 80P, an essential provision that allows deductions to these cooperative societies, serving as the foundation of several sectors such as agriculture, banking, and housing. Did you know that India boasts approximately 8 lakh officially recognized cooperative societies, with a strong presence in the agricultural, banking, and housing sectors? This is a testament to the country's profound commitment to cooperative principles. Moreover, India holds the distinction of being the birthplace of the world's largest cooperative movement, which has significantly shaped its economic fabric. In sectors like agriculture, cooperative societies, ranging from dairies to sugar mills and spinning mills, bring together the collective resources of farmers to process their produce efficiently. With 1,94,195 cooperative dairy societies and 330 cooperative sugar mill operations, these entities contribute significantly to the nation's agricultural prowess, accounting for a substantial 35% of the sugar produced in the country.
Update as per CBDT Circular 13/2023 dated 26/07/2023:
The Income Tax Act of 1961 allows for the exemption of income tax returns that seek deductions under section 80P of the Act for different assessment years spanning from 2018-19 to 2022-23, as permitted by clause (b) of sub-section (2) of section 119 of the Act.
The Co-operative Societies Act 1912 represents a cooperative society as a voluntary association of people who come together to fulfill their common economic, cultural, and social needs through a jointly owned and democratically governed enterprise.
The Co-operative Societies Act 1912 is the primary law governing cooperative societies in India. Regardless, there are also state laws that may apply to cooperative societies in particular states.
Except for cooperative banks, cooperative societies have the opportunity to pursue income tax deductions for specific agricultural initiatives. Cooperative societies that are officially registered under the Co-operative Societies Act, 1912, or similar state regulations and generate income through such activities can benefit from complete deductions from their total income. It's important to understand that the deduction under Section 80P is applicable solely to primary agricultural credit societies or rural development and primary cooperative agricultural banks.
Cooperative societies have the opportunity to claim significant income tax deductions, which can be quite beneficial for them. These deductions are applicable in various cases:
For cooperative societies falling under categories (f) and (g) to qualify for these deductions under section 80P, they must limit voting rights to the following individuals:
Cooperative societies, excluding cottage industries, can claim additional deductions based on their profits and gains. These deductions are structured as follows:
It's important to note that these deductions are applicable to income sources beyond those covered in points (a) to (k). Consumer cooperative societies primarily operate for the benefit of consumers, with the exception of those supplying coal and diesel for use in brick and tile production.
Additionally, cooperative societies providing banking services are eligible for these extra deductions, which further encourage their growth and contribution to the cooperative sector.
Under the Finance Act of 2016, some specific exclusions were introduced under Section 80P of the Income Tax Act. These exclusions limit the eligibility for certain deductions, and they do not apply to cooperative banks, including regional rural banks. Instead, only the following financial institutions are eligible for these deductions:
Additionally, there are specific exclusions for deductions against income from securities or house property under Section 80P(2f). With a few exceptions, no other cooperative society can claim a 100% deduction under this subsection. These exceptions include:
When calculating the deduction under section 80P for the business income of a co-operative, you should consider the income after you've already taken deductions under sections 80HH, 80HHA, 80HHB, 80HHC, 80HHD, 80-I, and 80-IA.
Under section 80P(2)(a)(i), the interest earned from investments in a nationalized bank by a cooperative society that provides credit facilities to its members is not eligible for a deduction U/S 80P. Nevertheless, if the cooperative society has incurred any expenses in generating this income that haven't already been accounted for, they could potentially be considered for allowance.
The Honorable Supreme Court has provided significant relief to cooperative credit societies nationwide by confirming that, according to Section 80P(2) of the Income Tax Act, these societies will not be classified as banks. Consequently, they will maintain their eligibility for income tax exemption.
As per the IT Act 1961, a cooperative society that falls under section 44AA has to keep books of accounts and other documents. It also has to get its accounts audited by a chartered accountant under section 44AB, even if its accounts are already audited by its administrative department.
