Taxation of Cooperative Society
A cooperative society means, a society registered or deemed to be registered under any law relating to cooperative societies for the time being in force in any State or under the Central act.
Cooperative societies may be governed by the respective State cooperative societies Act or by the Multi-State Cooperative Societies Act, 2002. The societies, whose main objective is to serve the interests of its members in a particular State, are governed by the Cooperative Societies Act of that particular State. While, a Society whose main objectives is to serve the interests of its members in more than one State, are governed by the Multi-State Cooperative Societies Act, 2002.
According to the Cooperative Societies Act of each State, a cooperative society registered within any State under the law of that State is not allowed to operate in other States without the permission of the Government or Registrar of Cooperative Societies of that State. In case of multi-State cooperative society, it can operate in more than one State as a matter of right, under the Act and no permission of any State is required to do its business.
Provisions for Taxation of a Cooperative Society
A Cooperative Society is a taxable entity under the Income Tax Act, 1961. A Cooperative Society under the Act is to be treated as an association of persons (AOP), which is included in the definition of ‘person’ under the Income Tax Act, 1961.
Even though, for taxation purposes, the status of a cooperative society is to be taken as an Association of Persons, the section 67A and section 86 of the Act have been excluded from application to the members of society.
A Cooperative Society is taxed at rates, which are different from those applicable to an AOP. Under the annual Finance Act , though individuals, Hindu undivided family, AOP or body of individuals, whether incorporated or not, or every artificial juridical person referred to in the Income Tax Act, are chargeable at rates prescribed in paragraph A, of the Finance act. A Cooperative society is chargeable to tax as per rates prescribed under paragraph B of Part1 of the first schedule to the annual Finance Act.
The amount of income tax computed in accordance with the provisions of paragraph B, shall in the case of every cooperative society, be increased by a surcharge. The rate of surcharge is prescribed in each of the Finance Acts.
The Cooperative Societies are entitled to several concessions, in the computation of their taxable income. Besides, they also enjoy the benefit of concessional rate of tax on their chargeable income under the annual Finance Act.
As per Wealth Tax Act [Section 3(1)], only individuals, Hindu undivided families and companies are liable to wealth tax. Thus, no wealth tax is charged in the case of cooperative society.
How to Compute the taxable income for Cooperative Society
- First compute the total income under the different heads i.e. income from house property, profits or gains of business or profession, capital gains, and income from other sources, ignoring the prescribed income exemptions. Thus, “gross total income” is obtained.
- Now, from the amount, the permissible deductions under the Income Tax Act are made.
- To the ‘net income’ so arrived at, the ‘rates of tax’ as per the Finance Act for the respective year is applicable to cooperative societies.
- Now to the amount of tax, percent of income tax as surcharge prescribed in the Finance Act is added.
- From the tax liability so determined, the amount of ‘rebate’ in the Act is deducted.
Exemptions and Deductions granted to the Cooperatives under the Income Tax Act
There are various types of exemptions and deductions available to cooperative societies.
Exemptions:- It includes certain classes of income which do not form part of total income and are exempted from income-tax. These are excluded from the computation of gross total income of an assessee. A return of income is also not to be filled for them. Such types of income fall under Chapter III of the Income Tax Act. Some of the permissible exemptions provided are:-
Exemption of profits and gains from a new industrial undertaking in a free trade zone for ten years [Section 10A].
Exemption of the profits and gains for ten years from a 100% export oriented undertaking [Section 10B],etc.
Deductions: – It includes certain classes of income which are included in computing the total income of an assessee but are exempted from income-tax as they are basically deductions to be made in computing total income. A return of income is required to be filled for them. Such types of income fall under Chapter VI-A (Sections 80A to 80U) of the Income Tax Act. Some of the permissible deductions provided are:-
- As per Section 80A, in computing the total income of an assessee, the deductions specified in Section 80C to 80U shall be allowed from his gross total income.
- Section 80AB deals with deductions that need to be made with reference to the gross total income.
- Deduction of any amount under Section 80G in respect of donations given to certain funds, charitable institutions, etc.
- Deduction of 50% of profits and gains of projects implemented outside India [Section 80HHB].
- Deduction of the entire profits from income from export business [Section 80HHC], etc.
Relevance of Section 80P
The deductions in respect of income provided under Section 80P of the Income Tax Act are applicable to the cooperative societies alone. The provision has been incorporated in the Act for growth of cooperative societies. There are different heads of deductions enumerated in the section such that each is distinct and independent of other. To decide whether a particular category of income of a cooperative society is to be exempted from tax, it shall have to be seen whether it falls under the said heads or not. The deductions allowable under this section are in respect of net incomes from the activities or businesses, specified in the various clauses of the section.
If a cooperative society carries on such activities, income from which is exempt and also carries on such activities, income from which is not exempt, then profits/gains attributable to former activity shall enjoy exemption and those attributable to latter one shall be taxed. Where a cooperative society earns income, which is partly taxed and partly entitled to special deduction, proportionate share of the expenses attributable to the earning of income, entitled to deduction, should be deducted in computing such income.
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