The Income Tax Act, 1961 provide provisions for a variety of profit-related deductions under Chapter VI-A. The intent of these provisions is to stimulate investments in particular industries among the taxpayers.
With regard to profits and gains of particular businesses, such as the hotel industry, small-scale industrial endeavours, housing projects, export business, and infrastructure development, these deductions are available under Sections 80H to 80RRB.
Deduction Under Section 80P
A co-operative society engaged in specific activities is eligible to claim a tax deduction under section 80P if such income is included in the society’s gross total income.
Meaning of an Eligible Cooperative Society Under Section 80P
Section 80P does not specifically define a cooperative society. However, Section 2(19) of the Income Tax Act of 1961 defines a co-operative society as an entity registered under the Co-operative Societies Act of 1912 or any other regulations requiring the registration of co-operative societies in any state.
Activities Eligible For Deduction under Section 80P
PART A: 100% deduction allowed on profit from the following activities
- Carrying on the business of providing credit facility to its members (except co-operative Bank)
- Cottage Industry
- Marketing of agricultural products grown by its member
- Collective disposal of labour of its members
- Fishing & allied activities i.e. catching, curing, processing, storing or marketing of fish.
- Processing without aid of power of agricultural produce of its members
- Purchase of agricultural implements, seeds, livestock, or other agricultural products for distribution to members
- Interest Income or Dividend Income from Investment with Co-operative societies
- Income from letting out of godowns or warehouse
- Primary society provides milk, oil seeds, fruits, and vegetables to:
- A Federal co-operative society
- A Government or local authority
- A government company or statutory corporation that sells milk, fruits, and other foods.
PART B: General deductions for other income
- In the case of a consumer co-operative society, the maximum deduction is Rs. 1,00,000
- In any other case, the maximum deduction is Rs. 50,000
Who is not eligible for deduction under section 80P?
Section 80P is not applicable to the following:
- Any co-operative bank (including Regional Rural Banks) that is not a primary agricultural credit society (as defined in the Banking Regulation Act) or
- A primary co-operative agricultural and rural development bank from its application. It includes a society having its area of operation within a taluk. Moreover, the principal object of these societies is to provide long-term credit for agricultural and rural development activities.
Things to Remember While Claiming Deduction Under Section 80P
- Any income arising to a co-operative society by way of “Interest on securities” or “Income from house property” is fully deductible under this section. However, the gross total income should not exceed Rs.20,000. The charitable society must not be a housing society or an urban consumer’s society or a society carrying on transport business. A society which engages in the performance of any manufacturing operations with the aid of power is not eligible as well.
- Several high courts have ruled that all co-operative societies are eligible for a deduction. Furthermore, these high court rulings specify that the societies must not be under the control of the RBI. A co-operative society that engages in banking activities is not a Reserve Bank of India-licensed co-operative bank. As a result, it is eligible for Section 80P deductions.
- While calculating the Alternate Minimum Tax, the taxpayer must not include the profit after deduction of Section 80P.
- If you are availing special rates of tax under section 115 BAD then deduction under section 80P is not available and vice-versa. Section 115BAD provides for special tax rates on the income of certain Resident Co-operative societies.
Frequently Asked Questions
Yes, a Cooperative Society can claim a deduction under section 80P along with other profit-linked deductions. Deductions from gross income are permitted under Section 80P if the cooperative society is also entitled to profit-related deductions under Sections 80HH, 80HHA, 80HHB, 80HHC, 80HHD, 80-I, 80-IA, and 80J. The deductions are allowed from gross income under section 80P after reducing the deductions under the above-mentioned sections.
For a consumer co-operative society, the maximum deduction available is upto Rs.1,00,000 and in any other case the maximum deduction available is Rs. 50,000.
Yes, a Cooperative Society can claim a deduction on the interest income from investment with Cooperative Banks.
No, the income tax shall not be payable by an assessee, who is a member of a cooperative society in respect of any dividends received by him from the society.