Taxation Framework for Cooperative Societies in India

Introduction: Cooperative societies, known for their democratic structure and collective ownership, play a significant role in various sectors. Understanding their taxation framework is crucial for members and stakeholders. This article provides insights into the characteristics, types, and tax implications of cooperative societies in India.

Cooperative Society

A cooperative, alternatively termed co-operative, co-op, or coop, represents an independent coalition of individuals who willingly unite to address their shared economic, social, and cultural requirements and ambitions via collectively owned and democratically governed enterprises. Each member holds equal democratic control within cooperatives, exercising a single vote in the selection of the board of directors.

To operate as a legal entity, cooperative societies must undergo registration according to the Cooperative Societies Act of 1912. Capital for these societies is sourced internally from their membership base.

Characteristics of Cooperative Society

A cooperative society stands out as a beacon of collective endeavor and mutual benefit, embodying principles that foster inclusivity, equity, and community welfare. Below is an elaboration on the unique and defining characteristics that set cooperative societies apart:

1. Voluntary Association with Flexible Membership: At the heart of a cooperative society is the principle of voluntarism. Individuals have the autonomy to join or leave the society based on personal choice, without coercion. This freedom ensures that membership is a reflection of individual commitment and interest. Before withdrawing from the society, a member is expected to give notice, ensuring a responsible exit that respects the collective nature of the society.

2. Inclusivity through Open Membership: Cooperative societies champion inclusivity by offering open membership. They welcome individuals from all walks of life, transcending barriers of caste, creed, and religion. This policy not only enriches the cooperative with diverse perspectives but also reinforces the principle of equality and non-discrimination.

3. Legal Recognition through Registration: For a cooperative society to function as a legal entity, it must undergo formal registration. This legal status enables the society to engage in contracts, own property, and conduct business in its name, thereby providing a solid foundation for its operations and ensuring its members’ interests are legally protected.

4. Financial Security with Limited Liability: Members of a cooperative society enjoy the security of limited liability, meaning their financial risk is capped at the amount they have invested in the society. This structure protects individual members from bearing any unforeseen financial burdens beyond their contribution, fostering a sense of security and encouraging participation.

5. Democratic Governance: The essence of democracy permeates the operational structure of cooperative societies. They establish managing committees through elections, empowering members with the right to vote and influence the society’s direction. This democratic process ensures accountability, transparency, and that decisions reflect the collective will of the members.

6. Service Above Profit: The primary aim of cooperative societies is to serve the needs of their members, especially focusing on uplifting the economically weaker sections of the community. While these societies may generate profits, the surplus is equitably distributed among members as dividends, reinforcing the principle of mutual benefit and shared prosperity.

7. Accountability and State Oversight: To ensure that cooperative societies operate with integrity and in the best interest of their members, they are placed under state supervision. This includes mandatory maintenance of accurate accounts and regular audits by independent auditors. Such regulatory oversight guarantees transparency, financial prudence, and that the society adheres to its mission of serving its members’ welfare.

These characteristics collectively define the cooperative society as a model of organization deeply rooted in principles of democracy, equality, and mutual assistance. By prioritizing the welfare of its members and the community, cooperative societies embody a sustainable and ethical approach to business and community development.

Comparative Analysis

Types of Cooperative Society

1. Consumer’s Cooperative Societies

• Formed with the objective of protecting the consumer interests.
• Individuals who wish to purchase products at reasonable rates.
• There are no middlemen involved, the product is purchased directly from the producer and sold to consumers.

2. Producer’s Cooperative Societies

• Formed with the objective of protecting the interests of small producers.
• Help producers in maintaining their profit and also to assist producers in procuring items that will be helpful in production of goods and services.

3. Credit Cooperative Societies

• Set up with the objective of helping people by providing credit facilities.
• Provide loans at a minimal rate of interest and flexible repayment tenure to its members and protect them against high rates of interest that are charged by private money lenders.

4. Marketing Cooperative Societies

• Formed with the objective of providing small producers a platform to sell their products at affordable prices and also
  eliminate middlemen from the chain, thus ensuring adequate profits.

5. Cooperative Housing Societies

• Formed with the objective of providing housing facilities to the members of the society.
• Help producers in maintaining their profit and also to assist producers in procuring items that will be helpful in production of goods and services

Normal Tax Rates

AMT RATE

AMT applicable @15%

instead of 18.50%

Tax Rates Applicable To Co-Operative Society

Surcharge Rates

Deduction For Income of Co-Operative Societies (Sec 80P)

100% deduction to Co-Operative Societies allowed in respect of profits and gains of any 1 or more of the following activities engaged in:

• Carrying on the business of banking or providing credit facilities to its members
• Purchase of agricultural implements, seeds, livestock or other articles intended for agriculture or the purpose of supplying them to its members
• Marketing of the agricultural produce grown by its members
• Cottage industry
• Processing without aid of power of the agricultural produce of its members
• Fishing & other allied pursuits such as catching, curing, processing, preserving, storing & marketing of fish or the purchase of materials & equipment in connection therewith for the purpose of supplying them to its members
• Collective disposal of labour to its members

However, the exemption in respect of income from activities to collective disposal of labour & fishing will be available only in the case of those co-operative societies which restrict under their rules & by-laws by voting rights to :

• Members who contribute their labour force or who actually carry on the fishing or other allied activities
• The state government
• The co-operative credit societies which provide financial assistance to the society

Co-Operative Banks & Agricultural Credit Societies

Sec 80P Deduction

Available

♦ Primary Agricultural Credit Society

♦ Primary Co-operative Agricultural & Rural Development Banks

Not Available

♦ All Co-operative Banks

♦ Regional Rural Banks

Deduction In Respect Of Profit Of Primary Co-operative Society

100% Deduction allowed from GTI

Primary Co-operative society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to :

• Federal Co-operative society engaged in supplying milk, oilseeds, fruits or vegetables
• Government company (engaged in supplying milk, oilseeds, fruits or vegetables to the public)
• Government or local authority

Deduction Of Other Income Available To Co-operative Societies

• 100% deduction of interest & dividend allowed from investment with any other co-operative societies.
• 100% deduction of income from letting out of godowns or warehouses for storage , processing or facilitating the marketing of commodities.
• 100% deduction of interest on securities & house property income of Small Co-operative societies whose GTI is upto Rs. 20,000

But not allowed to Housing society or urban consumer society or society having transport business or manufacturing business with aid of power

• General deduction of Rs. 50,000 is available to Co-operative Societies & Rs. 1,00,000 is available to consumer Co-operative Societies.

Conclusion: Cooperative societies, governed by specific regulations, serve diverse purposes ranging from consumer protection to economic cooperation. Their taxation involves various considerations, including deductions under Section 80P and applicable tax rates. By comprehensively analyzing the taxation framework, stakeholders can navigate the complexities and leverage the benefits offered by cooperative societies for economic and social development.