The Finance Bill, 2026 proposes to widen the scope of deductions available to primary cooperative societies under section 149(2)(b) of the Income-Tax Act, 2025 by including ancillary agricultural activities such as supplying cattle feed and cotton seeds. Currently, the provision allows a full deduction of profits and gains for primary cooperatives engaged in supplying milk, oilseeds, fruits, or vegetables grown or raised by their members to specified entities like federal cooperatives, the Government, local authorities, or government-controlled corporations. Recognising that members of primary cooperatives also commonly undertake allied activities closely linked to agriculture and dairy operations, the amendment brings profits from cattle feed and cotton seed supply within the same deduction framework. This change aligns the tax treatment of ancillary activities with core agricultural supplies, reducing tax disparities and compliance friction for cooperatives. The amendment, introduced through Clause 39, will take effect from 1 April 2026 and apply from tax year 2026–27 onwards.
Widening scope of deduction under section 149 by including ancillary activities of cattle feed and cotton seeds
The existing provisions under section 149(2)(b) of the Act provide for deduction of whole of the amount of profits and gains of business in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits, or vegetables raised or grown by its members to a federal co-operative society, engaged in the same business or to the Government or a local authority; or to a Government company or a corporation engaged in the same business. There are similar activities such as supplying of cattle feed and cotton seeds which are also undertaken by the members of the primary co-operative society. It is proposed that the profits and gains of business from these activities shall be allowed as a deduction within the ambit of section 149(2)(b) of the Act.
This amendment is proposed to take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.
[Clause 39]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 39 of the Bill seeks to amend section 149 of the Income-tax Act, 2025 relating to deduction in respect of income of co-operative societies.
Clause (b) of sub-section (2) of the said section, inter alia, provides for deduction of whole of the amount of profits and gains of business in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits, or vegetables raised or grown by its members to certain entities.
It is proposed to include cotton seeds and cattle feed also within the ambit of the said clause.
Clause (d) of sub-section (2) of the said section allows for deduction of income by way of dividends received by the co-operative society from any other co-operative society in the old tax regime.
It is further proposed to amend said clause so as to provide that the inter-cooperative societies dividend shall also be allowed as a deduction under the new tax regime under sections 203 and 204 of the Act, for the co-operative societies, to the extent such dividend is distributed by the co-operative society to its members.
It is also proposed to insert a new sub-section (6) to define to certain expressions.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
39. Amendment of section 149.
In section 149 of the Income-tax Act,––
(a) in sub-section (2),––
(i) in clause (b), after the word “oilseeds,” wherever it occurs, the words “cotton seed, cattle feed,” shall be inserted;
(ii) for clause (d), the following clause shall be substituted, namely:–
“(d) in respect of any income derived by the co-operative society from its investments with any other co-operative society by way of–
(i) interest; or
(ii) dividends,
the whole of such income;”;
(b) after sub-section (5), the following sub-section shall be inserted, namely:––
‘(6) For the purposes of this section,––
(a) “consumers’ co-operative society” means a society for the benefit of the consumers;
(b) “primary agricultural credit society” has the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949; and 10 of 1949.
(c) “primary co-operative agricultural and rural development bank” means a society having an area of operation confined to a taluk, the principal object of which is to provide long-term credit for agricultural and rural development activities.’.
