Kalpataru Ghosh, CA, CS

U/s 2(19) of the Income Tax Act 1961, ‘cooperative society’ means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of the cooperative societies.

A business can be formed under the organisational set up of a cooperative society just like it can be formed as a Company. There is a general belief that cooperative societies are exempted from the various compliance of direct or indirect taxation. In fact it is not so – rather to get the various tax reliefs, particularly for income tax, a cooperative society must set up a process for tax compliance, tax management and tax planning.

Principle of Mutuality and Tax Incidence

There are certain types of cooperatives, like housing cooperatives, who collects monthly subscription from the members and spends the same to meet the various joint expenses of the society to give service to members like maintenance, security etc. In this process even if any surplus is generated, it is not chargeable to tax as it is exempt based on the ‘concept of Mutuality’. The cardinal requirement in case of mutual association is that ‘All the contributors to the common fund must be entitled to participate in the surplus & all the participators to the surplus must be contributors to the common trade. In other words there should be complete identity between the contributors and the participators.’ Thus if the cooperative earns interest from bank or parking income from non-members or rental income by letting roof for mobile towers, then all these incomes are chargeable.

Compliance of Income Tax Provisions

A cooperative society has to get PAN, TAN etc like any other form of business. Even to get itself registered under GST Laws or Import Export Regulations, it has to obtain the PAN.

It has to pay advance income tax in four instalments: within 15th June – 15%, 15th September  – 45%, within 15th December – 75% and within 15th March – the whole amount of such advance tax as reduced by the amount paid in earlier instalment(s).

It has to comply with all the TDS provisions excepting few: No tax shall be deducted from any interest payable on debentures issued by any cooperative society u/s 193. Similarly, TDS provisions u/s 194A are not applicable for interest other than interest on securities, if such income is credited or paid by a cooperative society to a member thereof or to any other cooperative society. Though a cooperative society is not covered u/s 115-O i.e. not required to pay tax on distributed profit like domestic companies, TDS provision for dividends u/s 194 is not applicable. Compliances of other TDS provisions like time limit for deposit of TDS, electronic filing TDS returns, issuance of NSDL generated Form 16A etc are all applicable for cooperatives. Though most of the cooperatives are village level or block level cooperatives, no relaxation has been granted by the statute with respect to imposition of interest, penalty or prosecution for any violation.

A cooperative society u/s 44AA, is required to maintain books of accounts and other documents as may enable the Assessing Officer to compute its total income in accordance with the provisions of the Income Tax Act.  Further, its accounts are required to be audited by a Chartered Accountant u/s 44AB notwithstanding the fact that its accounts are subjected to audit by the administrative department (Directorate of Cooperative Audit) as provided in the State Cooperative Laws. However, tax audit provisions are generally not applicable to societies which do not carry on any business. For example, housing societies in the years of construction of building premises, provisions of section 44AB would not apply as there is no business activity.

A cooperative society requires to file its return of income in ITR-5 within 30th September notwithstanding the fact that most of the State Cooperative Laws allow to held the AGM within the calendar year i.e.31st December. Just like a Company, without filing a ‘loss return’ within the stipulated time, business loss and loss under the head capital gains of a cooperative cannot be carried forward. Loss under the head income from house property and unabsorbed depreciation also cannot be carried forward if loss return is not filed at all. Provisions relating to e-filing and use of digital signature are also applicable in spite of the fact that most of cooperatives are still having limited exposure in respect of computerised accounting or internet use.

There is no threshold limit for taxability of income in case of a co-operative society. The slab rate for AY 2020-21 is as under:

Taxable income Tax Rate
Up to Rs. 10,000 10%
Rs. 10,000 to Rs. 20,000 20%
Above Rs. 20,000 30%

Surcharge: 12% of taxable income if net income exceed 1 crore. However, the surcharge shall be subject to marginal relief (where income exceeds one crore rupees, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of one crore rupees by more than the amount of income that exceeds one crore rupees).

Health and Education Cess: 4% of Income Tax Plus Surcharge


U/s 115JB, for companies, if tax payable under the normal provisions of the Income Tax Act is less than 18.5% of its book profits, then tax payable shall be 18.5% of the book profit which is known as MAT (Minimum Alternate Tax). U/s 115JC, for cooperatives, if tax payable under the normal provisions of the Income Tax Act is less than 18.5% of its adjusted total income, then tax payable shall be 18.5% of the adjusted total income which is known as AMT (Alternate Minimum Tax). Thus it is seen that while cooperatives are not exposed to tax based on book profit like companies, they are to pay a minimum tax based on adjusted total income which shall be computed by increasing the deductions as claimed by assessee under any section included in Chapter VI-A of the heading ‘C – Deductions in respect of certain incomes’ (but excluding any deduction u/s 80P) and deduction claimed u/s 10AA, with the total income as assessed by AO. In other words, the cooperatives, which are only entitled to deduction u/s 80P, shall not be affected by the AMT provisions.

Unpaid interest on borrowings from Government / Cooperative Bank v. 43B

U/s 43B, deduction otherwise allowable, shall not be allowed unless the amounts are actually paid before due date for filing return of income u/s 139(1). Generally state level cooperative bodies participate in the minimum support price operation of the Union Government where State Government acts as nodal agent. To procure food grain (paddy, wheat etc) or agricultural produce (jute, potato etc), lending are made either by State Governments or by cooperative banks. Since interest expenditures for borrowings other than specified institutions or other than scheduled banks are outside the purview of section 43B, a cooperative which made provisions in the accounts for interest payable but does not paid actually for the loan taken from Govt or from cooperative banks , there would be no disallowance. While borrowings directly from State Government is not covered u/s 43B(d) as State Governments are not specified financial institutions, borrowings from cooperative banks are not covered u/s 43B(e) as cooperative banks are not fallings under the definition of schedule bank.

Deduction u/s 80P

Section 80P of the Income Tax Act 1961 allows deduction in respect of income of cooperative societies which are attributable to specified activities. When a cooperative is engaged in carrying on the business of banking or providing credit facilities to its members, the profit attributable to such business is deductible. However the same is not applicable for a cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. Deductions are available when a cooperative is engaged in any of the specified activity like cottage industry, marketing of agricultural produce grown by its members, the purchase of agricultural implements or other articles intended for agriculture for the purpose of supplying them to its members, processing of agricultural produce of its members without the aid of power, collective disposal of the labour of its members, fishing or allied activities. With regard to the allowability of deduction, few principles already established by Courts, are as follows:

  • A liberal construction should be given to section 80P
  • Deduction is not deniable even if society carries on some un-specified activities
  • The expression ‘attributable to’ is much wider than the expression ‘derived from’, and it suggests that the Legislature intended to cover receipts from sources other than the actual conduct of the business of the assessee
  • Subsidies received from Government are to be treated as business income
  • There should be no hired labour to get deduction wrt cottage industry
  • Sugar, Rice etc are not agricultural produce
  • Member should own the produce – may or may not produce by himself
  • Member is not restricted to society members or agriculturist

This apart, when a primary cooperative society is engaged in supplying milk, oil seeds, fruits or vegetables grown by its members to a federal cooperative or to the Govt or local authority or a Govt Company or a statutory corporation – the whole of the amounts of profits and gains of such  business is deductible.

Further, full deduction is available in respect of any income by way of interest or dividends derived by the cooperative society from its investment with any other cooperative society and in respect of any income derived by the cooperative society from the letting of warehouses for storage, processing or facilitating the marketing of commodities.

Applicability of Section 14A

It is now established by various judicial pronouncements that section 14A has no applicability with regard to the deductions allowable u/s 80P. The provisions of section 14A apply to exempted income while 80P confers a right for deduction from the gross total income. While exempted income does not at all includible in computing the Total Income, incomes subjected to 80P deductions are required to be made from the Gross Total Income following the provisions of section 80A & 80AB.

Disallowances of expenses & eligibility of deduction thereof u/s 80P

Upon violation of the conditions specified under clause (ia) the implication under section 40(a) would be that the same amount will not be deducted in computing income chargeable under the head ‘Profits and gains of business or profession’. Now, here the question arises that once any amount is disallowed u/s 40(a)(ia),  [or any other section like 43B etc] whether the same shall be considered for all purpose as a part of profit which in turn would form gross total income. If the answer is affirmative, then deduction u/s 80P is available and vice versa. In this context it may be mentioned that while ITAT, Pune in the case of Kalbhar Gawade Builders, dismissed the appeal of Revenue, the Ahemedabad Bench in the case of Rameshbhai C Prajapati, allowed the appeal of Revenue on the ground that ‘it is not permissible to impose a supposition on a supposition of law.’

Indirect Taxation & Cooperative Societies

The laws of indirect taxation, namely customs and GST are uniformly applicable for any form of business and accordingly there is neither any special benefit nor any   additional compliance for a cooperative society.


The above analysis reveals that cooperatives need a strong process for Tax Management to ensure Tax Compliance as well as Tax Reduction. However none of the State Cooperative Acts, till date specifies appointment of CFO with prescribed qualification. Further in most of the States, Statutory audit is not required to be carried out by a Chartered Accountant compulsorily. Accordingly, this sector faces a risk of low governance which needs to be addressed through the respective State Cooperative Laws.

Republished with Amendments

More Under Income Tax



    Can housing society distribute dividend for the income generated through Mobile Tower & Interest on Bank FD?
    If Yes does it liable to pay Dividend Distribution Tax and at what rate?
    Please Guide….


    I stay in a society where we have Mobile Tower Income of up to 5 Lac Every year. Same we had deposited in Bank FD and generated handsome amount of Interest income also. Can we distribute dividend to save tax on this income?
    Pls guide

  3. sunny punj says:

    a milk cooperative society is eligible for 100 % deduction of profit under section 80 P of income tax act, whether still there is requirement to file income tax return for milk cooperative society ?

    1. Dr.A.K.Zakir Hussain says:

      Yes. Irrespective of whether a cooperative is having profit or loss, tax liability or not, all cooperatives are bound to file income tax returns. Otherwise they are penalized with interest under section 234A of the Ac

  4. Laxman Kumar Ruhela says:

    I am a member of Urban thrift & credit society. I have received in FY 2019-20
    Dividend = Rs.2400/- and
    Interest Rs.3600/-
    Kindly provide suggestion that these dividend & interest how will be shown in income tax return form No-1 & form No-2
    Laxman Kumar Ruhela
    Mob: 9990134455


    There is a credit & thrift society in our bank.there aim is to give loan to the share holders of bank employee. I am also a share holder for which I am getting dividends every year. But they do not provide balance sheet to any share holder.nor show how much income the society earned. I smell there is misappropriation of funds . What to do.

    1. Dr.A.K.Zakir Hussain says:

      Only the income derived by letting the premises for godown purpose is eligible for 100% deduction under section 80P(2)(e) of the Act. Rental income from any other purpose including shop rent is taxable for cooperatives

  6. sai tanoj.k says:

    if multistate /multipurpose co-operative societies can exempted from GST . In this the products are cement ,iron etc are tax exempted or not please share the answer to me

  7. Samson says:

    A cooperative rendering agriculture produce marketing to its members, consisting equity members and service members. Is the income from services to service members taxable?

  8. A C Doshi says:

    We are a co-op housing society and would like to know rates of Income Tax applicable to co-op housing society. We would also like to know deductions applicable under various sections e.g u/s 80 C to avail reduction in tax payable finally.
    Your response in the matter will be highly appreciated.Thanks
    A C Doshi

      1. Dr.A.K.Zakir Hussain says:

        Section 80P is a Deduction and not exemption. The deduction under Section 80P shall be claimed by filing the income tax return by the concerned cooperative society.

  9. Jagannathan says:

    Can Housing coop societies invest on instruments covered by Sec 80c to take advantage of tax benefits?

    Secy, BALAJI CHS ltd

  10. Jagannathan says:

    Can COOP Housing societies invest under section 80 C and take advantage of income tax exemption?

    Secy, BALAJI CHS ltd

    1. Dr.A.K.Zakir Hussain says:

      No. Section 80C is allowable only for individuals. Therefore, cooperatives cannot invest in Section 80C for tax benefit.

  11. vswami says:

    Sharing Thoughts (albeit random, for the common good):
    Ref. “Further in most of the States, Statutory audit is not required….. to be carried out by a Chartered Accountant compulsorily. Accordingly, this sector faces a risk of low governance which needs to be addressed through the respective State Cooperative Laws.”
    Sorry! To one’s knowledge, the field reality seems to be quite different. In fact, in Kar, Bangalore, it is a CA, who is by and large engaged for audit of Hsg. Society(ies). Nonetheless, no care whatsoever is taken to report or qualify report whether even some of the basic requirements of the spl. law (e.g. in Kar the law is KAOA) have been complied with. To be precise, one such vital requirement / mandate is due and proper registration of ‘owners’ association’ as “…AOA” under KAOA. But , mostly not done; instead, done under another unrelated Act – KSRA and as RWAs. Still, the accounts audited are reported to be as of a properly registered Owners’ Association. That and several other deficiencies in audit which appear to have contributed to the long prevailing,- with no awareness or awakening at all thus far,- totally messed up state of affairs in this area. For knowing more, copious material in public domain need to be looked at. The Institute supposed to be in governance of the practicing professionals in this field as well, so far as one knows, does not seem to have taken even a baby step to bring about any marked improvement in the obtaining sordid state of affairs. Better that is cared to be done, with no more disenchantment or procrastination.

  12. V Swaminathan says:

    CHS – One More Senseless Levy, illegitimate to the core !

    A feedback in the fervent expectation of enthusing the rest to give some useful thoughts, for the common benefit of one and all really concerned; more so, who do care to do so.

    This is on an issue of common concern to flats or apartment takers. in my firm conviction, of the many fraudulent levies , service tax on the collection for maintenance deserves to be ranked first.
    Any feedback as to how kindly that has been taken or consumed, if not digested , in the normal course, by the flats owners in Bombay might be of help in individually taking on / tackling the issue for the common good.

  13. vswami says:

    There is, if one remembers right, threshold limit (s). But, the point made is that the levy itself, in principle,could be urged to be a ‘fraud’ on the targeted gullible people.As regards other receipts, even the general exemption on the same principle of mutuality has become suspect / come under a cloud in the aftermath of the SC ruling in Bangalore Club case (!). Refer comments posted and in public domain on that aspect as well.

  14. terence says:


    the provision should exclude housing co-operative societies who have receipt below a particular thresholds, compliance only increases cost and unncessary headache for office bearers and who benefits consultants, charetered accountants and corrupt officials!!

  15. vswami says:

    The write-up fairly brings out the points to be made a special note of in the matter of compliance by, besides a commercial society, a housing society as well,of the requirements relating of laws on taxation. One such law is levy of service tax . That has been taken to be of application,with no reservation, to collections from ‘members’ for defraying ‘common expenses’ of a building complex. Having made a mention, that has but not been gone into n detail. To be precise, the most fundamental of all is as to why at all such a levy is not disputable on the very same ‘principle of mutuality’ touched upon but in a different context. In one’s view, the constitutional validity or propriety of the said levy is contestable strongly and stoutly; may be, the vires may have to be questioned by invoking the writ jurisdiction of court.

    Over to legal pundits and social activists for appropriate deliberation and legal action.

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March 2021