Co-operative societies engaged in manufacturing activity

Co-operative societies are associations of persons who voluntarily join together for a common economic or social purpose. They are governed by the Co-operative Societies Act, 1912 or any other law for the time being in force in any State for the registration of co-operative societies. Co-operative societies can be engaged in various activities such as banking, agriculture, marketing, processing, fishing, housing, etc.

Co-operative societies are subject to income tax under the Income Tax Act, 1961. The taxability of co-operative societies depends on the nature and source of their income, as well as the deductions and exemptions available to them under the Act. The tax rates applicable to co-operative societies are as follows:

• For co-operative societies engaged in specified activities such as banking, cottage industry, marketing of agricultural produce, etc., the entire amount of profits and gains attributable to such activities is deductible under section 80P of the Act.
• For co-operative societies engaged in other activities, a deduction of Rs. 1 lakh or Rs. 50,000 (depending on the type of society) is available under section 80P of the Act.
• The balance income of co-operative societies is taxed at slab rates of 10%, 20% and 30%, depending on the amount of income.
• Co-operative societies are also eligible for certain other deductions and exemptions under the Act, such as dividend income from other co-operative banks (section 80P), interest income from investments in other co-operative banks (section 80P), dividend income from Indian companies (section 10), etc.

However, in order to promote the growth of manufacturing in the co-operative sector, the Finance Minister announced a new tax incentive for co-operative societies in the Budget 2023. According to this incentive, a new co-operative society formed on or after April 1, 2023, which commences manufacturing or production by March 31, 2024 and does not avail of any specified incentive or deduction, is proposed to be allowed an option to pay tax at a concessional rate of 15% similar to what is available to new manufacturing companies¹². This option once exercised cannot be subsequently withdrawn for the same or any other previous year.

This incentive is expected to give a boost to the co-operative sector and encourage more co-operative societies to enter into manufacturing activities. It will also bring parity between co-operative societies and corporate entities in terms of taxation. However, this incentive will also entail giving up certain deductions and exemptions that are otherwise available to co-operative societies under the Act. Therefore, co-operative societies will have to weigh the pros and cons of opting for this incentive before making a decision.

The co-operative sector plays a vital role in the socio-economic development of India. It provides employment opportunities, credit facilities, market linkages, and welfare services to millions of people across the country. By providing a lower tax rate for manufacturing activities, the government has recognized the potential of this sector and has given it a much-needed impetus. This will not only benefit the co-operative societies but also contribute to the overall growth and development of the nation.