Section 80P – Income Tax

Income-tax laws in India possess provisions for several profit-linked deductions to motivate investments in certain businesses under Chapter VI-A under the heading ‘C. – Deductions in respect of certain incomes.

These deductions are available under Sections 80H to 80RRB with relation to profits and gains of specific industries like hotel business, small-scale industrial undertaking, housing projects, export business, and infrastructure development.

One of the deductions available under this chapter is deductions with relation to the income of co-operative societies; the provisions of which are forbidden under Section 80P.

Sec 80P - Income Tax

Table of contents

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• Deductions under Section 80P

• Meaning of a Co-operative society for the aim of Section 80P

• Specific exclusions

• What if a co-operative society is additionally eligible for profit-linked deductions under other Sections?

• Key points to be noted

Budget 2022 update

FM proposes to scale back the Alternate Minimum Tax (AMT) Rate to fifteen from 18.5% for the cooperative societies.

Deductions under Section 80P

Under this section, a specific specified income of a cooperative society engaged in specific activities is taken into account as a deduction if such income is included within the gross total income of the society.

Meaning of a Co-operative society for the aim of Section 80P

A co-operative society isn’t defined specifically for the aim of Section 80P. However, Section 2(19) of the taxation Act, 1961, defines a cooperative society to be an entity registered under the Co-operative Societies Act, 1912 or under the other law governing the registration of co-operative societies in any state.

Activities and amount eligible for deduction under Section 80P

Activities covered Quantum of deduction

Co-operative society engaged in 100% of profits and gains owing to these activities

The industry of banking or giving credit facilities to its members

Cottage industry

Marketing of agricultural produce grown by its members

Purchase of agricultural implements, seeds, livestock, or other articles intended for agriculture for the aim of supplying them to its members

Processing of agricultural produce of its members without the help of power

Collective disposal of the labor of its members, or fishing, or any allied activities (catching, curing, processing, preserving, storing, marketing of fish, etc.) However, rules and by-laws of those co-operative societies must restrict voting rights to:

1. Partners, who are individuals who provide their labor

2. could be a co-operative society that provides financial assistance to the society or

3. could be an authority.

A co-operative society that is mainly engaged in supplying milk, oilseeds, fruits, or vegetables raised or grown by its partners to:

1. A federal co-operative society, a society engaged within the business of supplying milk, oilseeds, fruits, or vegetables, because the case is also

2. the govt or federal agency

3. Either a government company as per the corporate law or an organization established by or under the Central, State, or Provincial Act, which is engaged in supplying milk, oilseeds, fruits, or vegetables, because the case could also be, to the public 100% of profits and gains of such business

A co-operative society engaged in the other activities

 1. For buyer co-operative society* – up to Rs 1 lakh

2. Others – Upto Rs 50,000

A co-operative society earning:

1. Interest or dividend from its investment with the other co-operative society or

2. Income from letting of godowns or warehouses for storage, processing, or facilitating the marketing of commodities 100% of such income

Interest on securities or income from the house property of a co-operative society apart from a Housing society or

1. Urban consumers’ society** or

2. Society carrying on a transport business or

3. Society engaged in manufacturing operations with the help of power

Sec 80P - Income Tax

Consumers’ co-operative society’ means a society for the advantage of its members

‘Urban consumers’ co-operative society’ means a society for the advantage of the consumers within the bounds of a municipal corporation, municipality, municipal committee, notified area committee, town area, or cantonment.

Specific exclusions

The Finance Act, of 2006 introduced specific exclusions to the applicability of the advantage of deduction under Section 80P.

Section 80P is created not applicable to any co-operative bank (including Regional Rural Banks) apart from a primary agricultural credit society (as defined within the Banking Regulation Act) or a primary co-operative farming and rural improvement bank (a society having its area of strategy confined to taluk and therefore the main object of which is to produce long-term credit for agricultural and rural development activities).

The benefit of the deduction is withdrawn with an intention to treat cooperative banks on par with commercial banks that don’t enjoy any such deduction.

What if a co-operative society is additionally eligible for profit-linked deductions under other Sections?

If a co-operative society is additionally eligible for profit-linked deduction under Section 80HH, 80HHA, 80HHB, 80HHC, 80HHD, 80-I, 80-IA, 80J, the deduction allowed under Section 80P is from the gross total revenue after reducing the deductions under these sections.

Key points to be noted

• Section 80P, for various scenarios, uses different terms for the aim of deduction like ‘profits and gains of business due to such activities’, ‘profits and gains of such business, ‘profits and gains due to such activities’, ‘income derived’ etc. These terms must be analyzed fully considering the assorted commentaries on revenue enhancement and case laws.

• Various high courts have held that every one co-operative society aside from those coming under the control of RBI is eligible for a deduction. A cooperative society conducting banking activities isn’t a cooperative bank licensed by the bank of India. It can, therefore, claim deductions under Section 80P.

• Meaning of assorted other terms like ‘cottage industry, ‘marketing’, ‘members’ ‘industry’, ‘investment’ etc., also are analyzed in various decisions.

• Section 80P profit isn’t considered to extend the adjusted total income for the Alternate Minimum Tax levy.