The Indian tax system is vast & intricate, but it also provides some specific reliefs to niche entities. One such relief is provided under Section 80P of the Income Tax Act, which offers tax deductions to cooperative societies. This section was introduced to encourage the growth & functioning of co-operative societies by reducing their tax liability & incentivising specific economic activities.
What is Section 80P?
Section 80P of the Income Tax Act provides for a deduction in respect of the income of co-operative societies. This deduction is allowed to the extent of the actual profit earned by the assessee from the specified activities of the co-operative society. Unlike general businesses, these societies receive specified benefits under Section 80P, making their financial burden lighter & operations more sustainable. "
Who is Eligible?
The section primarily benefits co-operative societies involved in certain economic sectors, such as:
- Banking or providing credit facilities to its members
- Cottage industry
- Marketing of agricultural produce grown by its members
- Purchase of agricultural implements, seeds, and livestock for supply to members
- Processing without the aid of the power of the agricultural produce of its members
These cooperative societies are allowed deductions on income derived from the above activities. "
Tax Deduction Scope
Section 80P allows tax deductions to cooperative societies engaged in specific activities as mentioned. The quantum of deduction varies:
- 100% deduction for certain categories like primary agricultural credit societies & co-operative banking activities
- Limited deductions for other types of co-operative societies, depending on their income & activity type
This means the deduction is allowed to the extent of the actual profit earned by the society from such eligible operations.
How Does It Work?
Let’s say a co-operative society earns ₹10 lakh in a financial year, out of which ₹7 lakh is from eligible activities like marketing agricultural produce. In such a case, the society can claim a deduction of ₹7 lakh under Section 80P, thus reducing its taxable income drastically.
This deduction in respect of income of co-operative societies aims to promote inclusive economic development, especially in rural & semi-urban areas where co-operatives play a crucial role.
What are the Exceptions?
Not all co-operative societies can avail of the benefit of Section 80P. Urban co-operative banks, after certain amendments, have been excluded from claiming deductions under this section. Therefore, it’s important to classify your society & its business activities correctly to assess eligibility.
Additionally, societies that have earned income from sources outside their eligible activities—like house property, commission, or brokerage—may not get deductions on those amounts.
Documentation and Compliance
To claim deductions under Section 80P of the Income Tax Act, societies must maintain proper books of accounts, get their accounts audited if applicable, & file their ITR on time. Ensure that the society's Memorandum of Association clearly states the eligible activities to avoid disputes during scrutiny.
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