Section 80P – Deduction for Co-operative Societies

Cooperative societies form an integral part of India's economic structure, playing an important
role in encouraging community-driven progress and growth. This guide explores Section 80P,
an essential provision that allows deductions to these cooperative societies, serving as the
foundation of several sectors such as agriculture, banking, and housing. Did you know that India
boasts approximately 8 lakh officially recognized cooperative societies, with a strong presence
in the agricultural, banking, and housing sectors? This is a testament to the country's profound
commitment to cooperative principles. Moreover, India holds the distinction of being the
birthplace of the world's largest cooperative movement, which has significantly shaped its
economic fabric. In sectors like agriculture, cooperative societies, ranging from dairies to sugar
mills and spinning mills, bring together the collective resources of farmers to process their
produce efficiently. With 1,94,195 cooperative dairy societies and 330 cooperative sugar mill
operations, these entities contribute significantly to the nation's agricultural prowess, accounting
for a substantial 35% of the sugar produced in the country.

The Income Tax Act of 1961 allows for the exemption of income tax returns that seek
deductions under section 80P of the Act for different assessment years spanning from 2018-19
to 2022-23, as permitted by clause (b) of sub-section (2) of section 119 of the Act.

What is a cooperative society?

The Co-operative Societies Act 1912 represents a cooperative society as a voluntary
association of people who come together to fulfill their common economic, cultural, and social
needs through a jointly owned and democratically governed enterprise.

The Co-operative Societies Act 1912 is the primary law governing cooperative societies in India.
Regardless, there are also state laws that may apply to cooperative societies in particular
states.

What is Section 80P of the Income Tax Act?

Except for cooperative banks, cooperative societies have the opportunity to pursue income tax
deductions for specific agricultural initiatives. Cooperative societies that are officially registered
under the Co-operative Societies Act, 1912, or similar state regulations and generate income
through such activities can benefit from complete deductions from their total income. It's
important to understand that the deduction under Section 80P is applicable solely to primary
agricultural credit societies or rural development and primary cooperative agricultural banks.

100% Deductions under Section 80P of the IT Act

Cooperative societies have the opportunity to claim significant income tax deductions, which
can be quite beneficial for them. These deductions are applicable in various cases:

If a cooperative society is involved in marketing agricultural produce grown by its members, it

can claim a 100% income tax deduction.
When the cooperative society purchases seeds, livestock, or agricultural tools to supply to its
members, these expenses are also eligible for a full income tax deduction.
Cooperative societies that process agricultural products from their members without using
power can also benefit from this tax deduction.
Income tax deductions are available for cooperative societies engaged in cottage industries.
For cooperative societies involved in banking services or providing credit facilities to their
members, these operations can be fully deductible from income tax.
When a cooperative society collectively manages the labor of its members, it can take
advantage of this deduction.
Businesses in fishing and related activities, including purchasing materials and equipment for
fishermen, are eligible for deductions.
Cooperative societies that supply these products to government bodies, government
companies, or federal cooperative societies can enjoy deductions.
Any interests and dividends earned from investments in other cooperative societies are also
deductible.
Income derived from renting out godowns or warehouses is eligible for a tax deduction.
Cooperative societies that generate income from interest or house property can benefit from
these deductions.
For cooperative societies falling under categories (f) and (g) to qualify for these deductions
under section 80P, they must limit voting rights to the following individuals:

The state government.

Members who contribute their labor to the society.
A cooperative society that provides financial assistance.
Other Deductions U/S 80P of the Income Tax Act
Cooperative societies, excluding cottage industries, can claim additional deductions based on
their profits and gains. These deductions are structured as follows:

Consumer Cooperative Societies: If a consumer cooperative society is engaged in activities

other than those mentioned in points (a) to (k) and its profits and gains are below Rs. 10,00,000,
it can enjoy deductions based on its income.
Other Cases: For consumer cooperative societies or any other cooperative society in cases
where their profits and gains exceed Rs. 10,00,000, they can still claim deductions of up to Rs.
50,000.
It's important to note that these deductions are applicable to income sources beyond those
covered in points (a) to (k). Consumer cooperative societies primarily operate for the benefit of
consumers, with the exception of those supplying coal and diesel for use in brick and tile
production.

Additionally, cooperative societies providing banking services are eligible for these extra
deductions, which further encourage their growth and contribution to the cooperative sector.

Specific Exclusions U/S 80P

Under the Finance Act of 2016, some specific exclusions were introduced under Section 80P of
the Income Tax Act. These exclusions limit the eligibility for certain deductions, and they do not
apply to cooperative banks, including regional rural banks. Instead, only the following financial
institutions are eligible for these deductions:

Primary Agricultural Society: This is defined as per the Banking Regulation Act.
Primary Cooperative Agricultural and Rural Development Bank: These are societies that provide
long-term credit for agricultural and rural development.
Additionally, there are specific exclusions for deductions against income from securities or
house property under Section 80P(2f). With a few exceptions, no other cooperative society can
claim a 100% deduction under this subsection. These exceptions include:

Urban Consumer Society

Housing Society
Transportation Society
Cooperative Society Engaged in Manufacturing. However, this society's gross total income
should not exceed Rs. 20,000 to qualify for this deduction.
Key Points Related to Section 80P
Section 80P uses different terms such as 'profits and gains from business related to these
activities,' 'profits and gains from this business,' 'income generated,' etc., which require careful
examination.
Several high courts have ruled that all cooperative societies, except those under the control of
the Reserve Bank of India (RBI), are eligible for deductions under Section 80P. It's important to
note that a cooperative society conducting banking activities is distinct from a cooperative bank
licensed by the RBI, and it can indeed claim deductions under Section 80P.
The meanings of terms such as 'cottage industry,' 'marketing,' 'members,' 'industry,'
'investment,' etc., have been clarified in various legal decisions and interpretations.
Importantly, profits under Section 80P are not considered when calculating adjusted total
income for the purpose of the Alternate Minimum Tax (AMT) levy. This exclusion ensures that
the deduction under Section 80P does not impact AMT calculations.
How does a cooperative society claim deductions under multiple sections?
When calculating the deduction under section 80P for the business income of a co-operative,
you should consider the income after you've already taken deductions under sections 80HH,
80HHA, 80HHB, 80HHC, 80HHD, 80-I, and 80-IA.

Frequently Asked Questions

Q- What is Deduction under section 80P2 (a) (i)?
Under section 80P(2)(a)(i), the interest earned from investments in a nationalized bank by a
cooperative society that provides credit facilities to its members is not eligible for a deduction
U/S 80P. Nevertheless, if the cooperative society has incurred any expenses in generating this
income that haven't already been accounted for, they could potentially be considered for
allowance.

Q- Are cooperative societies exempted from income tax?

The Honorable Supreme Court has provided significant relief to cooperative credit societies
nationwide by confirming that, according to Section 80P(2) of the Income Tax Act, these
societies will not be classified as banks. Consequently, they will maintain their eligibility for
income tax exemption.

Q- Is tax audit compulsory for a cooperative society?

As per the IT Act 1961, a cooperative society that falls under section 44AA has to keep books of
accounts and other documents. It also has to get its accounts audited by a chartered accountant
under section 44AB, even if its accounts are already audited by its administrative department.