Taxation of Cooperative Societies

Report
TAXATION OF CO-OPERATIVE
SOCIETIES
SIMON RODRIGUES
INTRODUCTION
 A Co-Operative Society is a taxable entity under the
Income Tax Act, 1961. A Cooperative Society under the
Act is to be treated as an Association of Persons (AOP),
which is included in the definition of 'person' under the
Income Tax Act, 1961.
 Even though, for taxation purposes, the status of a
cooperative society is to be taken as an Association of
Persons, the Section 67A and Section 86 of the Act have
been excluded from application to the members of
society.
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PRINCIPLE 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.’
Eg: 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.
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COMPLIANCE OF INCOME TAX
PROVISIONS
List of Requirements: PAN Card
 TAN Registration
 Registration under the Central Excise / Service
Tax / VAT / Import-Export Laws etc. (whichever
is applicable)
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PAYMENT OF ADVANCE TAX
 By 15th September-
30%,
 By 15th December-
60%
 By 15th March -
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the whole amount of such
advance tax as reduced by
the amount paid in
earlier instalment(s).
STATUTORY COMPLIANCES
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 co-operative 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.
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STATUTORY COMPLAINCES
Compliances of other TDS provisions are all applicable
for cooperatives: Time limit for deposit of TDS, (7th of the following
month )
 Electronic filing TDS returns,
 Issuance of NSDL generated Form 16A
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INCOME TAX RETURNS
 Income Tax Returns to be filed by the 30th of September
 Without filing of returns within the stipulated due date,
business losses or loss under the head of capital gains of
a society cannot be carried forward.
 Losses under the head of Income from House Property
and un-absorbed depreciation cannot be carried
forward at all if returns have not been filed.
 Provisions related to E-Filing and Digital Signature are
also applicable in the case of societies.
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INCOME TAX RETURNS
 In the case of co-operative societies, u/s 115JC, if the tax payable
under normal provisions is less than 18.5% of the Adjusted Total
Income, then the tax payable will be 18.5% of the Adjusted Total
Income which is known as AMT i.e. Alternate Minimum Tax.
 The Adjusted Total Income should be computed by increasing the
deductions as claimed by the assessee, under any section included
in Chapter VI-A of the heading “C” – Deductions with respect to
certain incomes (excluding deductions u/s 80 P) and deductions
claimed under u/s 10AA, with the Total Income as assessed by the
A.O. Thus, cooperatives which are only entitled to deductions
under section 80P, will not be affected by the AMT Provisions.
 The provisions of the Wealth Tax Act are not applicable to
Cooperative Societies.
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Tax Slab for Co-Operative Society
A.Y. 2015-2016: Up to Rs. 10,000
10% of the income
 Rs. 10,000 - Rs. 20,000
Rs. 1000 + 20% of (total income
minus Rs.10,000)
 Above Rs. 20,000
Rs. 3,000 + 30% of (total income
minus Rs.20,000)
a) Surcharge - 10% of the Income Tax, where total taxable income is more than Rs. 1
crore.
b) Education cess - 2% of income-tax.
c) Secondary and higher education cess - 1% of income-tax.
d) Total Cess = 3% of Income-Tax.
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DEDUCTIONS 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.
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DEDUCTIONS u/s 80P
With regard to the applicabilty of deductions, few
principles already established, are as follows:
 Carrying on the business of banking or providing credit
facilities to its members
 Cottage Industries
 Marketing of agricultural produce grown by its
members,
 Purchase of agricultural implements, seeds, livestock or
other articles intended for agriculture for the purpose of
supplying them to its members
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DEDUCTIONS u/s 80P
 Processing, without the aid of power, of the agricultural
produce of its members
 Collective disposal of the labour of its members,
 Fishing or allied activities, that is to say, the catching,
curing,
 Processing, preserving, storing or marketing of fish or
the purchase of materials and equipment in connection
therewith for the purpose of supplying them to its
members
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DEDUCTIONS u/s 80P
1. Primary societies procuring milk, oilseeds, fruits or vegetables
raised or grown by its members and supplying them to federal
societies, government or local authority or government company or
corporation which are engaged in supplying these goods to public
2. 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 out of warehouses for storage, processing or facilitating
the marketing of commodities.
3. Income from House Property and interest on securities is
deductible for certain societies whose Gross Total Income is less
than Rs. 20,000/-
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Disallowances of Expenses & 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.
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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 is not at all included 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.
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DEDUCTIONS UNDER DIRECT TAX
CODE
Clause 85: It provides for deduction to a primary co-operative society, to the extent of
profits derived from the business of providing banking, or credit, facility to its
members. Primary Co-Operative Society may be one of the following:a)
Primary Agro Credit Society is one whose primary object is providing financial
accommodation to its members for agricultural purposes or purposes connected
with agricultural activities, including marketing of crops, no other co-op society
being its member.
b) Primary co-op agro & rural dev. bank confined to a taluka and providing long
term credit for agro and rural dev. activities
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DEDUCTIONS UNDER DIRECT TAX
CODE

Clause 86:It provides for deductions to a primary cooperative society:
(a) Of entire profits derived from agriculture or agriculture related activities;
(b) Of income derived from any other activity, limited Rs One lakh.
Agriculture-Related Activities:
(i) Purchase of agricultural implements, seeds, livestock or other articles intended for
agriculture for the purpose of supplying them to its members
(ii) The collective disposal of:-
(A) Agricultural produce grown by its members; or
(B) Dairy or poultry produce produced by its members;
(C) Fishing or allied activities,
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EXEMPTIONS AVAILABLE TO
CO-OPERATIVE SOCIETIES
 It includes certain classes of income which do not form part of total
income and are exempted from income-tax. These are excluded
from the computation of gross total income of an assessee.
 A return of income is also not to be filled for them. Such types of
income fall under Chapter III of the Income Tax Act. Some of the
permissible exemptions provided are:1. Exemption of profits and gains from a new industrial undertaking
in a free trade zone for ten years[Section 10A].
2. Exemption of the profits and gains for ten years from a 100%
export oriented undertaking [Section 10B], etc.
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DEDUCTIONS AVAILABLE TO
CO-OPERATIVE SOCIETIES
It includes certain classes of income which are included in
computing the total income of an assessee but are exempted from
income-tax as they are basically deductions to be made in
computing total income. A return of income is required to be
filled for them.
 As per Section 80A, in computing the total income of an assesse,
the deductions specified in Section 80C to 80U shall be allowed
from his gross total income.
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DEDUCTIONS AVAILABLE TO
CO-OPERATIVE SOCIETIES
 Deduction of any amount under Section 80G in respect of
donations given to certain funds, charitable institutions, etc.
 Deduction of 50% of profits and gains of projects implemented
outside India [Section 80HHB].
 Deduction of the entire profits from income from export business
[Section 80HHC].
 Section 80AB deals with deductions that need to be made with
reference to the gross total income.
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COMPUTATION OF TAXABLE
INCOME
 First compute the total income under the different heads i.e.
income from house property, profits or gains of business or
profession, capital gains, and income from other sources, ignoring
the prescribed income exemptions. Thus, "gross total income" is
obtained.
 Now, from the amount, the permissible deductions under the
Income Tax Act are made.
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COMPUTATION OF TAXABLE
INCOME
 To the 'net income' so arrived at, the 'rates of tax' as per the
Finance Act for the respective year is applicable to cooperative
societies.
 Now to the amount of tax, percent of income tax as surcharge
prescribed in the Finance Act is added.
 From the tax liability so determined, the amount of rebate in the
Act is deducted.
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SERVICE TAX
 In the negative list based taxation regime of service tax from
1.7.2012, all services are taxable if it falls within the definition of
service1 .The Service defined u/s 65B(44) is all encompassing as,
“any activity carried out by a person for another for
consideration….” However, it excludes certain activities, viz.,
i) a title of transfer in goods including deemed sale of goods under
Article 366(29A) of the Constitution of India,
ii) a transaction in money or
iii) actionable claim or,
iv) provision of service in the course of employment, etc.
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S.T. IN THE CASE OF COOPERATIVE HOUSING SOCIETIES
 As per the definition, any unincorporated association or body of
persons and a member thereof shall be treated as distinct
persons.
 A co – operative housing society and its members cannot claim
benefit of mutuality in the transactions between them.
Therefore, collections from members shall become liable to
tax if they are in the nature of any activity carried out by the
society for its members as provided in the definition.
 It can be seen from Negative List (Sec 66D)that service by co –
operative society does not find place therein.
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S.T. FOR CO-OPERATIVE
HOUSING SOCIETIES
However, in the exemption list2, entry 28 Service by an
unincorporated body or a non‐ profit entity registered
under any law for the time being in force, to its own
members by way of reimbursement of charges or share
of contribution
 As a trade union;
 The provision of carrying out any activity which is exempt
from the levy of S.T.
 Up to an amount of five thousand rupees per month per
member for sourcing of goods or services from a third
person for the common use of its members in a housing
society or a residential complex
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EXEMPTIONS AVAILABLE TO COOPERATIVE HOUSING SOCIETIES
 Sinking Fund
 Repair fund (except for current repairs)
 Issue of Shares
 Water Charges (except for common use of the society like garden etc)
 Muncipal Tax / Property Tax
 Interest on Defaulted Charges
 Repayment of Loan & Interest
 Non-Occupancy Charges
 Lease Rent
 Non-Agricultural Tax
 Admission/Entrance Fees
 Deposits
 Premium on Transfer
 Voluntary Donations
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LIABLE TO SERVICE TAX IN CASE OF
CO-OPERATIVE HOUSING SOCIETIES
 Club membership fees
 Share transfer fees
 Maintenance Charges
 Common Electricity
 Service Charges
 Car Parking Charges
 Insurance
 Charges for usage of health-clubs, swimming pools etc.
 Use of premises by non-members (terrace, garden etc.)
 Sale of space for hoardings, boards etc.
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REVERSE CHARGE MECHANISM
Provision of Reverse Charge Mechanism is applicable only when
the service receiver is a Body Corporate as defined under Section
2(7) of the Companies Act 1956.
Body Corporate or Corporation does not include the following:a)
Corporation Sole
b) A Co-Operative Society registered under any law relating to
Co-Operative Societies
c)
Any other Body Corporate, which the Central Government may
notify through the Official Gazette
 Therefore, Co-Operative Societies are not covered under R.C.M.
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PAYMENT OF S.T. IN CASE OF
CO-OP HOUSING SOCIETIES
Payment of Service Tax: If the billing of above charges exceeds Rs.5000 per member, per
month, service tax would be payable @ 12.36% and recovered in
the bill. However, basic exemption is provided to any assessee for
total receipt of taxable amount of Rs. 10 Lakhs (however, this
exemption is optional).
 Once the receipt exceeds the exemption limit, Service Tax is payable
after deducting first Rs. 10 Lakhs in the subsequent year and
thereafter, Service Tax is applicable every year without any
exemption.
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PAYMENT OF S.T. IN CASE OF COOP HOUSING SOCIETIES
 However, if the tax is collected, exemption cannot be availed.
 In case of claim of exemption, CENVAT Credit cannot be availed.
 Service tax is payable on billing basis, i.e. even if a member does not
pay the bill amount, Service Tax will have to be paid by the society.
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KEY POINTS ON SERVICE TAX
 The co–operative housing society will have to take
registration within a month from when the taxable
service crosses Rs.9 Lakhs billing in a financial year.
 CENVAT Credit can be availed on payment of Service tax
on input services, like Security Charges, Repairs &
Maintenance, etc. The credit can be taken on payment
basis, i.e. when payment of input service and service tax
is paid to input service provider.
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SERVICE TAX RETURNS
 Service tax is payable on monthly basis, i. e. by 5th of the
next month or 6th in case of e –payment.
 Service tax returns to be filed on half yearly basis in the
following manner :
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a)
For the period from 1st April to 30th September – by 25th
October
b)
For the period from 1st October to 30th March – by 25th
April.
SIMON RODRIGUES & ASSOCIATES
VAT APPLICABILITY FOR COOPERATIVE SOCIETIES
 A Society can act as an agent of its members, however, when a given
society has the authority to decide the sales price of goods sold to
members and is not acting merely as an agent of its members, then
it is said to be a dealer.
 Profit motive of business is irrelevant for the purpose of eligibility
of VAT, i.e. VAT applicability is not dependent on whether the
dealer earns profits or incurs a loss.
 Co-Operative Societies, even if engaging in trading activities at no-
profit-no-loss equation are still liable to pay VAT on their sales.
 Generalized VAT Rates are applicable to Co-Operative Societies.
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THANK YOU
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