A cooperative society is known as a society that is registered or deemed to be registered under any law that relates to cooperative societies. This is for certain tenure in any State under the Central Act. Cooperative societies are governed by the Multi-State Cooperative Societies Act or relevant State Cooperative Societies Act, 2002. The societies have the key purpose to cater its members' interests in an individual state or more than one state.
According to the Cooperative Societies Act of a state, a cooperative society can be registered in any state according to the law of that state. In this circumstance, the state is not permitted to operate in any other state without permission of that state's Registrar of Cooperative Societies or Government. In case of multi-state cooperative society, it is allowed to operate in more than one state. This is due to right under the Act so there is no need permission of any state to perform its business.
Under the Income Tax Act, 1961, a Cooperative Society is known as a taxable body. Under this Act, a Corporate Society is considered like an Association of Persons (AOP). Under the Income Tax Act, 1961, the association of persons is included in the definition of Person.
Even for taxation, the status of a cooperative society is considered as an Association of Persons. The Section 67A and Section 86 of the Act are debarred and they are not applicable for the members of the society.
A Cooperative Society is taxable at certain rates which differ from those who are applicable to an association of persons. According to the Paragraph A of annual Finance Act, following entities are chargeable at rates irrespective of their incorporation :
Hindu Undivided Family
Individuals
Body of Individuals
Association of Persons
Every artificial juridical person mentioned in the Income Tax Act
Under paragraph B of Part1 of the first schedule of the Annual Finance Act, a cooperative society is chargeable to tax. As par the provisions of paragraph B, the amount of tax is calculated and it is applicable for any cooperative society and is increased by a surcharge. The rate of surcharge is defined in every Finance Act.
The cooperative societies can avail different concessions in order to compute their taxable income. Under the Annual Finance Act, they can also get the advantage of concession in the rate of tax while calculating their chargeable income.
Under the Wealth Tax Act [Section 3(1)], cooperative societies are not charged any wealth tax. Only following entities are charged according to Wealth Tax Act :
Hindu Undivided Families
Individuals
Companies
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At first, total income under the diverse heads must be computed for example
Income from house property
Capital gains
Profits or gains of business or profession
Income from other sources
Recommended income exemptions are ignored so "gross total income" can be obtained
From the amount, acceptable deductions under the Income Tax Act are made.
On the net income so arrived at, the 'rates of tax' according to the Finance Act for the respective year is pertinent to cooperative societies.
Now to the quantity of tax, percent of income tax as surcharge recommended in the Finance Act is included. According to Finance bill 2006, no surcharge is valid for the year 2006-2007.
From the tax liability so calculated, the sum of rebate as par the Act is subtracted.
Following are the individuals that may become members of a Co-operative Society at the State level according to the State Act:
A person capable to contract, attained majority and belongs to a category of individuals if any for whom the society is made according to its bye-laws
A society registered or deemed to be according to the Co-operative Societies Act
The Government
Note: No individual shall be entitled for admission as a member of a society.
The following are the steps included to make a Co-operative Society under the State Act.
The application duly filled in shall be submitted to the Registrar of Co-operative Societies.
The application must accompany with four copies of the proposed bye-laws of the co-operative society.
All the applicants should be individuals and the number of applicants must be more than 10.
The application must be signed by all the applicants if they are individuals.
If the applicant is a society itself, then the application should be signed by a member duly authorised by the society.
Different kinds of co-operative societies are registered under the Co-operative Societies Act, 1912. A few are as follows:
Producer's Society
Housing Society
Consumers Society
Agricultural Marketing Society
Federal Society
Co-operative Bank
Many types of exemptions and deductions can be obtained for cooperative societies:
Exemptions - It consists of certain types of income that do not form element of total income and are exempted from income-tax. These are not considered while computing gross total income of an Assessee. Return of income is not filled for them too. Such kinds of income are considered into Chapter III of the Income Tax Act. Some of the permitted exemptions offered are:
Exemption of profits and gains from a new industrial enterprise in a free trade zone for 10 years under Section 10A
Exemption of the profits and gains for 10 years from a 100% export-oriented undertaking and others under Section 10B
Deductions - It incorporates certain types of income that are included for computation of the total income of an Assessee but are entitled to get exemption from income-tax as deductions to be made in computing total income. A return of income is needed to be filled for them. Such kinds of income come under Chapter VI-A according to Sections 80A to 80U of the Income Tax Act. Some of the permissible deductions offered as follows:
According to Section 80A, while computing the total income of an assessee, deductions mentioned in Section 80C to 80U shall be permitted from his gross total income.
Section 80AB is connected with deductions that require to be made regarding the gross total income.
Deduction of any amount under Section 80G with respect to donations offered to certain funds, charitable institutions and others.
Deduction of 50% of profits and gains of projects applied outside India according to Section 80HHB.
Deduction of complete profit from income from export business according to Section 80HHC and others.
The deductions regarding income are mentions under Section 80P of the Income Tax Act are applicable for the cooperative societies only. The provision has been added in the Act for expansion of cooperative societies. There are heads of deductions specified in the section such that each is independent and distinct of other. In order to decide whether a particular type of income of a cooperative society will get exemption from tax, it is important to check whether it falls under the supposed heads or not. The deductions permissible under this section are regarding net incomes from the activities or businesses, mentioned in a variety of clauses of the section.
If a cooperative society performs such activities, income from which is exempted and also carries on such actions, income from which is not exempted then profits or gains are attributed to earlier activity shall get exemption and those attributed to latter one shall be imposed with tax. Where a cooperative society makes income, that is partly taxable and partly entitled to particular deduction, proportionate share of the expenses can be attributed to the earning of income, permitted to deduction, must be deducted while computing such income.
