Section 80P

What is Section 80P of the Income Tax Act?

Section 80P of the Income Tax Act, 1961, provides for a deduction in respect of the income of cooperative societies engaged in specific activities. This deduction is available to cooperative societies registered under the Co-operative Societies Act, 1912 or similar state laws. The deduction is allowed for profits and gains derived from activities such as banking, providing credit facilities, cottage industries, marketing agricultural produce, purchasing agricultural implements, processing agricultural produce without power, collective disposal of labour, and fishing or allied activities. The deduction is subject to certain conditions and limitations, and the specific amount of deduction may vary depending on the nature of the activity and other relevant factors.

What is the Meaning of Cooperative Society?

A cooperative society, as defined by the Co-operative Societies Act 1912, is a voluntary association of individuals who come together to meet their shared economic, social, and cultural needs. These societies operate on the principle of democratic member control, meaning that decisions are made collectively by the members themselves. They are jointly owned and operated, with profits, if any, distributed among the members based on their level of participation.

Deductions Under Section 80P of the Income Tax Act

These deductions are designed to promote and support the cooperative sector in India. Here are the key deductions available under Section 80P:

• Cooperative societies involved in marketing agricultural produce grown by their members can claim a 100% income tax deduction.

• Expenses incurred by cooperative societies on purchasing seeds, livestock, agricultural tools, and other inputs for distribution to members are fully deductible.

• Cooperative societies that process agricultural produce without using power are eligible for income tax deductions.

• Cooperative societies engaged in cottage industries can benefit from tax deductions.

• Income generated by cooperative societies from providing banking services or credit facilities to members is fully deductible.

• Cooperative societies that manage the labour of their members collectively can claim tax deductions.

• Income from fishing and related activities, including purchasing equipment and materials for fishermen, is eligible for deduction.

• Cooperative societies that supply products to government bodies, government companies, or other cooperative societies can claim deductions.

• Interest and dividends earned from investments in other cooperative societies are also deductible.

• Income from renting out godowns or warehouses is eligible for a tax deduction.

• Cooperative societies earning income from interest or house property can claim deductions.

It is important to note that for cooperative societies under categories (f) and (g) (collective labour and fishing activities), to qualify for these deductions, they must restrict voting rights to the following:

• State government

• Members contributing labour

• Cooperative societies providing financial assistance

Other Deductions Under Section 80P of the Income Tax Act

In addition to the deductions mentioned earlier, Section 80P of the Income Tax Act offers additional tax benefits for certain cooperative societies:

Consumer Cooperative Societies:

• Profits and Gains Below Rs. 10,00,000: If a consumer cooperative society's profits and gains from activities other than those listed in points (a) to (k) are below Rs. 10,00,000, it can claim deductions based on its income.

• Profits and Gains Exceeding Rs. 10,00,000: For consumer cooperative societies or any other cooperative society with profits and gains exceeding Rs. 10,00,000, a deduction of up to Rs. 50,000 is allowed.

Cooperative societies engaged in banking activities are also eligible for these additional deductions, further incentivizing their growth and contribution to the cooperative sector.

These deductions apply to income sources beyond those specified in points (a) to (k), which primarily benefit consumer cooperative societies, excluding those supplying coal and diesel for brick and tile production.

Specific Exclusions Under Section 80P of the Income Tax Act

• Cooperative Banks: These institutions, including regional rural banks, are not subject to these exclusions and can still claim deductions under Section 80P.

• Other Financial Institutions: Only the following institutions are eligible for deductions:

  • Primary Agricultural Societies (as defined by the Banking Regulation Act)

  • Primary Cooperative Agricultural and Rural Development Banks

Exclusions for Non-Financial Institutions:

• General Exclusions: Most cooperative societies, except for a few specific types, are not eligible for a 100% deduction under Section 80P(2f) against income from securities or house property.

• Specific Exclusions: The following cooperative societies are eligible for deductions under certain conditions:

  • Urban Consumer Societies

  • Housing Societies

  • Transportation Societies

  • Cooperative Societies Engaged in Manufacturing: However, the gross total income of these societies should not exceed Rs. 20,000 to qualify for the deduction.

Key Points to Consider Under Section 80P

1. Eligibility:

   • Most cooperative societies, excluding those under the RBI's control, are generally eligible for deductions under Section 80P.

   • Even cooperative societies engaged in banking activities, but not licensed by the RBI, can claim these deductions.

2. Income Eligibility:

   • The specific income eligible for deduction can vary, depending on the nature of the cooperative society's activities.

   • It's crucial to carefully examine the specific terms used in Section 80P, such as "profits and gains from business related to these activities," "profits and gains from this business," and "income generated."

3. Legal Interpretations:

   • The meanings of terms like "cottage industry," "marketing," "members," "industry," and "investment" have been clarified through various legal decisions and interpretations.

   • It's essential to refer to these interpretations to accurately assess eligibility for deductions.

4. AMT Implications:

   • Profits eligible for deduction under Section 80P are excluded from the calculation of adjusted total income for AMT purposes.

   • This means that claiming deductions under Section 80P will not increase your AMT liability.

How Does a Cooperative Society Claim Deductions Under Multiple Sections?

While calculating the deduction under Section 80P for a co-operative's business income, the income to be considered should be after accounting for deductions already claimed under Sections 80HH, 80HHA, 80HHB, 80HHC, 80HHD, 80-I, and 80-IA.

How to Calculate Your Income Tax?

Understanding your tax obligations is key to effective financial planning. An Income Tax Calculator offers a quick and accurate estimate of your tax liability by considering your income and eligible deductions. This online tool simplifies the process, reduces errors, and saves time. Using an income tax calculator helps you manage your finances efficiently while ensuring lawful tax savings.