Section 80P

Co-operative societies play a vital role in India's economic growth and development. They are community-driven organisations that bring people together to achieve common economic, social, and cultural goals. One key provision supporting co-operative societies' growth is Section 80P of the Income Tax Act, which allows them to claim deductions on their income, thereby reducing their tax liability.

What is Section 80P of the Income Tax Act?

Section 80P of the Income Tax Act offers deductions to co-operative societies on their income from specific activities. The primary objective of this section is to promote and encourage the co-operative sector, which significantly impacts various sectors of the Indian economy, such as agriculture, banking, housing, and cottage industries.
Section 80P allows deductions for co-operative societies registered under the co-operative Societies Act of 1912 or similar state laws governing co-operative societies. These deductions apply to the profits and gains derived from the specified activities carried out by the co-operative societies.
 

Who is Eligible to Claim Deductions under Section 80P?

Co-operative societies engaged in the following activities are eligible to claim deductions under Section 80P:
Banking or providing credit facilities to their members

• Cottage industries
• Marketing of agricultural produce grown by their members
• Purchase and supply of agricultural implements, seeds, livestock, or other agricultural-related items to their members
• Processing of agricultural produce of their members without the use of power
• Collective disposal of labour of their members
  • Fishing or allied activities, such as catching, curing, processing, preserving, storing, and marketing fish or purchasing materials and equipment for their members engaged in these activities

Additionally, co-operative societies that supply milk, oilseeds, fruits, or vegetables raised or grown by their members to specific entities, such as federal co-operative societies, government bodies, or government companies engaged in supplying these commodities to the public, are also eligible for deductions under Section 80P.
 

What Types of co-operative Societies are Eligible for Deductions under Section 80P?

Section 80P provides deductions to various types of co-operative societies, including:

• Agricultural co-operative societies
• Rural development co-operative societies
• Primary co-operative agricultural and rural development banks
• Dairy co-operative societies
• Sugar mill co-operative societies
• Spinning mill co-operative societies
• Consumer co-operative societies
• Urban consumer co-operative societies
• Housing co-operative societies
• Transportation co-operative societies
• Manufacturing co-operative societies

It is important to note that co-operative banks, including regional rural banks, are generally excluded from claiming deductions under Section 80P. However, primary agricultural credit societies and primary co-operative agricultural and rural development banks are eligible for these deductions.
 

How are Deductions under Section 80P Calculated?

The deductions under Section 80P are calculated based on the profits and gains derived from the specified activities carried out by the co-operative societies. The deduction amount varies depending on the type of activity and the co-operative society's total income.

For co-operative societies engaged in activities such as marketing agricultural produce, supplying agricultural implements, processing agricultural produce without power, cottage industries, banking or providing credit facilities, collective disposal of labour, fishing or allied activities, and supplying milk, oilseeds, fruits, or vegetables to specified entities, the deduction is 100% of the profits and gains attributable to these activities.

For consumer co-operative societies and other co-operative societies with profits and gains not exceeding ₹10,00,000 from activities other than those mentioned above, the deduction is the entire amount of profits and gains up to ₹1,00,000. For other co-operative societies with profits and gains exceeding ₹10,00,000, the deduction is limited to ₹50,000.

Additionally, co-operative societies can claim a 100% deduction on interest or dividends earned from investments in other co-operative societies and income from renting out godowns or warehouses for storage, processing, or facilitating the marketing of commodities.

For co-operative societies other than housing, urban consumer, transportation, and manufacturing societies with a gross total income not exceeding ₹25,000, the deduction on interest from securities or income from house property is 100%.
 

Things to Remember While Claiming Deduction under Section 80P

While claiming deductions under Section 80P, co-operative societies should keep the following points in mind:

• The specified activities must be the co-operative society's primary income source.
• The deductions are available only on profits and gains derived from the specified activities in India.
• Co-operative societies must maintain proper books of accounts and records for tax computation purposes.
• Accounts of co-operative societies must be audited by a Chartered Accountant (CA) as per Section 44AB of the Income Tax Act.
• Deductions under Section 80P cannot be claimed if the co-operative society opts for the special tax provisions under Section 115BAD or 115BAE.
• The terms used in Section 80P, such as "cottage industry," "marketing," "members," "industry," and "investment," have specific meanings based on various legal decisions and interpretations.
• Deductions under Section 80P can be clubbed with other deductions available under the Income Tax Act.
   

Conclusion

Section 80P of the Income Tax Act is a significant provision that promotes the growth and development of co-operative societies in India. Offering deductions on their income from specified activities encourages community-driven economic progress and supports various sectors, including agriculture, banking, housing, and cottage industries. To claim these deductions effectively, co-operative societies should carefully understand the eligibility criteria, calculation methods, and documentation requirements.