The Government of India has taken various initiatives to provide the income tax relief to cooperative societies. The aim is to make it easier for cooperative societies to function, grow, and better serve their members, especially in rural areas. The measures are expected to improve the financial stability of cooperatives, benefiting their members who are often from farming communities. Here’s a summary of the main initiatives:
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Reduction in Surcharge for Cooperative societies:
The government has reduced the surcharge on cooperative societies’ income. Previously it was 12%, it has now been lowered to 7% for incomes over ₹1 crore but under ₹10 crore. For income above ₹10 crore it is 12%. This will boost the income of cooperatives, many of which serve rural and farming communities.
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Lower Alternate Minimum Tax (AMT) Rate:
Cooperative societies used to pay an Alternate Minimum Tax (AMT) of 18.5%, higher than the 15% rate paid by companies. To create a level playing field, the AMT for cooperatives has been reduced to 15%, matching the rate for companies.
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Cash Transaction Relief for Milk Cooperatives:
Milk cooperatives often receive large cash payments from distributors, especially around bank holidays, exceeding the ₹2 lakh limit set under Section 269ST of the Income Tax Act. This led to heavy penalties. To address this, a clarification was issued by circular no 25/2022 dated 30th December 2022, that payments under dealership contracts should not be treated as one event for the purpose of calculating the limit, providing relief to milk cooperatives.
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Concessional Tax Rate for New Manufacturing Cooperatives 115BAE:
New cooperative societies set up and registered on or after 01-04-2023 and started manufacturing activities by March 31, 2024, will be taxed at the rate of 15% (+ 10% surcharge and 4% cess), similar to the tax rate available to new manufacturing companies. This aims to encourage the growth of cooperative manufacturing ventures.
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Alternate tax regime for certain co-operative societies 115BAD:
If co-operative society does not claim specified exemption, incentive or deduction then concessional rate will be 22% (+ 10% surcharge and 4% cess).
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Relief from Section 269SS for Cash Loans/Deposits:
No person can take or accept a loan, deposit, or any specified amount of money from another person in cash if the amount is ₹20,000 or more. However, in case of primary agricultural credit societies and primary co-operative agricultural and rural development banks this limit is raised to ₹2 lakh.
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Cash Loan Repayment Relief for Primary Co-operatives:
Similarly, Section 269T, which restricts repayment of loans and deposits in cash over ₹20,000, has been amended for PACS and Primary Co-operative Agricultural and Rural Development Banks (PCARDBs). No penalty will apply if the loan or deposit, including any outstanding balance, is under ₹2 lakh.
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Higher Threshold for TDS on Cash Withdrawals:
Cooperatives, particularly dairy cooperatives, often need to withdraw cash for payments to members. Previously, withdrawals over ₹1 crore in a year triggered a tax deduction at source (TDS) u/s 194N. The threshold has now been increased to ₹3 crore for cooperatives, easing cash flow management. [Ins. by the Act No. 8 of 2023, w.e.f. 1-4-2023.]
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Relief for Sugar Cooperative Mills:
A key tax relief for sugar cooperatives (CSMs) was introduced through a provision that allows them to deduct expenses related to sugarcane payments, which had not been clearly addressed before. In 2021, a clarification helped sugar cooperatives avoid additional tax burdens for payments made to sugarcane farmers. Furthermore, the 2023 Finance Act introduced a measure to resolve long-standing tax issues for sugar cooperatives, helping them claim past sugarcane payments as expenses, which is expected to save around ₹10,000 crore.
The above Tax Relief to Cooperative Societies provided level plying fields similar to private/ limited companies.
