TAXATION OF COOPERATIVE SOCIETIES SIMON RODRIGUES INTRODUCTION A

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 67 A and Section 86 of the Act have been excluded from application to the members of society. 2 SIMON RODRIGUES & ASSOCIATES

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. 3 SIMON RODRIGUES & ASSOCIATES

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) 4 SIMON RODRIGUES & ASSOCIATES

PAYMENT OF ADVANCE TAX �By 15 th September- 30%, �By 15 th December- 60% �By 15 th March - by 5 SIMON RODRIGUES & ASSOCIATES the whole amount of such advance tax as reduced the amount paid in earlier instalment(s).

STATUTORY COMPLIANCES It has to comply with all the TDS provisions excepting few: Ø No tax shall be deducted from any interest payable on debentures issued by any cooperative society u/s 193. Ø Similarly, TDS provisions u/s 194 A 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. Ø 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. 6 SIMON RODRIGUES & ASSOCIATES

STATUTORY COMPLAINCES Compliances of other TDS provisions are all applicable for cooperatives: ‐ v Time limit for deposit of TDS, (7 th of the following month ) v Electronic filing TDS returns, v Issuance of NSDL generated Form 16 A 7 SIMON RODRIGUES & ASSOCIATES

INCOME TAX RETURNS Ø Income Tax Returns to be filed by the 30 th of September Ø 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. Ø 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. Ø Provisions related to E-Filing and Digital Signature are also applicable in the case of societies. 8 SIMON RODRIGUES & ASSOCIATES

INCOME TAX RETURNS Ø In the case of co‐operative societies, u/s 115 JC, 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. Ø 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 10 AA, with the Total Income as assessed by the A. O. Thus, cooperatives which are only entitled to deductions under section 80 P, will not be affected by the AMT Provisions. Ø The provisions of the Wealth Tax Act are not applicable to Cooperative Societies. 9 SIMON RODRIGUES & ASSOCIATES

Tax Slab for Co-Operative Society A. Y. 2015 -2016: v Up to Rs. 10, 000 10% of the income v Rs. 10, 000 - Rs. 20, 000 Rs. 1000 + 20% of (total income minus Rs. 10, 000) v 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. 10 SIMON RODRIGUES & ASSOCIATES

DEDUCTIONS u/s 80 P � Section 80 P 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. 11 SIMON RODRIGUES & ASSOCIATES

DEDUCTIONS u/s 80 P With regard to the applicabilty of deductions, few principles already established, are as follows: v Carrying on the business of banking or providing credit facilities to its members v Cottage Industries v Marketing of agricultural produce grown by its members, v Purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members 12 SIMON RODRIGUES & ASSOCIATES

DEDUCTIONS u/s 80 P v Processing, without the aid of power, of the agricultural produce of its members v Collective disposal of the labour of its members, v Fishing or allied activities, that is to say, the catching, curing, v 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 13 SIMON RODRIGUES & ASSOCIATES

DEDUCTIONS u/s 80 P 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/- 14 SIMON RODRIGUES & ASSOCIATES

Disallowances of Expenses & u/s 80 P v 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’. v Now, here the question arises that once any amount is disallowed u/s 40(a)(ia), [or any other section like 43 B 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 80 P is available and vice versa. 15 SIMON RODRIGUES & ASSOCIATES

APPLICABILITY OF SECTION 14 A v It is now established by various judicial pronouncements that section 14 A has no applicability with regard to the deductions allowable u/s 80 P. v The provisions of section 14 A apply to exempted income while 80 P confers a right for deduction from the gross total income. v While exempted income is not at all included in computing the Total Income, incomes subjected to 80 P deductions are required to be made from the Gross Total Income following the provisions of section 80 A & 80 AB. 16 SIMON RODRIGUES & ASSOCIATES

DEDUCTIONS UNDER DIRECT TAX CODE Clause 85: - v 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 17 SIMON RODRIGUES & ASSOCIATES

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 produced by its members; (C) Fishing or allied activities, 18 SIMON RODRIGUES & ASSOCIATES

EXEMPTIONS AVAILABLE TO CO-OPERATIVE SOCIETIES v 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. v 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 10 A]. 2. Exemption of the profits and gains for ten years from a 100% export oriented undertaking [Section 10 B], etc. 19 SIMON RODRIGUES & ASSOCIATES

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. v As per Section 80 A, in computing the total income of an assesse, the deductions specified in Section 80 C to 80 U shall be allowed from his gross total income. 20 SIMON RODRIGUES & ASSOCIATES

DEDUCTIONS AVAILABLE TO CO-OPERATIVE SOCIETIES v Deduction of any amount under Section 80 G in respect of donations given to certain funds, charitable institutions, etc. v Deduction of 50% of profits and gains of projects implemented outside India [Section 80 HHB]. v Deduction of the entire profits from income from export business [Section 80 HHC]. v Section 80 AB deals with deductions that need to be made with reference to the gross total income. 21 SIMON RODRIGUES & ASSOCIATES

COMPUTATION OF TAXABLE INCOME v 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. v Now, from the amount, the permissible deductions under the Income Tax Act are made. 22 SIMON RODRIGUES & ASSOCIATES

COMPUTATION OF TAXABLE INCOME v 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. v Now to the amount of tax, percent of income tax as surcharge prescribed in the Finance Act is added. v From the tax liability so determined, the amount of rebate in the Act is deducted. 23 SIMON RODRIGUES & ASSOCIATES

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 service 1. The Service defined u/s 65 B(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(29 A) 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. 24 SIMON RODRIGUES & ASSOCIATES

S. T. IN THE CASE OF COOPERATIVE HOUSING SOCIETIES v As per the definition, any unincorporated association or body of persons and a member thereof shall be treated as distinct persons. v 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. v It can be seen from Negative List (Sec 66 D)that service by co – operative society does not find place therein. 25 SIMON RODRIGUES & ASSOCIATES

S. T. FOR CO-OPERATIVE HOUSING SOCIETIES However, in the exemption list 2, 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 v As a trade union; v The provision of carrying out any activity which is exempt from the levy of S. T. v 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 26 SIMON RODRIGUES & ASSOCIATES

EXEMPTIONS AVAILABLE TO COOPERATIVE HOUSING SOCIETIES v Sinking Fund v Repair fund (except for current repairs) v Issue of Shares v Water Charges (except for common use of the society like garden etc) v Muncipal Tax / Property Tax v Interest on Defaulted Charges v Repayment of Loan & Interest v Non‐Occupancy Charges v Lease Rent v Non‐Agricultural Tax v Admission/Entrance Fees v Deposits v Premium on Transfer v Voluntary Donations 27 SIMON RODRIGUES & ASSOCIATES

LIABLE TO SERVICE TAX IN CASE OF CO-OPERATIVE HOUSING SOCIETIES v Club membership fees v Share transfer fees v Maintenance Charges v Common Electricity v Service Charges v Car Parking Charges v Insurance v Charges for usage of health‐clubs, swimming pools etc. v Use of premises by non‐members (terrace, garden etc. ) v Sale of space for hoardings, boards etc. 28 SIMON RODRIGUES & ASSOCIATES

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 v Therefore, Co-Operative Societies are not covered under R. C. M. 29 SIMON RODRIGUES & ASSOCIATES

PAYMENT OF S. T. IN CASE OF CO-OP HOUSING SOCIETIES Payment of Service Tax: v 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). v 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. 30 SIMON RODRIGUES & ASSOCIATES

PAYMENT OF S. T. IN CASE OF COOP HOUSING SOCIETIES v However, if the tax is collected, exemption cannot be availed. v In case of claim of exemption, CENVAT Credit cannot be availed. v 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. 31 SIMON RODRIGUES & ASSOCIATES

KEY POINTS ON SERVICE TAX v 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. v 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. 32 SIMON RODRIGUES & ASSOCIATES

SERVICE TAX RETURNS v Service tax is payable on monthly basis, i. e. by 5 th of the next month or 6 th in case of e –payment. v Service tax returns to be filed on half yearly basis in the following manner : 33 a) For the period from 1 st April to 30 th September – by 25 th October b) For the period from 1 st October to 30 th March – by 25 th 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. 34 SIMON RODRIGUES & ASSOCIATES

THANK YOU 35 SIMON RODRIGUES & ASSOCIATES