The Income Tax Act, 1961, provides for several profit-related deductions in Chapter VI-A. The objective of these provisions is to encourage taxpayers to invest in certain sectors. In case of profits and gains from certain industries such as hotels, small-scale industries, housing projects, export business, and infrastructure development, these deductions are provided under Sections 80H to 80RRB.
One of the relevant sections that has been designed especially for supporting the cooperative societies is Section 80P of the Income Tax Act 1961. Cooperative societies are institutions that are established in various sectors, like agriculture, housing, banking, and trade. Therefore, all the cooperative societies should acquaint themselves with the specifics of the section to reap all the benefits associated with it.
Read the article to learn more about Section 80P of Income Tax Act housing society, ranging from the meaning of cooperative societies to the meaning of the section and benefits to sub-sections under the section from Section 80P(2) of income Tax Act to Section 80P(2)(d) of income Tax Act.
Overview
The table below summarises some key details about the Section 80P of income Tax Act housing society that one should know.
| Concerned law | Income Tax Act of 1961 |
|---|
| Name of the section | Section 80P |
| Eligible parties | Registered cooperative societies |
| Objective | To aid in supporting and encouraging the development of cooperative societies through the provision of Section 80P |
| Benefit on | Deduction on specified incomes |
| Covered sectors are | Agriculture, housing, and banking |
| Deduction limit of Section 80P | Up to 100% for some income types |
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What Is A Co-Operative Society?
The Co-operative Societies Act 1912 defines a co-operative society as a voluntary association of people who come together to meet their common economic, cultural, and social needs through a jointly owned and democratically managed enterprise.
The Co-operative Societies Act 1912 is the main law governing co-operatives in India. However, state laws may also apply to co-operatives in certain states.
What Is Section 80P Of The Income Tax Act 1961?
Section 80P of the Income Tax Act 1961 was introduced to aid in supporting and encouraging the development of cooperative societies through the provision of particular tax benefits. This section seeks to improve their viability and effectiveness.
These institutions are essential across various areas of the economy, which include retail, agriculture, and banking. Section 80P allows cooperative societies to participate in sustainable development by removing them from the tax burdens they encounter, making it easier for them to serve their members and contribute to economic development.
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Tax Benefits Under Section 80P
The deductions under Section 80P of the Income Tax Act are a series of tax benefits granted to cooperatives that serve to reduce the cooperative’s income. The tax benefits granted under this section or the 80P deduction list, as mentioned in Section 80P of income tax Act pdf includes the following points:
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Deduction Of Income From The Provision Of Credit Facilities
The income of cooperatives that provide credit facilities to their members can be deducted from income in this category. Income from interest earned on loans granted by such cooperatives to their members and income received from their members in the course of lending to them are examples of this deduction category.
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Deduction Of Income From Consumer Business
This relates to products used by the members of the consumer cooperative. The income can be deducted if a consumer cooperative sells goods and merchandise to its members for consumption purposes. The purpose of this deduction is to promote small businesses and handicraft enterprises.
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Who Is Not Eligible For Deduction Under Section 80P?
There are some entities that cannot apply for the deductions provided under Section 80P of the Income Tax Act 1961. The entities that cannot apply to reap the tax benefits provided under the section are as follows:
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Any cooperative bank (including regional rural banks) that is not a primary agricultural credit union (as defined in the Banking Regulation Act).
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A primary agricultural and rural development cooperative bank within the scope. This includes a society whose area of operation is in a taluk. Further, the primary purpose of these societies is to extend long-term loans for agricultural and rural development activities.
Specifics Of The Section 80P
Section 80P of the Income Tax Act is divided into several sub-sections. All the important subsections are described below in brief for one’s better understanding:
Section 80P(2) of income Tax Act
Section 80P(2) of income Tax Act concerns the different types of income on which cooperative societies can claim deductions. It also ensures that societies that are working for the welfare of their members are able to apply for tax relief.
Section 80P(2)(a)(i) of income Tax Act
Section 80P(2)(a)(i) of income Tax Act allows cooperative societies to claim 100% deductions on earned income. Please note that this sector is only for cooperative societies that lend money to their members.
Section 80P(2)(c) of income Tax Act
Section 80P(2)(c) of income Tax Act provides deductions to cooperative societies engaged in activities not covered by other clauses of section 80P. Under this section, deduction of up to Rs. 50,000 is for consumer cooperative societies and up to Rs. 1,00,000 for other cooperative societies.
Section 80P(2)(d) of income Tax Act
Section 80P(2)(d) of income Tax Act is concerning 100% deduction on interest and dividends earned through various investments made with other cooperative societies. Please note that interest earned from banks does not come under this section, and the section’s benefits will not be extended to it as well.
Conclusion
Section 80P of the Income Tax Act 1961 is a strong and powerful financial aid created for cooperative societies to reduce their tax burden. The benefits availed through this section help the cooperative societies in reinvesting into better investment opportunities, creating better infrastructure, and focusing on the welfare of their members.
The cooperative society is an important part of economic policy. By supporting it with an income tax reduction of less than 80%, the section aims to create a better society, empower people from the small and middle classes, and help the Indian economy grow into a resilient economy.
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