- What is a co-operative society?
- Key features of co-operative societies
- Eligibility criteria for a co-operative society
- Co-operative society examples
- How to form a co-operative society
- Laws governing the formation of a co-operative society
- Connection between tax and co-operative society
- Types of income that a co-operative society can earn
- Relation between Income Tax Act and Co-operative Societies
- Procedure involved in taxing taxable income for co-operative societies
- Exemptions and deductions under the IT Act that apply to co-operative societies
- Advantages of a co-operative society
- About MyGate
What is a co-operative society? It is not just a way of living, or functioning of a building or complex. A co-operative society can be quite a profit-making entity too. The main objective of this entity is to acquire marketability for products. It was in 2002 that the Multi-State Co-operative Societies Act was passed, which allowed a Co-operative society to function in an autonomic and democratic way. To know what a co-operative society means, let us try to understand the need and formation better.
What is a co-operative society?
The co-operative society definition essentially states, ‘It is an association of individuals who voluntarily get together to work as a unit to promote a common economic interest’. These types of societies, in other words, function on the concept of ‘Self-Help’ and ‘Mutual Help’. The primary goal of a Co-operative Society is for members to contribute economically together and support each other. Furthermore, nobody must leave a co-operative society without making a profit from it. In other words, a harmonious society is formed to promote self-help. A co-operative society in India is usually governed by the Co-operative Societies Act of various states or by the Multi-State Co-operative Societies Act, 2002.
Key features of co-operative societies
There are a few essential features of co-operative societies:
- They stimulate the promotion of a co-operative movement in society.
- Encourages a feeling of cooperation for mutual benefits among people in society.
- Enhances the creation of services not for profit.
- It helps develop cooperation between people and eliminates competition.
- It also ensures people learn to depend more on themselves and not on others.
Eligibility criteria for a co-operative society
There are specific eligibility criteria that an individual needs to fulfil to become a co-operative society member. As per the state Act, the rules needed to become a part of a harmonious society are:
- An individual of 18 years and above looking to be a part of a co-operative must be of sound mind.
- The individual must belong to the co-operative society formed per the Co-operative Societies Act.
- The individual must not be a defaulter of another registered co-operative society.
- Managing committee’s approval of the membership application submitted by the individual is a must.
Co-operative society examples
It is essential for all who wish to become co-operative society members per the Co-operative Societies Act, 1912. Here are a few examples of types of Co-operative societies.
- Housing Society
- Producer’s Society
- Agricultural Marketing Society
- Consumer Society
- Co-operative Bank
- Federal Society
How to form a co-operative society
According to the co-operative society definition, as per the Co-operative Societies Act, 1912, a few steps need to be taken to become a co-operative society member. They are as follows:
- A membership application must be duly filled out and submitted to the Registrar of co-operative societies.
- The application must have attached four copies of the proposed by-laws of the co-operative society.
- All the applicants of a co-operative society must be individuals, and they should be more than ten in number.
- All applicants must sign the application if they are individuals.
- If the applicant is the society, then an authorized member must sign the application.
Laws governing the formation of a co-operative society
A couple of laws govern a Co-operative Society in India, including the following:
- State Co-Operative Societies Act of individual States
- Multi-State Co-Operative Societies Act 2002
Connection between tax and co-operative society
A co-operative society is a separate entity in the Income Tax Act of 1961. Even though it is not mentioned in it, it is in section 80P that there is a connection between tax and Co-operative Society. According to the section, co-operative societies are exempted from benefits. These types of institutions are also assessed as per the Act. Moreover, co-operative societies do not enjoy complete exemption from taxes. They are entitled to a specific deduction from total gross income. As per section 80P, the reduction of taxation of co-operative societies is of two main types. They are as given below:
This type of reduction in income tax is available to all members of a co-operative society.
This form of deduction is available to individuals within a co-operative society.
Types of income that a co-operative society can earn
It is a fact that these days many co-operative societies have started earning by conducting business. It is because, as per co-operative society definition, forming such a society aims to stimulate common economic benefit for all members. The profits and losses are calculated using standard methods such as computation and the ordinary accepted commercial principles. It is also essential that a co-operative society sticks to one approach of maintaining its income through commercial activities.
Therefore, it can either use a cash basis or mercantile basis method. The point to remember is that a co-operative society must adopt either income management style. There are a few types of income that a harmonious society can earn. They are as follows:
- Interest on Securities
- Income from House Property
- Capital Gains Income
- Income from Business
Relation between Income Tax Act and Co-operative Societies
According to Section 2 (19) of the Income Tax Act, “A Co-operative Society means any society registered under the Co-operative Societies Act 2012”. It means that a co-operative society registered with any state in the country is not allowed to function in any other state without permission and sanction of the Government or Registrar of the co-operative societies of that state. It is only a Multi-State Co-operative Society that can work in more than one state as a matter of right. In this case, as per the Act, no permission from any other state is required to do business.
Procedure involved in taxing taxable income for co-operative societies
When it comes to computing taxable income earned by a Co-operative Society in India formed as per the co-operative society definition, a few steps need to be taken. They are:
- Compute the total income by placing it in various categories’ Income from House Property, ‘Capital Gains’, and ‘Income from other sources.
- Then the prescribed income exemptions must be ignored, leaving you with ‘Gross Total Income’.
- The next step involves the application of the deductions mentioned as per the Income Tax Act.
- Finally, added to the ‘Net Income’ earned by a co-operative society is the ‘Rate of Tax’ according to the Finance Act. The amount of tax, per cent of income tax, and cess surcharge applicable is computed following the Finance Act.
Exemptions and deductions under the IT Act that apply to co-operative societies
For a co-operative society involved in business, several exemptions and deductions are made available to them under the IT Act. They are as follows:
Exemptions are essentially available for co-operative societies for certain classes of income. Mainly those which are not a part of the total revenue and are exempt from income tax. A few permissible exemptions available for a co-operative society in India are as follows:
- Section 10 A: This includes exemption of profits obtained from a new industry undertaken by a co-operative society in a free trade zone for ten years.
- Section 10 B: This includes exemption of profits acquired from a 100% export-oriented undertaking for ten years.
Deductions are included for co-operative societies belonging to a particular income category. However, as per the Income Tax Act Chapter VI-A (Section 80A to 80U), filing an income tax return is necessary. Therefore, a few deductions are provided for the following cases given below:
- In calculating the total income of a co-operative society member as specified in Sections 80C to 80U.
- A deduction is made for any amount paid as donations to certain funds as per Section 80G.
- A deduction of 50% of profits from projects initiated outside of India as stated in Section 80HHB.
- A deduction of the entire profit from income generated from export business as mentioned in Section 80HHC.
Advantages of a co-operative society
As per the co-operative society meaning, there will be a few pros and cons to creating it. However, a few Advantages of Co-operative Society are as follows:
- Forming a co-operative society is not difficult.
- There are no restrictions on memberships in a co-operative society.
- The daily management of a co-operative society is democratic.
- The cost of operating a co-operative society is affordable.
- Income Tax exemption is available for a co-operative society.
A few co-operative society examples in India include the Indian Farmers Fertilizers Co-operative Limited, Amul, Indian Coffee House, Pratibha Mahila Sahakari Bank etc.
There are benefits of having a co-operative society for your business model, provided the right rules and regulations are followed. The formation, execution, and running of a co-operative society are facilitated by the government for better growth and fair opportunities.
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