SIMON RODRIGUES TAXATION OF CO-OPERATIVE SOCIETIES
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INTRODUCTION SIMON RODRIGUES & ASSOCIATES 2 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 67A and Section 86
of the Act have been excluded from application to the members of
society.
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PRINCIPLE OF MUTUALITY SIMON RODRIGUES & ASSOCIATES 3 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.
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COMPLIANCE OF INCOME TAX PROVISIONS SIMON RODRIGUES &
ASSOCIATES 4 List of Requirements:- PAN Card TAN Registration
Registration under the Central Excise / Service Tax / VAT /
Import-Export Laws etc. (whichever is applicable)
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PAYMENT OF ADVANCE TAX SIMON RODRIGUES & ASSOCIATES 5 By
15th September- 30%, By 15th December- 60% By 15th March - the
whole amount of such advance tax as reduced by the amount paid in
earlier instalment(s).
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STATUTORY COMPLIANCES SIMON RODRIGUES & ASSOCIATES 6 It has
to comply with all the TDS provisions excepting few: No tax shall
be deducted from any interest payable on debentures issued by any
cooperative society u/s 193. Similarly, TDS provisions u/s 194A 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. 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.
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STATUTORY COMPLAINCES SIMON RODRIGUES & ASSOCIATES 7
Compliances of other TDS provisions are all applicable for
cooperatives:- Time limit for deposit of TDS, (7 th of the
following month ) Electronic filing TDS returns, Issuance of NSDL
generated Form 16A
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INCOME TAX RETURNS SIMON RODRIGUES & ASSOCIATES 8 Income
Tax Returns to be filed by the 30 th of September 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. 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. Provisions related to E-Filing and
Digital Signature are also applicable in the case of
societies.
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INCOME TAX RETURNS SIMON RODRIGUES & ASSOCIATES 9 In the
case of co-operative societies, u/s 115JC, 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. 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
10AA, with the Total Income as assessed by the A.O. Thus,
cooperatives which are only entitled to deductions under section
80P, will not be affected by the AMT Provisions. The provisions of
the Wealth Tax Act are not applicable to Cooperative
Societies.
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Tax Slab for Co-Operative Society A.Y. 2015-2016:- SIMON
RODRIGUES & ASSOCIATES 10 Up to Rs. 10,000 10% of the income
Rs. 10,000 - Rs. 20,000 Rs. 1000 + 20% of (total income minus
Rs.10,000) 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.
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DEDUCTIONS u/s 80P SIMON RODRIGUES & ASSOCIATES 11 Section
80P 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.
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DEDUCTIONS u/s 80P SIMON RODRIGUES & ASSOCIATES 12 With
regard to the applicabilty of deductions, few principles already
established, are as follows: Carrying on the business of banking or
providing credit facilities to its members Cottage Industries
Marketing of agricultural produce grown by its members, Purchase of
agricultural implements, seeds, livestock or other articles
intended for agriculture for the purpose of supplying them to its
members
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DEDUCTIONS u/s 80P SIMON RODRIGUES & ASSOCIATES 13
Processing, without the aid of power, of the agricultural produce
of its members Collective disposal of the labour of its members,
Fishing or allied activities, that is to say, the catching, curing,
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
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DEDUCTIONS u/s 80P SIMON RODRIGUES & ASSOCIATES 14 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/-
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Disallowances of Expenses & u/s 80P SIMON RODRIGUES &
ASSOCIATES 15 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. Now,
here the question arises that once any amount is disallowed u/s
40(a)(ia), [or any other section like 43B 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 80P is available and vice versa.
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APPLICABILITY OF SECTION 14A SIMON RODRIGUES & ASSOCIATES
16 It is now established by various judicial pronouncements that
section 14A has no applicability with regard to the deductions
allowable u/s 80P. The provisions of section 14A apply to exempted
income while 80P confers a right for deduction from the gross total
income. While exempted income is not at all included in computing
the Total Income, incomes subjected to 80P deductions are required
to be made from the Gross Total Income following the provisions of
section 80A & 80AB.
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DEDUCTIONS UNDER DIRECT TAX CODE SIMON RODRIGUES &
ASSOCIATES 17 Clause 85:- 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
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DEDUCTIONS UNDER DIRECT TAX CODE SIMON RODRIGUES &
ASSOCIATES 18 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 produce produced by its members; (C) Fishing or
allied activities,
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EXEMPTIONS AVAILABLE TO CO-OPERATIVE SOCIETIES SIMON RODRIGUES
& ASSOCIATES 19 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. 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 10A]. 2. Exemption of the profits and
gains for ten years from a 100% export oriented undertaking
[Section 10B], etc.
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DEDUCTIONS AVAILABLE TO CO-OPERATIVE SOCIETIES SIMON RODRIGUES
& ASSOCIATES 20 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. As per Section 80A, in computing the total
income of an assesse, the deductions specified in Section 80C to
80U shall be allowed from his gross total income.
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DEDUCTIONS AVAILABLE TO CO-OPERATIVE SOCIETIES SIMON RODRIGUES
& ASSOCIATES 21 Deduction of any amount under Section 80G in
respect of donations given to certain funds, charitable
institutions, etc. Deduction of 50% of profits and gains of
projects implemented outside India [Section 80HHB]. Deduction of
the entire profits from income from export business [Section
80HHC]. Section 80AB deals with deductions that need to be made
with reference to the gross total income.
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COMPUTATION OF TAXABLE INCOME SIMON RODRIGUES & ASSOCIATES
22 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. Now, from the amount, the permissible deductions under
the Income Tax Act are made.
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COMPUTATION OF TAXABLE INCOME SIMON RODRIGUES & ASSOCIATES
23 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. Now to the amount of tax, percent of income tax as
surcharge prescribed in the Finance Act is added. From the tax
liability so determined, the amount of rebate in the Act is
deducted.
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SERVICE TAX SIMON RODRIGUES & ASSOCIATES 24 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
service1.The Service defined u/s 65B(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(29A) 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.
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S.T. IN THE CASE OF CO- OPERATIVE HOUSING SOCIETIES SIMON
RODRIGUES & ASSOCIATES 25 As per the definition, any
unincorporated association or body of persons and a member thereof
shall be treated as distinct persons. 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. It can be seen from Negative List (Sec 66D)that
service by co operative society does not find place therein.
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S.T. FOR CO-OPERATIVE HOUSING SOCIETIES SIMON RODRIGUES &
ASSOCIATES 26 However, in the exemption list2, 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 As a trade union;
The provision of carrying out any activity which is exempt from the
levy of S.T. 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
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EXEMPTIONS AVAILABLE TO CO- OPERATIVE HOUSING SOCIETIES SIMON
RODRIGUES & ASSOCIATES 27 Sinking Fund Repair fund (except for
current repairs) Issue of Shares Water Charges (except for common
use of the society like garden etc) Muncipal Tax / Property Tax
Interest on Defaulted Charges Repayment of Loan & Interest
Non-Occupancy Charges Lease Rent Non-Agricultural Tax
Admission/Entrance Fees Deposits Premium on Transfer Voluntary
Donations
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LIABLE TO SERVICE TAX IN CASE OF CO-OPERATIVE HOUSING SOCIETIES
SIMON RODRIGUES & ASSOCIATES 28 Club membership fees Share
transfer fees Maintenance Charges Common Electricity Service
Charges Car Parking Charges Insurance Charges for usage of
health-clubs, swimming pools etc. Use of premises by non-members
(terrace, garden etc.) Sale of space for hoardings, boards
etc.
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REVERSE CHARGE MECHANISM SIMON RODRIGUES & ASSOCIATES 29
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 Therefore, Co-Operative
Societies are not covered under R.C.M.
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PAYMENT OF S.T. IN CASE OF CO-OP HOUSING SOCIETIES SIMON
RODRIGUES & ASSOCIATES 30 Payment of Service Tax:- 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). 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.
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PAYMENT OF S.T. IN CASE OF CO- OP HOUSING SOCIETIES SIMON
RODRIGUES & ASSOCIATES 31 However, if the tax is collected,
exemption cannot be availed. In case of claim of exemption, CENVAT
Credit cannot be availed. 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.
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KEY POINTS ON SERVICE TAX SIMON RODRIGUES & ASSOCIATES 32
The cooperative housing society will have to take registration
within a month from when the taxable service crosses Rs.9 Lakhs
billing in a financial year. 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.
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SERVICE TAX RETURNS SIMON RODRIGUES & ASSOCIATES 33 Service
tax is payable on monthly basis, i. e. by 5th of the next month or
6th in case of e payment. Service tax returns to be filed on half
yearly basis in the following manner : a) For the period from 1st
April to 30th September by 25th October b) For the period from 1st
October to 30th March by 25th April.
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VAT APPLICABILITY FOR CO- OPERATIVE SOCIETIES SIMON RODRIGUES
& ASSOCIATES 34 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.