Co-Operative Society Tax Planning & Management

A business can be formed under the organisational set up of a cooperative society just like it can be formed as a Company. There is a general belief that cooperative societies are exempted from the various compliance of direct or indirect taxation. In fact, it is not so – rather to get the various tax reliefs, particularly for income tax, a cooperative society must set up a process for tax compliance, tax management and tax planning.

Principle of Mutuality and Tax Incidence

•  It is a widely accepted principle that no person can trade with himself or make income out of himself.
•  A mutual association rises when a group of persons associate together with a common object and contribute money for achieving that object and divide the surplus amongst themselves.
•  Examples of mutual associations-Resident welfare associations, Social clubs, Shop owners association, Bombay Chartered Accountants Society etc
•  It is not necessary for the mutual concerns to distribute the surplus immediately. The participation in surplus may be way of reduction in future contributions or division of surplus on dissolution.
•  The income of a mutual concern is exempt from tax as far as it is derived from activities of mutual nature. The income from trading so far as it is confined to own members is also exempt
•  Example, if a club receives any surplus arising from sale of drinks, refreshments etc, or amount by way of rent for letting out the building or amount by way of admission fees, periodical subscription, then these are not taxable since these were only charges for the privileges, conveniences and amenities provided to members, which they are entitled as per the rules and regulations of the club.
•  In other words, the services are offered on the above counts were not done with a profit motive and were not tainted with commerciality.
•  Where a mutual concern derives income from an activity with an outsider, then tax exemption will not apply to such income.

Surplus from mutual activity – Not income – Not taxable

Compliance of Income Tax Provisions

A Co-Operative society has to get PAN, TAN etc. like any other form of business. Even to get itself registered under GST Laws or Import Export Regulations, it has to obtain the PAN.

It has to pay advance income tax in four instalments. It also has to comply with all the TDS provisions excepting few. Compliances of other TDS provisions like time limit for deposit of TDS, electronic filing TDS returns, issuance of NSDL generated Form 16A etc are all applicable for cooperatives. Though most of the cooperatives are village level or block level cooperatives, no relaxation has been granted by the statute with respect to imposition of interest, penalty or prosecution for any violation.

A Cooperative Society u/s. 44AA, is required to maintain books of accounts and other documents as may enable the Assessing Officer to compute its total income in accordance with the provisions of the Income Tax Act. Further, its accounts are required to be audited by a Chartered Accountant u/s. 44AB notwithstanding the fact that its accounts are subjected to audit by the administrative department as provided in the State Cooperative Laws.

We Meru & Associates will facilitate you in all the compliance of Co-Operative Society in a timely & consistent manner. Currently in Finance Act 2020, Government announced option of Alternative Taxation Regime to discharge the Tax Liability, wherein our role will be to do Comparative Analysis between Old Scheme & New Scheme before filling of Returns.