Tax on income of certain resident cooperative societies.
203(1)
Irrespective of anything contained in this Act but subject to the provisions of Part A, B and this Part, other than section 204, the income-tax payable for a tax year shall be at the rate of 22%, at the option of a person being a co-operative society resident in India, in respect of the total income of such person computed in the following manner:––
- (a) without any deduction under— (i) Chapter VIII other than the provisions of section 146; or (ii) sections specified in section 205(1)(a) to (g);
- (b) without set off of any loss carried forward or depreciation from any earlier tax year, if such loss or depreciation is attributable to any of the deductions referred to in clause (a).
203(2)
Where a person fails to satisfy the requirements contained in sub-section (1) in any tax year, the option shall become invalid in respect of the said tax year and subsequent tax years and other provisions of the Act shall apply, as if the option had not been exercised for such tax year and for subsequent tax years.
203(3)
The loss and depreciation referred to in clause (b) of sub-section (1) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent tax year.
203(4)
In case of a person, having a Unit in the International Financial Services Centre, which has exercised option under this section, the requirements contained in sub-section (1) shall be modified to the extent that the deduction under section 147 shall be available to such Unit subject to fulfilment of the conditions contained in the said section.
203(5)
The provisions of this section shall not apply unless the option is exercised by the person in the prescribed manner on or before the due date specified under section 263(1) for furnishing the return of income and such option once exercised shall apply to subsequent tax years.
203(6)
Once the option under this section has been exercised for any tax year, it shall not be subsequently withdrawn for the same or any other tax year.
Section Summary:
This section introduces a special tax rate of 22% for resident cooperative societies in India, provided they meet certain conditions. It allows these societies to opt for this lower tax rate, but in return, they must forgo certain deductions and benefits available under other sections of the Income Tax Act. The option is irrevocable once exercised and applies to all subsequent tax years unless the society fails to meet the requirements.
Key Changes:
- New Tax Rate Option: Cooperative societies can now opt for a flat 22% tax rate, which is lower than the standard corporate tax rate.
- Restrictions on Deductions: Societies opting for this rate cannot claim deductions under Chapter VIII (except section 146) or sections specified in section 205(1)(a) to (g).
- No Carry Forward of Losses or Depreciation: Losses or depreciation attributable to the disallowed deductions cannot be carried forward or set off in future years.
- Irrevocable Option: Once the option is exercised, it cannot be withdrawn in subsequent years.
- Special Provision for IFSC Units: Units in International Financial Services Centres (IFSCs) can still claim deductions under section 147, even if they opt for this special tax rate.
Practical Implications:
- For Cooperative Societies:
- Societies must evaluate whether the 22% tax rate is beneficial compared to the standard tax rate, considering the loss of deductions and carry-forward benefits.
- Societies with significant deductions or losses may find the standard tax regime more advantageous.
- For IFSC Units:
- IFSC-based units can still claim specific deductions under section 147, making this option more attractive for them.
- Compliance Burden:
- Societies must carefully assess their eligibility and ensure they meet the conditions to avoid losing the option in future years.
Critical Concepts:
- Chapter VIII Deductions: These include various deductions available to taxpayers, such as those for charitable donations, scientific research, and specific business expenses.
- Section 205(1)(a) to (g): These sections specify deductions related to profits from exports, special economic zones, and other incentives.
- Loss and Depreciation Carry Forward: Normally, businesses can carry forward losses and depreciation to offset future profits, but this option restricts such benefits.
- International Financial Services Centre (IFSC): A special economic zone for financial services, where units enjoy certain tax benefits.
Compliance Steps:
- Evaluate Eligibility: Assess whether the 22% tax rate is beneficial based on the society’s income, deductions, and losses.
- Exercise Option: If opting for the 22% rate, the society must formally choose this option before the due date for filing the income tax return (as per section 263(1)).
- Maintain Records: Ensure proper documentation of income, deductions, and losses to comply with the conditions of this section.
- No Withdrawal: Once the option is exercised, it applies to all subsequent tax years and cannot be withdrawn.
Examples:
- Scenario 1: A cooperative society with taxable income of ₹10 crore and no significant deductions or losses may opt for the 22% tax rate, reducing its tax liability to ₹2.2 crore instead of paying a higher rate under the standard regime.
- Scenario 2: A society with ₹5 crore in taxable income and ₹2 crore in deductions under Chapter VIII may find the standard tax regime more beneficial, as the loss of deductions under the 22% option could outweigh the lower tax rate.
- Scenario 3: An IFSC-based unit with ₹8 crore in taxable income and ₹1 crore in eligible deductions under section 147 may opt for the 22% rate while still claiming the section 147 deduction, making this option more attractive.
This section provides a simplified tax regime for cooperative societies but requires careful consideration of trade-offs between lower tax rates and the loss of deductions.