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Taxation of Resident Co-operative Societies from Financial Year 2020-21 ( Assessment Year 2021-22)

Currently, the co-operative societies are taxed at the slab rates  and the highest slab rate is 30% which applies when income  exceeds Rs. 20,000.

Taxation Law Amendment Act inserted new  sections to provide domestic companies with an option to be  taxed at the concessional tax rates. To bring parity between the  co-operative societies and domestic companies, a new section  115BAD has been proposed to be inserted in Income-tax Act to  provide an option to the co-operative societies to get taxed at  the rate of 22% plus 10% surcharge and 4% cess.

The resident  co-operative societies have an option to opt for taxation under  newly proposed section 115BAD of the Act. The option once  exercised under this section cannot be subsequently withdrawn  for the same or any other previous year.

If the new regime of Section 115BAD is opted by a co-operative  society, its income shall be computed ..

  • without providing for specified exemption, deduction or incentive available under the Act. 

  • The societies opting for this section have been kept out of the  purview of Alternate Minimum Tax (AMT).

  • Further, the provision  relating to computation, carry forward and set-off of AMT credit  shall not apply to these assessees.

The option to pay tax at lower rates shall be available only if the  total income of co-operative society is computed without claiming following exemptions or deductions:
  1. Deduction for units established in Special Economic Zones  (SEZ) [Section 10AA]; 

  2. Additional depreciation in respect of new plant and machinery  [Section 32(1)(iia)]; 

  3. Deduction for investment in new plant and machinery in  notified backward areas [Section 32AD]; 

  4. Deduction in respect of tea, coffee or rubber business [Section  33AB]; 

  5. Deduction in respect of business consisting of prospecting or  extraction or production of petroleum or natural gas in India  [Section 33ABA]; 

  6. Deduction for donation made to approved scientific research  association, university college or other institutes for doing  scientific research which may or may not be related to  business [Section 35(1)(ii)]; 

  7. Deduction for payment made to an Indian company for doing  scientific research which may or may not be related to  business [Section 35(1)(iia)]; 

  8. Deduction for donation made to university, college, or other  institution for doing research in social science or statistical  research [Section 35(1)(iii)]; 

  9. Deduction for donation made to National Laboratory or IITs,  etc. for doing scientific research which may or may not be  related to business [Section 35(2AA)]; 

  10. Deduction in respect of capital expenditure incurred in respect  of certain specified businesses, i.e., cold chain facility,  warehousing facility, etc. [Section 35AD]; 

  11. Deduction for expenditure on agriculture extension project  [Section 35CCC]; 

  12. Deduction in respect of certain incomes other than specified  under Section 80JJAA [Part C of Chapter VI-A].

Where a co-operative society exercises option for availing benefit  of lower tax rate under section 115BAD, it shall not be allowed  to claim set-off of any brought forward losses or depreciation  attributable to any restricted exemption or deduction in the  Assessment Year for which the option has been exercised and  for any subsequent Assessment Year.

Co-operative Society opting for section 115BAA are not eligible  to set-off the Unabsorbed Depreciation attributable to additional  depreciation from the  Block of Asset

As co-operative society opting for section 115BAA are not eligible  to set-off the unabsorbed depreciation attributable to additional  depreciation, a proviso has been proposed to be inserted in Section 115BAD(3) to clarify that if any unabsorbed depreciation,  relating to additional depreciation, has not been given full effect,  corresponding adjustment shall be made to WDV of the block of  assets in prescribed manner.

No AMT (Alternate Minimum Tax) Credit shall be available to a Co-operative  society opting for section 115BAD.

The Finance Bill proposes a consequential amendment  to the provisions of Section 115JD relating to AMT Credit that  this provision shall not be applicable to a co-operative society  opting for new tax regimes of Section 115BAD. Thus, the AMT  credit available with a co-operative society shall lapse on opting  the new regime.

As it is clear that no AMT credit shall be available to a co-operative  society opting for section 115BAD, the co-operative society having  an unutilized balance of AMT credit must have been looking for  the answers of the most important question - Whether Section  115BAD should be opted if there is a AMT Credit or not? 

If a co-operative society has unutilized balance of AMT credit  and it contemplates opting for Section 115BAD regime, then it is  essential for the co-operative society to make some calculations  before doing so in accordance with the following mechanism.

Particulars

Amount

Present value of future tax liability of co-op. society if it does not  opt for Section 115BAD [A]

Xxx

Present value of future tax liability of co-op. society if it opts for  Section 115BAD [B]

Xxx

Present Value of Net Saving (if positive) [C = A - B]

xxx

Individuals and HUFs can pay Tax as per Section 115BAC from Assessment Year 2021-22 (Financial Year 2020-21) Tax Amendments in Finance Bill 2020 Implications of this New Tax Regime of Section 115BAC in case of ‘Individuals’ or ‘HUFs’ not eligible for any Deduction from the Assessment Year 2021-22
Income Tax Slab for Financial Year 2020-21 (AY : 2021-22)



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