From the assessment year 2021-22 (FY 2020-21), a resident co-operative society has an option to opt for a lower rate of taxation under the newly inserted section 115BAD of the Act.
Incentives to resident co-operative societies in Budget 2020
The Taxation Laws (Amendment) Act, 2019, which replaced The Taxation Laws (Amendment) Ordinance, 2019, sought to provide additional fiscal stimulus to attract investment, generate employment and boost the economy in the wake of economic developments post enactment of the Finance (No. 2) Act, 2019 and keeping in view the reduction of rate of corporate income tax by many countries world over. TLAA, inter alia, introduced section 115BAA in the Act so as to provide that an existing domestic company may opt to pay tax at 22 per cent., if it does not claim any incentive and deduction as provided in said section.
In case of the domestic company opting to pay tax at the rate of 22 per cent. under said section, it was provided that,-
(a) failure to satisfy specified conditions would disqualify it for the concessional rate and normal provisions of the Act shall apply.
(b) deemed loss or depreciation arising out of amalgamation attributable to any incentive, deduction or exemption, shall not be allowed in computation of income.
(c) for FY 2020-21, where there is unabsorbed depreciation allowance in respect of a block of asset which has not been given full effect to in earlier FYs, corresponding adjustment shall be made to the written down value of such block of assets as on 1st April, 2020.
(d) it shall be entitled to deduction under section 80LA of the Act, subject to fulfilment of conditions contained therein, in respect of a Unit in the International Financial Services Centre, if any.
It was also provided that such company shall not be subjected to Minimum Alternate Tax (MAT) under section 115JB of the Act and that, the carry forward and set off of MAT credit, if any, under section 115JAA of the Act would not be allowed.
Representations have been received from the stakeholders requesting to provide for concessional rate of tax in case of resident co-operative society on similar lines. In view of the above, it is proposed to insert a new section (115BAD) in the Act to provide that,-
(i) notwithstanding anything contained in the Act but subject to the provisions of Chapter XII and satisfaction of certain conditions, a co-operative society resident in India shall have the option to pay tax at 22 per cent. for assessment year 2021-22 onwards in respect of its total income so however that if it fails to satisfy the conditions in any previous year, the option shall become invalid and other provisions of the Act shall apply;
(ii) the condition for concessional rate shall be that the total income of the co-operative society is computed,-
(a) without any deduction under the provisions of section 10AA or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any provisions of Chapter VI-A;
(b) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in (a) above; and
(c) by claiming the depreciation, if any, under section 32, except clause (iia) of sub-section (1) thereof, determined in such manner as may be prescribed;
(iii) the loss and depreciation referred to in (ii)(b) above 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 year. However, where there is a depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year beginning on 1st April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on 1st April, 2020 in the prescribed manner, if the option is exercised for a previous year relevant to the assessment year beginning on 1st April, 2021;
(iv) the concessional rate shall not apply unless option is exercised by the co-operative society in the prescribed manner on or before the due date specified under sub-section (1) of section 139 of the Act for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after 1st April, 2021 and such option once exercised shall apply to subsequent assessment years;
(v) if the person has a Unit in the International Financial Services Centre (IFSC), as referred to in sub-section (1A) of section 80LA, the deduction under section 80LA shall be available to such Unit subject to fulfilment of the conditions contained in that section; and
(vi) the option so exercised cannot be withdrawn;
(vii) The surcharge applicable to such co-operative society shall be levied at 10 per cent.
Clause 53 of the Finance Bill, 2020 seeks to insert a new section 115BAD of the Income-tax Act relating to the income of certain registered cooperative societies.
It is further proposed to amend section 115JC of the Act so as to provide that the provisions relating to Alternate Minimum Tax (AMT) shall not apply to such co-operative society.
It is also proposed to amend section 115JD of the Act so as to provide that the provisions relating to carry forward and set off of AMT credit, if any, shall not apply to such co-operative society.
This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-22 and subsequent assessment years.
Rates of Tax for Co-operative Societies
Income Tax: In the case of co-operative societies, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Bill. These rates will continue to be the same as those specified for FY 2019-20.
Surcharge: The amount of income-tax shall be increased by a surcharge at the rate of twelve per cent. of such income-tax in case of a co-operative society having a total income exceeding one crore rupees.
Marginal relief on Surcharge: However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.
Health & Education Cess: On the computed income tax and surcharge, Health & Education Cess at the rate of four per cent shall be applied.
Table-1
Category of Taxpayer
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Co-operative Society
|
Residential Status
|
Resident
|
Total Income
|
Income-Tax Rate
|
Up to Rs. 10,000
|
10%
|
Rs. 10,001 to Rs. 20,000
|
20%
|
Above Rs. 20,000
|
30%
|
Important:
| |
Surcharge on Income-tax for Co-operative Society:
|
Cases covering Table-1
|
Where Total Income exceeds Rs. 1,00,00,000
|
12%
|
Health & Education Cess on Income-tax and Surcharge for Co-operative Society:
|
Cases covering Table-1
|
Health & Education Cess
|
4%
|
Marginal Relief on Surcharge
|
Where Total Income exceeds Rs. 1,00,00,000
|
Total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
|
From the assessment year 2021-22, resident co-operative societies have an option to opt for taxation under newly inserted section 115BAD of the Act.
New optional simplified income tax rates for a resident co-operative society only under section 115BAD
Table-2
Tax rate for resident co-operative society under section 115BAD
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22%
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Surcharge on a resident co-operative society if section 115BAD is opted
|
10%
|
Note: No marginal relief is applicable under this option.
| |
Health & Education Cess
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4%
|
Section 115BAD: A detailed overview
Section 115BAD: Applicability
Section 115BAD shall apply to a resident co-operative society from the assessment year 2021-22. Further, the option to exercise the new lower tax regime shall be exercised by the society before the due date of filing of return of income under section 139(1) which is 31st July, for non tax audit cases, and 31st October, for tax audit cases.
It must be remembered that once the option for lower tax regime is exercised under section 115BAD then the same cannot be withdrawn in any assessment year. However, it is not necessary that the option needs to be exercised in the assessment year 2021-22 itself. It may be exercised in any assessment year on and from the assessment year 2021-22, but once exercised cannot be withdrawn.
Section 115BAD: Lower or Concessional tax rate
The new section provides for lower rate of tax of 22 per cent if the specified deductions and exemptions are foregone. Further, a flat surcharge of 10 per cent shall be applied to the income tax rate, but no marginal relief is applicable on the surcharge. The Health & Education Cess of 4 per cent is also applicable. Hence, the effective tax rate for a resident co-operative society under this new section comes to 25.168 per cent.
In the old tax regime, at the highest level of income of over Rs. 1 crore, the effective tax rate is 34.944 per cent. Hence, from the peak rate of the old tax rate, there is a savings of 9.776 per cent of tax.
Section 115BAD: Restriction on deductions and exemptions
To avail the benefit of lower or concessional rate of tax, the society has to forego the following deductions and exemptions-
Further, the total income is computed without set-off of any brought forward business loss or unabsorbed depreciation to the extent it is related to any of the deductions referred above. In the case of depreciation, the total income should be computed with reference to normal depreciation u/s 32 and excluding the additional depreciation u/s 32(1)(iia).
The business loss and unabsorbed additional depreciation 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 year.
Section 115BAD: Benefits
The new section 115BAD restricts deduction under chapter VI-A which includes section 80P. Under section 80P, a co-operative society is entitled to claim a 100 per cent deduction of its income. Hence, if a co-operative society is keeping its funds in a co-operative bank and earning interest income thereon which is the only income source for the society then it can claim 100 per cent deduction on such income under section 80P. For such societies, the old tax regime is beneficial.
Section 80P(4) restricts the applicability of deduction to a co-operative bank except a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
Hence, the new tax provision is very useful or beneficial to co-operative banks.
In the nutshell, the old tax regime would be beneficial to non-banking co-operative societies subject to the condition that such societies are filing their return of income within the due date prescribed in section 139(1).
References
Section 115BAD: Applicability
Section 115BAD shall apply to a resident co-operative society from the assessment year 2021-22. Further, the option to exercise the new lower tax regime shall be exercised by the society before the due date of filing of return of income under section 139(1) which is 31st July, for non tax audit cases, and 31st October, for tax audit cases.
It must be remembered that once the option for lower tax regime is exercised under section 115BAD then the same cannot be withdrawn in any assessment year. However, it is not necessary that the option needs to be exercised in the assessment year 2021-22 itself. It may be exercised in any assessment year on and from the assessment year 2021-22, but once exercised cannot be withdrawn.
Section 115BAD: Lower or Concessional tax rate
The new section provides for lower rate of tax of 22 per cent if the specified deductions and exemptions are foregone. Further, a flat surcharge of 10 per cent shall be applied to the income tax rate, but no marginal relief is applicable on the surcharge. The Health & Education Cess of 4 per cent is also applicable. Hence, the effective tax rate for a resident co-operative society under this new section comes to 25.168 per cent.
In the old tax regime, at the highest level of income of over Rs. 1 crore, the effective tax rate is 34.944 per cent. Hence, from the peak rate of the old tax rate, there is a savings of 9.776 per cent of tax.
Section 115BAD: Restriction on deductions and exemptions
To avail the benefit of lower or concessional rate of tax, the society has to forego the following deductions and exemptions-
Section
|
Particulars
|
Section
10AA
|
Exemption
for newly established Units in Special Economic Zones
|
Section
32(1)(iia)
|
Additional
Depreciation
|
Section
32AD
|
Deduction
for Investment in new plant or machinery in notified backward areas in
certain States.
|
Section
33AB
|
Deduction
for deposit into Tea development account, coffee development account and
rubber development account
|
Section
33ABA
|
Deposit
into Site Restoration fund
|
Section
35(2AA)
|
Deduction
for expenditure on scientific research
|
Section
35(1)(ii)
|
Deduction
for expenditure on scientific research
|
Section
35(1)(iia)
|
Deduction
for expenditure on scientific research
|
Section
35(1)(iii)
|
Deduction
for expenditure on scientific research
|
Section
35AD
|
Deduction
in respect of expenditure on specified business
|
Section
35CCC
|
Deduction
for expenditure on agricultural extension project
|
Deduction
under Chapter VI-A
Except
section 80JJA
|
Section
80C, Section 80P, etc. However, deduction under section 80JJA is available.
|
Further, the total income is computed without set-off of any brought forward business loss or unabsorbed depreciation to the extent it is related to any of the deductions referred above. In the case of depreciation, the total income should be computed with reference to normal depreciation u/s 32 and excluding the additional depreciation u/s 32(1)(iia).
The business loss and unabsorbed additional depreciation 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 year.
Section 115BAD: Benefits
The new section 115BAD restricts deduction under chapter VI-A which includes section 80P. Under section 80P, a co-operative society is entitled to claim a 100 per cent deduction of its income. Hence, if a co-operative society is keeping its funds in a co-operative bank and earning interest income thereon which is the only income source for the society then it can claim 100 per cent deduction on such income under section 80P. For such societies, the old tax regime is beneficial.
Section 80P(4) restricts the applicability of deduction to a co-operative bank except a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
Hence, the new tax provision is very useful or beneficial to co-operative banks.
In the nutshell, the old tax regime would be beneficial to non-banking co-operative societies subject to the condition that such societies are filing their return of income within the due date prescribed in section 139(1).
References
Insertion of new sections 115BAC and 115BAD.
53. After section 115BAB of the Income-tax Act, the following sections shall be inserted with effect from the 1st day of April, 2021, namely:–
'115BAC. (1) .............
Tax on income of certain resident co-operative societies.
115BAD. (1) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of a person, being a co-operative society resident in India, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the option of such person, be computed at the rate of twenty-two per cent., if the conditions contained in sub-section (2) are satisfied:
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in computing its income in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year and subsequent assessment years.
(2) For the purposes of sub-section (1), the total income of the co-operative society shall be computed,-
(i) without any deduction under the provisions of section 10AA or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of the provisions of Chapter VI-A other than the provisions of section 80JJAA;
(ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i); and
(iii) by claiming the depreciation, if any, under section 32, other than clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.
(3) The loss and depreciation referred to in clause (ii) of sub-section (2) 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 year:
Provided that where there is a depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in such manner as may be prescribed, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall be modified to the extent that the deduction under the said section shall be available to such Unit subject to fulfilment of the conditions contained in that section.
Explanation.-For the purposes of this sub-section, the term “Unit” shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005.
(5) Nothing contained in this section shall apply unless option is exercised by the person in such manner as may be prescribed on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021 and such option once exercised shall apply to subsequent assessment years:
Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
Amendment of section 115JC
57. In section 115JC of the Income-tax Act,-
(i) ..........
(ii) after sub-section (4), the following sub-section shall be inserted, with effect from the 1st day of April, 2021, namely:–
“(5) The provisions of this section shall not apply to a person who has exercised the option referred to in section 115BAC or section 115BAD.”.
Amendment of section 115JD.
58. In section 115JD of the Income-tax Act, after sub-section (6), the following sub-section shall be inserted, with effect from the 1st day of April, 2021, namely:–
“(7) The provisions of this section shall not apply to a person who has exercised the option referred to in section 115BAC or section 115BAD.”.
Clause 53 of the Bill seeks to insert new sections 115BAC in the Income-tax Act relating to tax on income of individuals and Hindu undivided family and 115BAD relating to tax on income of certain resident cooperative societies.
Sub-section (1) of the new section 115BAD provides that notwithstanding anything contained in that Act but subject to the provisions of Chapter XII, the income-tax payable in respect of the total income of a person, being a co-operative society resident in India, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the option of such person, be computed at the rate of twenty-two per cent., if the conditions contained in sub-section (2) are satisfied.
Proviso to said sub-section provides that where the person fails to satisfy the conditions contained in sub-section (2) in computing its income in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year and subsequent assessment years.
Sub-section (2) of the said section provides that for the purposes of sub-section (1), the total income of the cooperative society shall be computed,—
(i) without any deduction under the provisions of section 10AA or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of the provisions of Chapter VI-A other than the provisions of section 80JJAA;
(ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i); and
(iii)by claiming the depreciation, if any, under section 32, other than clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.
Sub-section (3) of the said section provides that the loss and depreciation referred to in clause (ii) of sub-section (2) 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 year.
Proviso to the said sub-section provides that where there is a depreciation allowance in respect of a block of asset which has not been given full effect prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in the manner as may be provided by rules, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021.
Sub-section (4) of the said section provides that in case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall be modified to the extent that the deduction under the said section shall be available to such Unit subject to fulfilment of the conditions contained in the said section.
Explanation to the said sub-section defines the term “Unit” to have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005.
Sub-section (5) of the said section provides that nothing contained in this section shall apply unless option is exercised by the person in the manner as may be provided by rules on or before the due date specified under subsection (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2021 and such option once exercised shall apply to subsequent assessment years.
The proviso to the said sub-section provides that once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
Clause 57 of the Bill proposed to amend section 115JC of the Act so as to provide that the provisions relating to Alternate Minimum Tax (AMT) shall not apply to such co-operative society.
Clause 58 of the Bill proposed to amend section 115JD of the Act so as to provide that the provisions relating to carry forward and set off of AMT credit, if any, shall not apply to such co-operative society.
Clause 58 of the Bill proposed to amend section 115JD of the Act so as to provide that the provisions relating to carry forward and set off of AMT credit, if any, shall not apply to such co-operative society.
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