Cooperative Society – Definition, Types, Taxability, Eligibility, Features

Learn the concept of cooperative society, their financial obligations, taxation, features, and laws regulating cooperative societies.

Cooperative societies are business entities that offer an alternative approach to financial inclusion in India through their geographic and demographic outreach to the population. A cooperative society is a mercantile society with common interests between people who tend to satisfy their individual and collective needs, carrying out productive activities, distribution, and consumption of goods and services.

Some examples of cooperative societies –

• Indian Farmers Fertiliser Cooperative Limited (IFFCO)
• Anand Milk Union Limited (AMUL)
• Indian Coffee House
• Shree Mahila Gruha Udyog (Lijjat Papad)
• Pratibha Mahila Sahakari Bank
• Krishak Bharti Cooperative Limited (KRIBHCO)
• Kerala Dinesh Beedi workers’ Central Co-op society

It is a form of social organization made up of persons based on shared interests and the principles of solidarity, self-effort, and mutual aid, to satisfy individual and collective needs through the performance of economic activities of production, distribution, and consumption of goods and services.

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Content

• Cooperative Societies under the Income Tax Act
• Eligibility
• Checklist to Form a Cooperative Society
• Types of Cooperative societies
• Laws Regulating Cooperative Societies
• Taxability
• Incomes of a Co-operative Society
• Advantages And Disadvantages Of The Cooperative Society
• Characteristics of cooperative societies

Cooperative Societies under the Income Tax Act

As mentioned in Section 2(19) of the Income Tax Act, 1961, a cooperative society should be registered under the Cooperative Societies Act, 1912, or any other state-specific declared law for the registration of cooperative societies. According to the Cooperative Societies Act of each State, a Cooperative Society registered under that State’s law cannot operate in any other State without seeking permission and sanction from the Government or Registrar of cooperative societies of that State. Suppose it is the case of a Multi-State cooperative society, in that case, the cooperative society can work in more than one State and does not require any permission from any other State to do its business.

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Eligibility to Form a Cooperative Society

The following individuals can become members of a Co-operative Society as per the State Act.

1. Individuals who are competent to contract, have a majority and a sound mind and are part of the group of people for whom the society is formed according to its bye-laws.
2. A society registered or to be registered under the Cooperative Societies Act.
3. The Central Government/State Government/Government of a Union Territory

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Checklist to Form a Cooperative Society

The following are the steps in establishing a Co-operative Society under the State Act.

• The applicant/s need to submit the duly filled application to the Registrar of Cooperative Societies.
• Four copies of the proposed bye-laws of the cooperative society should be attached with the application.
• The number of applicants should be more than 10 (individuals).
• All the applicants must sign the application.
• If the applicant is a society, then a member duly authorized by that society should sign the application.

Types of Cooperative Societies

Different cooperative societies are registered under the Cooperative Societies Act 1912. A few are as follows.

• Housing Society
• Producer’s Society
• Agricultural Marketing Society
• Consumers Society
• Co-operative Bank
• Federal Society

Laws Regulating Cooperative Societies

The following laws govern the functioning of Cooperative Societies in India.

1. State Co-operative Societies Acts of individual states.
2. Multi-State Co-operative Societies Act, 2002, that operate in more than one State.

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Taxability

In the case of a cooperative society, the total income is calculated similarly to that of an assessee. The deductions available under Section 80 are grouped into two, primarily.

• General Deductions: General deductions are available to all the assessees, including cooperative society.
• Specific Deductions: The specific deductions are made available individually to a cooperative society.

Incomes of a Co-operative Society

A cooperative society may mainly have the following types of income.

• Income from Property
• Capital Gains Income
• Interest on Securities
• Income from Business

Advantages and Disadvantages of a Cooperative Society

The advantages of a cooperative society are:

• The management is democratic on the part of the partners.
• The costs are shared among the partners, according to their capital.
• Members are responsible for society management and collaborate in its administration.
• Partners are involved in the production of goods and services.
• It includes sales and distribution, so communication tends to be effective, and the production process should adjust quickly when necessary.

The disadvantages that can be observed in the cooperative society are:

• As the cost is shared among several partners, they often need help when financing.
• In certain situations, especially when hasty decisions have to be made, the fact that all partners decide can hinder the smooth running of the company.
• Society’s management gets difficult when the partners have other paid jobs where they work fixed hours and have less time for society issues.
• The cooperative members cannot obtain income if the society does not generate benefits.

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Characteristics of Cooperative Societies

Like other types of companies, the cooperative society has certain aspects that characterize it. Let’s see what some of those features are:

• It is created with a public deed of incorporation and in a shareholders’ meeting.
• It is commercial.
• It has its legal personality and is different from its partners.
• The contribution of a minimum amount of mandatory capital per partner is established at the time of its constitution. It is the same for all partners, although it is also possible to establish different amounts—a decision taken in the Assembly of the Constitution.
• None of its partners may own more than 45% of the share capital.
• The liability of its partners is limited, and the partners’ assets are not committed to the company. The partners’ equity is not used to answer for the company’s debts.
• It has a mandatory reserve fund, whose objective is the development of society.
• The purpose of its existence is not lucrative but the benefit of its partners in terms of economic and social improvement.
• It works on principles of equality in terms of the rights and obligations of its partners.
• All partners have the right and duty to vote during the Partners’ Assemblies, regardless of the capital each has contributed.
• It can only carry out activities for which it was created.
• Surpluses are distributed in proportion to the work done and not to the capital contributed by each partner.

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