Section 149 — Co-operative Society Deduction | ITA 2025

Section 149 — - DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOCIETIES

Section 149 is the substantive equivalent of 1961 s. 80P -- the cornerstone deduction provision for the co-operative sector. The provision recognises the constitutional and policy commitment to the co-operative movement (Article 43-B and the 97th Amendment) by exempting profits of qualifying co-operative societies from tax. The deduction operates by category: (a) sector-specific 100% deduction for societies engaged in banking / credit / cottage industry / agricultural marketing / fishing etc. AMONG MEMBERS; (b) 100% deduction for primary societies supplying milk / oilseeds / cotton seed / cattle feed / fruits / vegetables to federal society / Govt / Govt company; (c) blanket INR 1,00,000 (consumer co-op) / INR 50,000 (other) for activities outside clauses (a)/(b); (d) 100% deduction for inter-co-op investment dividend / interest. Practitioner-grade rule: every co-op society return must categorise income against s. 149 grid; the FA 2006 amendment carving out 'co-operative banks' (other than primary agricultural credit society / primary co-operative agricultural and rural development bank) from this regime is preserved -- those banks pay tax under s. 26 PGBP regime.

Statutory text — Income-tax Act, 2025

Marginal note -- Deduction in respect of income of co-operative societies

(1) If the gross total income of an assessee, being a co-operative society, i ncludes any income referred to in sub-section (2), the sums specified in the said sub-section shall, in accordance with and subject to the provisions of this section, be allowed as deduction in computing the total income of such assessee.

(2) The sums referred to in sub-section (1) shall be the following:—

(a) in the case of a co-operative society engaged in—

(i) carrying on the business of banking or providing credit facilities to its members; or

(ii) a cottage industry; or

(iii) the marketing of agricultural produce grown by its members; or

(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members; or

(v) the processing, without the aid of power, of the agricultural produce of its members; or

(vi) the collective disposal of the labour of its members; or

(vii) fishing or allied activities, that is to say, the catching, curing, pro- cessing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities;

(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, 15[cotton seed, cattle feed,] fruits, or vegetables raised or grown by its members to—

(i) a federal co-operative society, being a society, engaged in the busi- ness of supplying milk, oilseeds, 15[cotton seed, cattle feed,] fruits or vegetables; or

(ii) the Government or a local authority; or

(iii) a Government company, as defined in section 2(45) of the Companies Act, 2013 (18 of 2013), or a corporation established by or under a Central Act or State Act or Provincial Act, engaged in supplying milk, oilseeds, 15[cotton seed, cattle feed,] fruits or vege- tables, as the case may be, to the public, the whole of the amount of profits and gains of such business;

(c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or (b), (either independently of, or in addition to, all or any of the activities so specified), that amount of profits and gains attributable to such activities as does not exceed—

(i) ` 100000, if the society is a consumers’ co-operative society; and

(ii) ` 50000, in any other case; 16[(d) in respect of any income derived by the co-operative society from its invest- ments with any other co-operative society by way of—

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 149	INCOME-TAX ACT, 1961 -- s. 80P
s. 149(2)(a) -- 100% deduction: banking / credit / cottage industry / agri-marketing / agri-input / agri-processing-without-power / labour / fishing	1961 s. 80P(2)(a)(i)-(vii)
s. 149(2)(b) -- 100% deduction: primary milk / oilseed / cotton-seed / cattle-feed / fruit / vegetable society supply to federal / Govt / Govt-co	1961 s. 80P(2)(b)
s. 149(2)(c) -- INR 1L (consumers) / INR 50K (other) -- residual activities	1961 s. 80P(2)(c)
s. 149(2)(d) -- 100% deduction: inter-co-op investment income (dividends / interest)	1961 s. 80P(2)(d)
s. 149(2)(e) -- 100% deduction: letting godowns / warehouses for storage / processing / facilitating marketing of commodities	1961 s. 80P(2)(e)
s. 149(2)(f) -- 100% deduction (other than co-op bank) on income from securities held / business of govt-securities	1961 s. 80P(2)(f)
s. 149 -- co-op-bank exclusion (other than PACS / PCARDB)	1961 s. 80P(4) [FA 2006]

STATUTORY ARCHITECTURE

Architecture follows 1961 s. 80P with one critical FA 2006 carve-out: 'co-operative bank' (other than PACS or PCARDB -- primary agricultural credit society or primary co-operative agricultural and rural development bank) does NOT qualify for the deduction. Effect: large urban-co-op-banks pay normal corporate-equivalent tax; only PACS-style village-credit-societies and PCARDB rural-banking-societies retain the s. 80P umbrella. The CIT v. Mavilayi Service Co-operative Bank Ltd (SC 2021) ruling clarifies the test -- a society with substantial NON-MEMBER lending is NOT 'providing credit facilities to its members' and may lose 80P; the SC adopted a liberal MEMBER-CENTRIC test rejecting the strict-binary approach. Key categories: (a) PRIMARY ACTIVITIES -- banking / credit / cottage / marketing / inputs / processing / labour / fishing -- 100% deduction on profits attributable; (b) MILK / OILSEED COOPS -- 100% deduction; (c) RESIDUAL -- INR 1L consumer / INR 50K other -- nominal but useful; (d) INTER-CO-OP INVESTMENT -- dividend and interest from another co-op fully exempt.

CASE LAW

(i) CIT v. Mavilayi Service Co-operative Bank Ltd (SC 2021, 431 ITR 1) -- liberal member-centric test for s. 80P; reverses strict approach of Citizen Co-operative Society (SC 2017). (ii) Totgars' Co-operative Sale Society v. ITO (SC 2010, 322 ITR 283) -- interest from non-co-op-banks NOT eligible under s. 80P(2)(d); foundational. (iii) PCIT v. Totagars Co-operative Sale Society (Kar HC 2017, 392 ITR 74) -- subsequent reading of Totgars. (iv) The Bangalore Club v. CIT (SC 2013, 350 ITR 509) -- member-vs-non-member test in mutual concerns -- analogous reasoning. (v) CIT v. Citizen Co-operative Society Ltd (SC 2017, 397 ITR 1) -- pre-Mavilayi strict reading; now liberalised.

PLANNING NOTES

(i) MEMBER vs NON-MEMBER -- maintain separate ledgers; non-member-credit lending puts deduction at risk; cite Mavilayi liberal test for marginal cases. (ii) CO-OP BANK FORM 16 -- co-op banks (other than PACS / PCARDB) outside s. 80P; ensure NOT claimed inadvertently. (iii) INTER-CO-OP INVESTMENTS (clause d) -- dividends from one co-op to another fully exempt; structure investment portfolio toward co-op-issued instruments. (iv) Totgars compliance -- interest from co-op banks (clause d): yes; from scheduled commercial banks: no; from RBI: depends on facts. (v) Section 21AA / SCRA Compliance -- co-op-bank-status verification annually; FA 2006 carve-out is condition precedent. (vi) PRIMARY MILK / OILSEED CO-OPS (clause b) -- supply must be to FEDERAL co-op / Govt / Govt-co; supply to private dairies (Amul-non-member) doesn't qualify. (vii) FA 2025 / FA 2026 -- monitor any further carve-outs targeting 'reverse-pyramid' structures abusing inter-co-op investment exemption.

CROSS-REFERENCES

Section 26 -- PGBP charge (post-deduction profits).
Section 122 -- Charging section / GTI definition.
Section 150 -- Federal co-operative deduction.
Section 263(1) -- Return-filing due date.
Multi-State Co-operative Societies Act 2002 -- federal co-op definition.
State Co-operative Societies Acts -- governance framework for primary societies.
Banking Regulation Act 1949 (Part V) -- co-op bank framework.
RBI Master Directions on Urban Co-op Banks / Rural Co-op Banks.
97th Constitutional Amendment -- co-op promotion.

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