Section 80PA of Income Tax Act 1961, Inclusive of upgrades and Deduction

With effect from Assessment Year 2019-20, a new deduction under Section 80PA of Income Tax Act 1961 has been permitted to encourage producer enterprises to market and process agricultural produce.

In India’s income tax regulations, under Chapter VI-A, under the heading ‘C. – Deductions in respect of certain incomes,’ there are provisions for various profit-related deductions to promote investments in certain businesses.

Profits and earnings from particular businesses such as hotels, small-scale industrial undertakings, housing developments, export business, and infrastructure development are eligible for these deductions under Sections 80H to 80RRB.

 The provision deals with Section 80P are regarding the deductions for a co-operative society which are present under this chapter.

Deduction under Section 80PA of Income Tax Act 1961

Where an assessee’s gross total income, as a Producer Company with a total turnover of less than one hundred crore rupees in any previous year, includes any profits and gains derived from eligible business, an amount equal to 100 percent of the profits and gains attributable to such business for the previous year shall be allowed, in accordance with and subject to the provisions of this section, in computing the assessee’s total income.

Some important terms to keep in mind for this Section-

 “Eligible Business” means-

• The selling of agricultural produce grown by members; 
• The procurement of agricultural instruments, seeds, cattle, or other agricultural-related articles for the aim of supplying them to members;
• The processing of agricultural produce grown by members.

“Producer Company” means-

A producer company is a legal entity under Producer Company in the Companies Act of 2013, which relates to any of the following activities: – 

• Production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling, primary produce, or import of goods or services for their benefit.
• Providing technical, consulting, training, education, research, and development services. In addition with all other activities in support of its Members’ interests;
• Further, Power generation, transmission, and distribution, revitalization of land and water resources, their use, conservation, and communications related to primary produce;
• Provided further, Promoting mutual assistance, welfare measures, financial services, and insurance of producers or their primary produce.

 “Co-operative Society” means-

For the purposes of Section 80P, a co-operative society is not defined precisely. We can define co-operative society with the help of Section 2(19) of the Income Tax Act of 1961 as an entity registered under the Co-operative Societies Act of 1912 or any other law governing the registration of co-operative societies in any state.

Quantum of Deduction under section 80PA of Income Tax Act 1961 for below-mentioned Activities is –

Earnings and gains due to these activities account for 100% of all profits and gains.

Co-operative Society involved in-

•  The business of banking or providing credit to its members 
• Cottage industry
•  Marketing of agricultural produce grown by its members
•  Purchasing agricultural implements, seeds, livestock, or other articles 
•  for the purpose of supplying them to its members f. Processing of agricultural  produce grown by its members without the use of power
• Fishing, or any other related activity, is a collective disposal of its members’ work (catching, curing, processing, preserving, storing, marketing of fish etc.) However, these co-operative societies’ rules and bylaws must limit voting rights to:
  • members, who are persons who offer their work;
  • co-operative society that gives financial aid to the society; or
  • the state government.

A co-operative society that primarily sells milk, oilseeds, fruits, and vegetables cultivated or grown by its members to:

• A federal co-operative society that is in the business of supplying milk, oilseeds, fruits, or vegetables, depending on the situation.
• Further, The government.
• A government company or a corporation under a Central, State, or Provincial Act that is working in distributing milk, oilseeds, fruits, or vegetables to the public, as the case may be.

Quotation of Deduction for A Co-operative Society involved in any other Activities is – Up to1 Lakh for consumer co-operative society and for other activities up to Rs. 50000

Quotation of Deduction is- 100% of such income for A Co-operative Society who’s Earning are as follows-

• Interest or dividends from any other co-operative society’s investment.
•  Revenue from the rental of godowns or warehouses for the storage, processing, or facilitation of commodity marketing.
• Interest on securities or income from house property of a co-operative society other than a Housing society.
• Urban consumers’ society.
•  Society carrying on a transportation business. 
•  Society engaged in manufacturing operations with the aid of power, whose gross total income does not exceed Rs 25,000.

Exclusions under Deduction under section 80PA of Income Tax Act 1961

The Finance Act of 2006 added specified exclusions to the application of the Section 80P deduction advantage.

Section 80P is not applicable to any co-operative bank (including Regional Rural Banks) that is not a primary agricultural credit society or a primary co-operative agricultural and rural development bank (as per Banking Regulation Act).

The deduction benefit removes in order to treat cooperative banks on an equal footing with commercial banks that do not receive such a tax benefit.

Points to Ponder

• For the purposes of deduction, Section 80P employs phrases like ‘profits and gains of such business attributable to such activities,’ ‘profits and gains of such business,’ ‘profits and gains attributable to such activities,’ ‘income earned,’ and so on.
• You should examine these concepts thoroughly in light of numerous income tax commentary and case law.

• Various high courts have ruled that all co-operative societies, with the exception of those under RBI’s control, are entitled for a deduction.

•  A co-operative society that engages in banking activities is not a Reserve Bank of India-licensed co-operative bank. As a result, it is eligible for deductions under Section 80P.

• Various additional terms, such as ‘cottage industry,”marketing,”members’ ‘industry,’ ‘investment,’ and so on, are also examined in making various decisions.

• For Alternate Minimum Tax levy you should not add the profit from Section 80PA to total income.

Takeaway

This Deduction under section 80PA of Income Tax Act, 1961, is necessary because with the help of this Income Tax Department can keep an eye on these types of business ventures. Further, it will ultimately help in increasing transparency in the economic affairs of the country.

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