Query regarding employee credit society

Hi Sri Snigdha,

Your query touches on key compliance and tax benefit aspects for an Employee Credit Co-operative Society. Let’s address each question based on the Income Tax Act and relevant provisions for AY 2023–24 (FY 2022–23).

🔍 Basic Background:

• Type of assessee: Employee Credit Co-operative Society

• Turnover: Approx ₹1.8 crore

• Net Profit: ₹16 lakh (includes service receipts, bank interest, misc. income)

• Return not filed within due date (likely July 31 or October 31, 2023)

✅ Q1: Is Tax Audit Applicable?

🔸 Applicable Law:

Under Section 44AB (Tax Audit):

• For business: Audit is mandatory if turnover > ₹1 crore (₹10 crore if no cash transactions).

• For profession: Limit is ₹50 lakh.

However, a Co-operative Society is a separate category and must also be looked at from that lens.

🔸 In Your Case:

• If the main activity is providing credit to members, it may fall under business.

• If turnover is ₹1.8 crore, tax audit is applicable unless it qualifies under presumptive taxation, which is not usually available to co-operative societies.

✅ Answer: Yes, tax audit is applicable under Section 44AB, since turnover > ₹1 crore and the assessee is not covered under Section 44AD presumptive scheme.

✅ Q2: Can Section 80P deduction be claimed after the due date?

🔸 Section 80AC:

As per Section 80AC, deductions under Section 80P cannot be claimed if return is not filed within the due date under Section 139(1).

This is strictly applied, and courts have upheld its constitutional validity.

❌ Answer: No, deduction under Section 80P cannot be claimed if return is filed after the due date.

This is a critical compliance point.

✅ Q3: Should interest income from bank deposits be excluded for 80P deduction?

🔸 Case Law: Totgar’s Co-operative Sale Society Ltd. v. ITO (Supreme Court)

• Interest income from banks (non-members) is not eligible for deduction under Section 80P(2)(a)(i).

• Only interest earned from credit facilities extended to members qualifies.

So:

• Interest from savings or FD with banks (even cooperative banks) must be offered to tax as "Income from Other Sources", and excluded from 80P.

✅ Answer: Yes, bank interest income must be excluded when computing income eligible for 80P deduction.

If return was filed on time, only the income from business with members is eligible.

✅ Q4: Should Income & Expenditure A/c or Profit & Loss A/c be used?

🔸 Nature of Entity:

• As a co-operative society, it is usually governed by co-operative laws and uses an Income & Expenditure A/c (non-profit structure).

• However, for Income Tax purposes, the entity is assessed like a business, and computation should be as per the Income Tax Act.

✅ Answer: While the society may prepare an Income & Expenditure A/c, for tax computation, the Profit & Loss format (commercial profit, adjusted as per ITR) should be used.

Income must be computed under the head “Business or Profession”, not strictly from the Income & Expenditure surplus.

✅ Summary Answers: