Budget 2023 has proposed to insert a new section 115BAE to support and give a boost to newly established manufacturing cooperative societies that start operations between April 1, 2023 and March 31, 2024.
This section replaces the previous 115BAD, which provided a tax rate of 22% (+10% surcharge) for manufacturing cooperative societies, but only a lesser rate of 15% (+10% surcharge) for new manufacturing companies.
A request was made to Ministry of finance to ensure fairness between new manufacturing cooperative societies and new manufacturing companies by applying the same tax rate of 15% to both.
Therefore, the purpose of section 115BAE is to extend the same benefits to new manufacturing cooperative societies.
How to avail the benefit of this low corporate tax rate?
Co-operative societies in India have the option to pay income tax at a rate of 15%(+10% surcharge) for the assessment year beginning April 1, 2024, and thereafter, subject to certain conditions. The conditions are materially similar to the conditions applicable to new manufacturing companies, which are as under :
1) The assessee must only be involved in manufacturing, producing, researching, or distributing articles, excluding certain specified businesses. And, the manufacturing business will include the generation of electricity, but exclude certain specified businesses.
2) The total income of the co-operative society shall be computed,
a) by excluding:
b) Without allowing any brought forward losses or unabsorbed depreciation that may have resulted from the deductions mentioned above;
c) Claiming the depreciation under section 32, except for clause (iia) of sub-section (1) of the same section.
3) The loss and depreciation as mentioned above shall be deemed to have been given full effect to, and no further deduction shall be allowed for subsequent years, as and when the assessee opts for the concessional rate under 115BAE.
4) The co-operative society must exercise the option for the concessional rate of tax in the prescribed manner on or before the due date for furnishing the first return of income for the relevant assessment year. This option, once exercised, will remain valid for future assessment years and cannot be withdrawn.
5) Any income that is not derived from or incidental to manufacturing or production and in respect of which no specific rate of tax has been provided, shall be taxed at a rate of 22%.
6) If the Assessing Officer determines that the relationship between the assessee and another person is such that the business between them results in the assessee receiving more profits than would normally be expected, the Assessing Officer will calculate the profits in a reasonable manner and such income will be taxed at a rate of 30%.
7) In case of specified domestic transactions, the profits shall be determined based on arm's length price and any excess profits shall be deemed as the income of the co-operative society, taxed at 30%.
8) Short-term capital gains derived from the transfer of a capital asset on which no depreciation is allowed shall be taxed at 22%.
If the co-operative society fails to satisfy the specified conditions, the option for the concessional rate of tax shall become invalid for the relevant assessment year and subsequent assessment years.
It may be pertinent to note here that any machinery or plant previously used by another party outside of India will be considered as new machinery or plant, provided certain conditions are met. Also, if the value of previously used machinery or plant does not exceed 20% of the total value used by the assessee, the lower tax rate will apply, subject to specified conditions.
A new clause (vb) will be added to section 92BA of the Act to include transactions between a cooperative society and another person with a close relationship as a "specified domestic transaction."
These amendments are planned to take effect on April 1st, 2024 and will apply to the assessment year 2024-25 and following assessment years.
I am Aman Daultani, a Chartered Accountant by profession, co-founder of Tax Ninja, and a passionate blogger.
My core areas include practical application of Ind AS in the preparation of financial statements. I focus on the practical implementation of Ind AS rather than just interpreting the law.
I believe "Knowledge comes from learning and wisdom comes from understanding it practically."
