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What are Co-operative Societies? Meaning and Formation

  • Posted By SuperCA
  • On 26 May

What are Co-operative Societies? Meaning and Formation

Those entities that are fully oriented to making profit and aim to acquire marketability for those products that are either produced by agricultural or some other intensive-labour businesses, are known as Co-Operative Societies. The Multi-State Co-operative Societies Act was passed in 2002 by the Indian government on the recommendations of The Model Co-Operative Societies and the MIrdha Committee. This act suggested that the Co-Operative Societies work should be fully autonomous and democratic. In this blog, we will discuss some essential points about Co-Operative Societies established in India.

A Co-Operative Society is generally an association  of individuals who come together voluntarily in order to promote their economic interests and work together. The main principle of these Co-Operative Societies is mutual as well as self-help. The main focus of Co-Operative Societies remains on providing support to the members. If anyone joins a Co-Operative Society, then it is sure that he will not leave without earning some profit.

In a Co-Operative Society, some people who have the same interests come together and form a group, they combine their resources and utilize them in the best possible way to gain a common benefit. It is an association in which people come together voluntarily and share their resources in order to use them for mutual benefit of the members. A Co-Operative Society is devised to promote thrift, mutual and self-help assistance of its members.

A Co-Operative Society is either governed by the Multi-State Co-Operative Societies Act, 2002 or by the Co-Operative Societies Act of the respective state. Those societies which are targeted to serve in the interests of their members are governed by the Co-Operative Societies act of the respective state. Whereas, the Multi-State Co-Operative Societies act monitors and governs those Co-Operative Societies whose main focus is to work in the interests of its members in more than just one state. For the promotion of Co-Operative Societies and movements in our country, the National Co-Operative Union of India and the National Co-Operative Development Corporation work continuously and are quite essential.


Purposes of Co-Operative Societies

The main aims of Co-Operative Societies are listed below:

  • Promoting the Co-Operative Movement
  • Promoting and encouraging the Growth of Co-Operative Societies
  • To not offer their services for profit
  • Encouraging mutual help instead of competition
  • Increasing self-help rather than dependence


Co-Operative Societies and Income Tax Act

It has been stated in Section 2(19) of the Income Tax Act that a “Co-Operative Society” means a Co-Operative Society that has been registered officially under either the Co-Operative Societies Act, 1912 or under any declared law in any State. As per the contents of the Co-Operative Societies Act, a Co-Operative Society that is registered in any state under the laws of that particular state can not operate outside that state until it is granted permission by the government of India or by the Registrar of the Co-Operative Societies of that specific state. If we talk about a Co-Operative Society registered under the Multi-State Co-Operative Societies Act, it can work in more than one state without any problems and needs no permission.


Eligibility to form Co-Operative Societies

The individuals who can make an alliance to form a Co-Operative Society and be its members at the State level are listed below:

  • Any individual who is capable enough to contract and has gained majority and is totally sound in mind and belongs to a particular class of people for whom the society is going to be formed can be a member
  • A society that is registered under the Co-Operative Societies Act
  • Any State Government or Even the Central Government can be members of the Co-Operative Societies


Steps to form a Co-Operative Society

The steps that need to be follow in order to establish a Co-Operative Society under the State Act are given below:

  • The duly-filled prescribes application must be made to the registrar of Co-Operative Societies.
  • Along with the application, four copies of the suggested bye-laws should also be submitted.
  • All the members participating in the Co-Operative Society formation should be individuals and they should be above ten.
  • If all the applicants are individuals, then all of them need to sign in the application.
  • If there is a society that wants to become a member, then a member should be duly authorized by the society.


What are the types of Co-Operative Societies

Under the Co-Operative Societies Act, different types of Co-Operative Societies can be registered. Some of them are listed below:

  • A housing society
  • A producer’s Society
  • An Agricultural Marketing Society
  • A Consumers Society
  • A Co-Operative Bank
  • A Federal Society


Regulating laws of Co-Operative Societies

The functioning of Co-Operative Societies is governed and monitored by the following in India:

  • The State Co-Operative Societies Act of each state
  • The Mukti-State Co-Operative Societies Act, 2002


Types of Income of Co-Operative Societies

The main types of income that a Co-Operative Society earns are as follows:

  • The interest that they gain on securities
  • The income they earn from House Property
  • The income they get from the Capital Gains
  • The Income they earn from Businesses


Exemptions and Deductions for Co-Operative Societies

Exemptions Under the IT Act:

The exemptions include those specific classes of income that are not a part of the total revenue and are fully exempt from any sort of income tax. These are not included in the compilation of the gross income of an assessee. Some of the permitted exemptions under the IT Act are:

  • Section 10 A: Exemption is given for 10 years to all the profits and gains that are earned from a new industrial undertaking which is in a free-trade zone.
  • Section 10 B: For a fully export-oriented undertaking, an exemption on profits and gains for ten years is provided.


Deductions Under IT Act:

These constitute of those specific classes of income that are included in the computation of the total income of a Co-Operative Society. But, since they will be added in the deductions to be made in the total computation, they are exempted from income tax. Some of the permitted deductions under the IT Act for Co-Operative Societies are as follows:

  • In calculating the gross income of the assessee, the deductions from gross income will be made as per specified under the Sections 80C to 80U
  • Section 80 B also deals with deductions that are to be made in the gross income.
  • Deductions under Section 80 G are made related to funds and charitable institutions.
  • Under Section 80 HHB, deduction of fifty percent of the profits made by projects that are implemented outside of India.

Some deductions are also made under Section 80 HHC regarding the whole profits from income earned from export business.