Key Takeaways on Section 115BAD for Cooperative Societies
- Section 115BAD allows resident cooperative societies to opt for a concessional tax rate of 22% (plus 10% surcharge and 4% cess), compared to normal slab rates up to 30%.
- The effective tax rate under Section 115BAD is approximately 25.168% (22% x 1.10 x 1.04).
- To opt for this regime, the cooperative society must forego most deductions under Chapter VI-A, except Section 80JJAA (additional employee cost).
- The option is exercised by filing Form 10-IF electronically before the due date under Section 139(1).
- Once opted, the regime is irrevocable. If conditions are violated, the option becomes invalid for that and subsequent years.
- Section 115BAE offers an even lower 15% rate for new manufacturing cooperative societies set up on or after 1 April 2023 and commencing production by 31 March 2024.
- MAT (Minimum Alternate Tax) under Section 115JC does NOT apply to cooperative societies opting for Section 115BAD.
India has over 8.5 lakh cooperative societies across sectors such as banking, dairy, sugar, housing, and agriculture. These societies have long enjoyed favourable tax treatment under the Income Tax Act. However, for larger cooperatives with substantial profits, the normal slab rates can result in a tax burden as high as 35.152% after surcharge and cess.
Recognising the need for a competitive tax structure, the government introduced Section 115BAD through the Finance Act 2020, effective from Assessment Year 2021-22. This provision allows resident cooperative societies to opt for a concessional flat tax rate of 22%, subject to certain conditions. This guide covers everything you need to know about this regime, including eligibility, conditions, procedure, and how it compares with the normal tax structure and the newly introduced Section 115BAE for manufacturing cooperatives.
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Normal Tax Rates for Cooperative Societies
Before understanding the benefits of Section 115BAD, it is essential to understand the normal tax structure applicable to cooperative societies. Unlike companies that pay a flat rate, cooperative societies are taxed under a progressive slab system.
Normal Slab Rates
| Income Slab | Tax Rate |
|---|---|
| Up to Rs 10,000 | 10% |
| Rs 10,001 to Rs 20,000 | 20% |
| Above Rs 20,000 | 30% |
Surcharge on Normal Tax
| Total Income Range | Surcharge Rate |
|---|---|
| Rs 1 crore to Rs 10 crore | 7% |
| Above Rs 10 crore | 12% |
Effective Tax Rate for Large Cooperatives
For a cooperative society with income above Rs 10 crore, the effective tax rate under the normal regime would be:
- Base Tax: 30%
- Surcharge: 12%
- Health and Education Cess: 4%
- Effective Rate: 30% x 1.12 x 1.04 = 34.944%
This is significantly higher than the 25.168% effective rate under Section 115BAD.
Section 115BAD: The Concessional Tax Regime
Section 115BAD of the Income Tax Act 1961 (now renumbered under the Income Tax Act 2025) provides an optional concessional tax regime for resident cooperative societies.
Key Features
| Feature | Details |
|---|---|
| Tax Rate | 22% flat rate on total income |
| Surcharge | 10% flat rate (irrespective of income level) |
| Health and Education Cess | 4% on tax plus surcharge |
| Effective Tax Rate | 25.168% (22% x 1.10 x 1.04) |
| MAT Applicability | Not applicable under Section 115JC |
| Applicability | Assessment Year beginning on or after 1 April 2021 |
Calculation of Effective Tax Rate
| Component | Rate | Calculation |
|---|---|---|
| Base Tax Rate | 22% | |
| Surcharge (10% of tax) | 2.2% | 22% x 10% |
| Tax plus Surcharge | 24.2% | 22% plus 2.2% |
| Cess (4% of 24.2%) | 0.968% | 24.2% x 4% |
| Effective Tax Rate | 25.168% | 24.2% plus 0.968% |
Conditions to Avail Section 115BAD
To avail the concessional rate under Section 115BAD, the cooperative society must satisfy the following conditions while computing its total income:
No Deduction Under Specified Provisions
The society cannot claim any deduction under:
| Provision | Description |
|---|---|
| Section 10AA | SEZ units |
| Section 32(1)(iia) | Additional depreciation |
| Section 32AD | Investment in backward areas |
| Section 33AB | Tea/coffee/rubber business |
| Section 33ABA | Petroleum/natural gas business |
| Section 35 | Scientific research |
| Section 35AD | Capital expenditure on specified businesses |
| Section 35CCC | Agricultural extension |
| Chapter VI-A deductions (except Section 80JJAA) | Most deductions under Chapter VI-A |
Deductions Allowed Under Section 115BAD
The following deductions can still be claimed:
| Provision | Description |
|---|---|
| Section 80JJAA | Deduction for additional employee cost |
| Section 80LA(1A) | Deduction for certain income of specified business in IFSC |
No Set-Off of Losses
The society cannot set off any loss carried forward or depreciation from any earlier assessment year if such loss or depreciation is attributable to any of the disallowed deductions mentioned above.
Depreciation Calculation
Depreciation must be claimed under Section 32, other than clause (iia) of sub-section (1), determined in the prescribed manner.
Depreciation Cap
There is a cap of 40% on any block of assets for depreciation purposes.
Procedure to Opt for Section 115BAD
Step 1: Verify Eligibility
Ensure your cooperative society is resident in India and meets all the conditions specified under Section 115BAD(2).
Step 2: Calculate Tax Liability
Compute your tax liability under both the normal regime and Section 115BAD to determine which is more beneficial.
Step 3: Prepare Form 10-IF
Fill the Form 10-IF application for exercise of option under Section 115BAD. The form is available on the Income Tax e-Filing portal.
Step 4: File Electronically
Submit Form 10-IF electronically on the e-Filing portal either under digital signature or Electronic Verification Code (EVC).
Step 5: File Return on Time
Ensure the option is exercised on or before the due date for filing the return of income under Section 139(1).
Key Points on Form 10-IF
| Aspect | Details |
|---|---|
| Form Number | Form 10-IF |
| Mode of Filing | Electronically under Digital Signature or Electronic Verification Code |
| Due Date | On or before the due date for furnishing the return of income under Section 139(1) |
| Applicability | For any assessment year beginning on or after 1 April 2021 |
Irrevocability of the Option
The option under Section 115BAD is irrevocable once exercised.
Key Rules
-
Once opted, cannot withdraw: The cooperative society cannot withdraw from the regime in any subsequent year.
-
Violation invalidates the option: If the society fails to satisfy the conditions in any previous year, the option becomes invalid for that assessment year and subsequent assessment years.
-
Default treatment: If the option becomes invalid, other provisions of the Act shall apply as if the option had not been exercised for that assessment year and subsequent years.
-
No option in subsequent years: Once invalidated, the society cannot opt for this regime again for that and subsequent years.
Section 115BAE: 15% Tax Rate for New Manufacturing Cooperatives
Section 115BAE was introduced by the Finance Act 2023, offering an even more attractive tax rate of 15% for new manufacturing cooperative societies.
Eligibility Criteria
| Condition | Requirement |
|---|---|
| Registration Date | Set up and registered on or after 1 April 2023 |
| Commencement of Manufacturing | Commenced manufacturing or production on or before 31 March 2024 |
| Business Formation | Not formed by splitting up or reconstruction of an existing business |
| Plant and Machinery | Does not use any machinery or plant previously used for any purpose |
Tax Rate Under Section 115BAE
| Component | Rate |
|---|---|
| Base Tax Rate | 15% |
| Surcharge | 10% |
| Health and Education Cess | 4% |
| Effective Tax Rate | 17.16% (15% x 1.10 x 1.04) |
Income Not Eligible for 15% Rate
If the total income of the society includes income which has neither been derived from nor is incidental to manufacturing or production, such income shall be taxed at 22% and no deduction or allowance shall be made in computing such income.
Section 115BAD vs Section 115BAE: Comparison
| Aspect | Section 115BAD | Section 115BAE |
|---|---|---|
| Tax Rate | 22% | 15% |
| Effective Rate | ~25.168% | ~17.16% |
| Applicability | All resident cooperative societies | New manufacturing cooperative societies |
| Registration Date | Any | On or after 1 April 2023 |
| Commencement | Any | On or before 31 March 2024 |
| Surcharge | 10% (flat) | 10% (flat) |
| Cess | 4% | 4% |
| MAT Applicability | Not applicable | Not applicable |
| Chapter VI-A Deductions | Only Section 80JJAA allowed | Only Section 80JJAA allowed |
| Irrevocable | Yes | Yes |
Section 115BAD vs Normal Tax Regime: Comparison
| Aspect | Normal Regime | Section 115BAD |
|---|---|---|
| Tax Structure | Slab rates (10%, 20%, 30%) | Flat 22% |
| Surcharge | 7% (Rs 1-10 Cr) or 12% (above Rs 10 Cr) | 10% flat |
| Effective Rate (above Rs 10 Cr) | ~34.944% | ~25.168% |
| Chapter VI-A Deductions | Allowed (subject to conditions) | Only Section 80JJAA allowed |
| Loss Carry Forward | Allowed | Restricted (only losses not attributable to disallowed deductions) |
| MAT Applicability | Applicable under Section 115JC | Not applicable |
| Irrevocable | Not applicable | Yes |
Which Cooperative Societies Benefit Most from Section 115BAD?
Section 115BAD is particularly beneficial for:
Large Cooperative Banks and Credit Societies
Urban cooperative banks and credit societies with income exceeding Rs 1 crore benefit significantly from the flat 22% rate compared to the normal slab rate of 30% plus surcharge.
Dairy Cooperatives
Large dairy cooperatives such as Amul, Mother Dairy, and other state-level milk unions with substantial profits can save nearly 10 percentage points in tax by opting for Section 115BAD.
Sugar Cooperatives
Sugar cooperatives, which often have significant turnover and profits, can substantially reduce their tax burden under this regime.
Marketing Cooperatives
Agricultural marketing cooperatives and other large member-based organizations with profits above the normal slab thresholds benefit from the concessional rate.
When the Normal Regime May Be Better
The normal regime may be more beneficial if:
-
The cooperative society has significant deductions under Chapter VI-A (other than Section 80JJAA) that it would have to forego under Section 115BAD.
-
The society has substantial accumulated losses or unabsorbed depreciation that it wants to carry forward.
-
The society's income is below the higher slab thresholds, making the normal slab rates more beneficial than the flat 22% rate.
Budget 2023 and 2025 Updates
Budget 2023 (Finance Act 2023)
- Introduced Section 115BAE for new manufacturing cooperative societies.
- Offered a 15% concessional tax rate for new cooperatives commencing manufacturing by 31 March 2024.
- This was a major incentive for new cooperative agro-processing, food processing, and manufacturing units.
Budget 2025
- The concessional regimes under Sections 115BAD and 115BAE have been preserved and renumbered under the Income Tax Act 2025.
- Section 115BAD is now Section 203 of the new Act, and Section 115BAE is now Section 204.
- The rates and conditions remain largely unchanged.
Common Mistakes to Avoid
Not evaluating both regimes
Many cooperative societies automatically opt for the normal regime without calculating tax liability under Section 115BAD. Always compute tax under both regimes before deciding.
2. Opting for 115BAD and then claiming disallowed deductions
Once you opt for 115BAD, you cannot claim deductions under Chapter VI-A (except 80JJAA). Claiming disallowed deductions will invalidate your option.
3. Not filing Form 10-IF on time
The option must be exercised before the due date under Section 139(1). Missing this deadline means you cannot opt for the regime for that assessment year.
4. Not considering the irrevocability
Once you opt for 115BAD, you cannot go back. Ensure the long-term benefits outweigh the loss of deductions.
5. Incorrect depreciation method
Under Section 115BAD, depreciation must be computed in the prescribed manner. Using the wrong method can invalidate your option.
Where Tax Garden Helps
Section 115BAD offers significant tax savings for cooperative societies, but the decision to opt for this regime requires careful evaluation of tax liability, deductions, and long-term implications. A wrong choice can result in higher tax or loss of valuable deductions.
Tax Garden's CAs help you:
- Calculate tax liability under both the normal regime and Section 115BAD
- Evaluate the impact of foregone deductions
- Determine if your cooperative society qualifies for Section 115BAE
- File Form 10-IF correctly and on time
- Ensure compliance with all conditions under the regime
Looking for expert help with section 115BAD, cooperative society new tax regime, 115BAD cooperative tax rate, cooperative society income tax rate 2026, cooperative society tax planning, 115BAD vs 115BAE? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Section 115BAD for Cooperative Societies: Frequently Asked Questions
What is Section 115BAD of the Income Tax Act?
Section 115BAD provides an optional concessional tax regime for resident cooperative societies, allowing them to pay tax at a flat rate of 22% (plus surcharge and cess) instead of the normal slab rates of 10%, 20%, and 30%.
What is the effective tax rate under Section 115BAD?
The effective tax rate under Section 115BAD is approximately 25.168% (22% base rate x 10% surcharge x 4% cess).
Can a cooperative society opt for Section 115BAD and still claim Chapter VI-A deductions?
No. Under Section 115BAD, the cooperative society cannot claim deductions under Chapter VI-A except for Section 80JJAA (additional employee cost).
What is the procedure to opt for Section 115BAD?
The cooperative society must file Form 10-IF electronically on the Income Tax e-Filing portal on or before the due date for filing the return of income under Section 139(1).
Is the option under Section 115BAD irrevocable?
Yes. Once a cooperative society opts for Section 115BAD, the option is irrevocable. If conditions are violated, the option becomes invalid for that and subsequent years.
What is Section 115BAE for cooperative societies?
Section 115BAE offers a concessional tax rate of 15% (plus surcharge and cess) for new manufacturing cooperative societies set up on or after 1 April 2023 and commencing production by 31 March 2024.
What is the difference between Section 115BAD and Section 115BAE?
Section 115BAD offers 22% tax for all resident cooperative societies. Section 115BAE offers 15% tax exclusively for new manufacturing cooperative societies that meet specific conditions.
Does MAT apply to cooperative societies opting for Section 115BAD?
No. Sections 115JC (AMT) and 115JD (AMT credit) do not apply to cooperative societies opting for Section 115BAD.
What happens if a cooperative society violates the conditions of Section 115BAD?
If the conditions are violated in any previous year, the option becomes invalid for that assessment year and subsequent assessment years. The society cannot opt for this regime again.
Which cooperative societies benefit most from Section 115BAD?
Large cooperative banks, dairy cooperatives, sugar cooperatives, and marketing cooperatives with income above the normal slab thresholds benefit most from the concessional 22% rate.
Sources: Income Tax Act 1961 Sections 115BAD, 115BAE; Income Tax Act 2025 Sections 203, 204; Finance Act 2020; Finance Act 2023; Budget 2025 updates; Income Tax Department (incometaxindia.gov.in); TaxGuru; Bajaj Finserv; ClearTax; ICAI. Verify current rates, conditions, and procedures on incometaxindia.gov.in before acting, as rules may be updated periodically. This article is general information on Section 115BAD for cooperative societies and not a substitute for professional advice.
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