Section 203: optional 22% tax rate for resident co-operative societies

The option and how income is computed

A co-operative society resident in India may opt, subject to Parts A, B and E of this Chapter and this Part (other than section 204), to be taxed at a flat 22% on total income computed:

• Without deduction under Chapter VIII (other than section 146, or section 150);
• Without deduction under the sections listed in section 205(1)(a) to (g); and
• Without set-off of any loss carried forward or depreciation from an earlier tax year attributable to those disallowed deductions.

If the conditions are not met, and loss treatment

If the society fails to satisfy these requirements in any tax year, the option becomes invalid for that tax year and all subsequent years, and the rest of the Act applies as if the option had never been exercised for those years.

A loss or depreciation that cannot be set off for this reason is deemed to have been given full effect to, so no further deduction is allowed for it in a later year.

IFSC units and exercising the option

For a society having a Unit in an International Financial Services Centre that has exercised the option under sub-section (5), the requirement above is modified so that the deduction under section 147 remains available to that Unit, subject to that section's conditions.

The option must be exercised in the prescribed manner on or before the due date under section 263(1) for furnishing the return of income; once exercised, it applies to subsequent tax years and cannot subsequently be withdrawn for that or any other year.

Dividend distribution modification

For an assessee that has exercised the option under sub-section (5), the requirement above is further modified so that the deduction under section 149(2)(d)(ii) remains available up to the amount of dividend distributed by the society to its members at least one month before the due date for filing the return of income under section 263(1).

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