Section 204: concessional 15% rate for new manufacturing co-operative societies

Introduction

Section 204 sets a special tax treatment for qualifying newly established manufacturing co-operative societies. It combines an election, manufacturing conditions and a separate computation.

Key takeaways

The rates that apply

At the society's option, its total income is taxed at the following rates instead of the normal computation:

Conditions to use this section

The society must:

• Exercise the option as described below;
• Have been set up and registered on or after 1 April 2023;
• Have commenced manufacturing or production of an article or thing on or before 31 March 2024;
• Compute its total income as described in sub-section (3); and
• Fulfil the conditions in section 205(2) (which restricts using previously-used plant/machinery, and confines the business to manufacturing).

Exercising the option, and what happens on default

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the first of the returns of income for any tax year; once exercised, it applies to subsequent tax years and cannot be withdrawn for that or any other year.

If the society fails to fulfil the sub-section (1) conditions in any tax year, the option becomes invalid for that year and all subsequent years, and the rest of the Act applies as if the option had never been exercised for those years.

How total income is computed, and dividend distribution

For the purposes of sub-section (1), total income is computed without deduction under Chapter VIII (other than section 146, or section 150) and without deduction under the sections listed in section 205(1)(a) to (g); and without set-off of any loss or depreciation carried forward that is attributable to those disallowed deductions.

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.

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

Step-by-step flow for applying Section 204

1. 1

   Is the assessee a co-operative society resident in India engaged in manufacture or production of an article or thing?

   • No: Section 204 is not available.
   • Yes: Go to the next step.
2. 2

   Was it set up and registered on or after 1 April 2023 and did it commence manufacture or production on or before 31 March 2024?

   • No: Section 204 is not available.
   • Yes: Go to the next step.
3. 3

   Does it meet Section 205(2) and compute income without the excluded deductions?

   No deduction under Chapter VIII other than Section 146 or 150, or the sections in Section 205(1)(a) to (g); no set-off of attributable loss or depreciation. The Section 149(2)(d)(ii) deduction is allowed up to the dividend distributed at least one month before the Section 263(1) due date (Section 204(5)).

4. 4

   Has the option been exercised by the Section 263(1) due date for the first return?

   • No: The concessional rates do not apply.
   • Yes: Go to the next step.
5. 5

   Apply the rates in the Table

   15% on general income; 22% (without any deduction or allowance) on income neither derived from nor incidental to manufacturing with no separate specific rate; 22% on short-term capital gains from a non-depreciable asset; 30% on income deemed under Section 205(4). Failing a condition later makes the option invalid for that and later years.

Practical checklist

Glossary

Date conditions

Set up and registered on or after 1 April 2023, and manufacture or production commenced on or before 31 March 2024.

Non-incidental income

Income neither derived from nor incidental to manufacturing or production, taxed at 22% without any deduction or allowance.

Dividend relief

The Section 149(2)(d)(ii) deduction, available up to dividend distributed to members at least one month before the Section 263(1) due date (Section 204(5)).

Frequently asked questions