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TMI BlogConcessional tax regime for resident cooperative societies in India : Clause 203 of the Income Tax Bill, 2025 Vs. Section 115BAD of the Income Tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... e The legislative intent behind Clause 203 is to provide resident cooperative societies with an alternative, concessional tax regime, subject to specific conditions. The provision is designed to: * Promote ease of compliance by offering a flat, lower tax rate (22%) as an alternative to the regular, progressive tax rates. * Encourage cooperative societies to opt for a simplified tax regime by forgoing certain deductions and incentives, thereby reducing administrative complexities and potential disputes. * Align the tax treatment of cooperative societies with the concessional regimes available to other business entities, such as companies (e.g., Section 115BAA for domestic companies). * Ensure that the benefit is available only to those societies willing to forgo specified deductions and incentives, thus preventing double benefits or misuse. Historically, the government has sought to rationalize the tax structure and incentivize voluntary compliance by offering lower tax rates in exchange for foregoing various deductions and exemptions. Clause 203 continues this policy trend, reflecting a move towards broadening the tax base and simplifying compliance. Detailed Analysis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allowed to claim deduction u/s 147 (subject to conditions). This aligns with the policy of providing special incentives for IFSC units, recognizing their strategic importance. 6. Exercise of Option The concessional regime is not automatic. The option must be exercised in the prescribed manner on or before the due date specified u/s 263(1) for furnishing the return of income. Once exercised, the option applies to subsequent tax years and cannot be withdrawn. This ensures administrative certainty and prevents frequent switching between regimes. 7. Exclusions Clause 203 expressly does not apply to societies covered under Clause 204, which presumably deals with a different concessional regime (possibly for new manufacturing cooperative societies, akin to Section 115BAE). Practical Implications The practical impact of Clause 203 is significant for cooperative societies: * Tax Planning: Societies must carefully evaluate the trade-off between the concessional rate and the loss of deductions/incentives. For societies with substantial eligible deductions, the regular regime may be preferable. * Compliance: The requirement to exercise the option in the prescribed manner and wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allows IFSC units to claim deduction u/s 80LA, subject to conditions. Clause 203(4) analogously allows deduction u/s 147 for IFSC units, indicating a renumbering or reorganization of the relevant section in the Bill. 5. Procedure for Exercising the Option Section 115BAD(5) requires the option to be exercised in the prescribed manner (Rule 21AH) on or before the due date u/s 139(1). Clause 203(5) requires the option to be exercised as prescribed on or before the due date u/s 263(1) (presumably the corresponding section in the Bill). Both make the option irrevocable. 6. Irrevocability and Consequences of Default Both provisions stipulate that failure to satisfy the conditions results in the option becoming invalid for that and all subsequent years, restoring the taxpayer to the regular regime. The language is functionally identical. 7. Other Observations Section 115BAD is more detailed in specifying the computation of depreciation and the transitional adjustment for WDV. Clause 203, being part of a new Code, may assume that such details will be provided in subordinate legislation or rules. Comparative Analysis: Clause 203 vs. Rule 21AH 1. Nature and Purpose Rule 21AH is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vocability of the option, while administratively convenient, may be harsh in cases of genuine hardship or changed business circumstances. Practical Implications for Stakeholders * Cooperative Societies: Must undertake a cost-benefit analysis before opting for the concessional regime, considering the loss of deductions and the finality of the option. * Tax Professionals: Need to advise clients on the long-term implications, compliance requirements, and transitional issues between the old and new regimes. * Tax Authorities: Will need to ensure smooth implementation, especially in the first year, with clear guidance on the transition and exercise of the option. * Policymakers: May need to address ambiguities through clarifications or amendments, especially regarding the scope of disallowed deductions and transition rules. Comparative Table Section 115BAD, effective from AY 2021-22, is the current provision offering a similar concessional regime for resident cooperative societies. The comparison is as follows: Aspect Clause 203 of the Income Tax Bill, 2025 Section 115BAD of the Income Tax Act, 1961 Applicability Resident cooperative societies, at their option; not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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