Finance Bill, 2022 has reduced the Alternate Minimum Tax (AMT) under section 115JC of the Income-tax Act, 1961 (‘Act’) for Co-operative Societies from 18.5% to 15% at par with corporates for Minimum Alternate Tax (MAT). Further, the surcharge for Co-operative Societies is reduced to 7% from 12% where total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore.
Background of the Provisions of Section 115JC
The Finance Act, 2011 for the first time introduced the provisions relating to Alternate Minimum Tax or AMT for the Limited Liability partnerships (LLPs) and inserted a new Chapter XII-BA in the Act for this purpose.
In order to widen the tax base vis-Ã -vis profit linked deductions, Finance Act, 2012 amended the provisions regarding AMT contained in Chapter XII-BA to the levy of this tax to all non-corporate assessees who has claimed deduction under any section (other than section 80P) included in Chapter VI-A under the heading “C – Deductions in respect of certain incomes” or under section 10AA.
Finance Minister Budget Speech on reduction of MAT and Surcharge for Co-operative Societies
While presenting the Union Budget, 2022, Finance Minister Nirmala Sitaraman announced the rationalization of provisions of the Income-tax Act to promote the growth of co-operative societies.
She said that currently, cooperative societies are required to pay Alternate Minimum Tax at the rate of eighteen and one half per cent. However, companies pay the same at the rate of fifteen per cent. To provide a level playing field between co-operative societies and companies, she proposed to reduce this rate for the cooperative societies also to fifteen per cent.
She also proposed to reduce the surcharge on co-operative societies from 12 per cent to 7 per cent for those having total income of more than Rs. 1 crore and up to Rs. 10 crores.
This would help in enhancing the income of cooperative societies and its members who are mostly from rural and farming communities.
For this purpose, Clause 29 of the Finance Bill, 2022 amends section 115JC as follows-
Amendment of section 115JC.
29. In section 115JC of the Income-tax Act, for sub-section (4), the following sub-section shall be substituted with effect from the 1st day of April, 2023, namely:–
‘(4) Notwithstanding anything contained in sub-section (1), where the person referred to therein, is a–
(i)......
(ii) co-operative society, the provisions of sub-section (1) shall have effect as if for the words “eighteen and onehalf per cent.”, the words “fifteen per cent.” had been substituted.’.
Explaining the amended provisions of section 115JC
Clause 29 seeks to amend section 115JC of the Act relating to special provisions for payment of tax by certain persons other than a company.
The provisions of the said section, inter alia, provide that where the regular income-tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent.
Sub-section (4) of the said section provides that notwithstanding anything contained in sub-section (1) thereof, where the person referred to therein, is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, it shall be liable to pay income-tax on such total income at the rate of nine per cent.
It is proposed to substitute the said sub-section (4), to provide that notwithstanding anything contained in sub-section (1) of the said section, where the person referred to therein, is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, it shall be liable to pay income-tax on such total income at the rate of nine per cent and where the person referred to therein, is a co-operative society, it shall be liable to pay income-tax on such total income at the rate of fifteen per cent.
This amendment will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
Objectives of the amendment as per the Explanatory Memorandum
Section 115JC of the Act, inter alia, provides for the alternate minimum tax (AMT) payable by co-operative societies, which is at the rate of 18.5%.
However, vide the Taxation Laws (Amendment) Act, 2019, the Minimum Alternate Tax (MAT) rate for companies has been reduced to 15%.
Therefore, in order to provide parity between co-operative societies and companies, it is proposed to modify sub-section (4) of section 115JC to reduce the AMT rate at which co-operative societies are liable to pay income-tax to 15%.
Consequential amendment is also proposed in clause (b) of section 115JF in relation to the definition of “alternate minimum tax”.
Statutory Provisions reducing Surcharge for Cooperative Societies
Clause (b) of the fourth proviso to section 2(9) of the Finance Bill, 2022 contains the amended provisions related to a reduced surcharge of Cooperative Societies, except such co-operative society whose income is chargeable to tax under section 115BAD of the Act, to be applicable from FY 2022-23 (AY 2023-24) in the following basis-
(i) at the rate of seven per cent. of such "advance tax", where the total income exceeds one crore rupees but does not exceed ten crore rupees'
(ii) at the rate of twelve per cent. of such "advance tax", where the total income exceeds ten crore rupees.
The Surcharge for the previous year 2021-22 in the case of every co-operative society except a co-operative society whose income is chargeable to tax under section 115BAD of Act was 12% where the total income exceeds Rs. 1 crore.
Reduction in AMT and Surcharge if opted Section 115BAD
Finance Act, 2020 has inserted section 115BAD to provide for concessional rate of tax in case of resident co-operative society at 22 per cent for the assessment year 2021-22 and onwards subject to certain conditions. However, in this case, the surcharge applicable to such cooperative society shall be at 10 per cent.
It is pertinent to note that a cooperative society which opted for a concessional rate of tax of 22%, the provisions of section 115JC (AMT provisions) shall not apply to such cooperative societies.
Concluding remarks
The proposed reduction of the rate of AMT for co-operative societies is a welcome step. However, the rationale to bring parity in AMT rate shall also be extended to other non-corporate assessees for whom the rate of MAT still persists at 18.5%.
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Download Finance Bill, 2022 (PDF) as introduced in Loksabha
Download Memorandum Explaining the Provisions in the Financial Bill 2022
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New Income Tax Slab Rates after Union Budget 2022
Changes in Personal Taxation by Union Budget 2022
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