Demystifying the Eleventh Schedule of Income Tax Act 1961

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Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.

The Indian Income Tax Act, 1961 is a comprehensive tax law that governs the taxation of individuals, businesses, and other entities in India. It consists of various schedules that provide a detailed framework for the computation and payment of taxes. One such schedule is the Eleventh Schedule of Income Tax Act 1961, which is often misunderstood and misinterpreted by taxpayers. In this blog, we aim to demystify the Eleventh Schedule and help you understand its implications in taxation.

What is the Eleventh Schedule of Income Tax Act 1961?

The Eleventh Schedule of Income Tax Act 1961 contains the rules for calculating the income of co-operative societies. A co-operative society is a voluntary association of persons who come together to promote their common economic interests. These societies are regulated by the Co-operative Societies Act, 1912.

Why was the Eleventh Schedule introduced?

The Eleventh Schedule was introduced to provide a specific framework for the taxation of co-operative societies. Before the introduction of this schedule, co-operative societies were taxed under the general provisions of the Income Tax Act, which did not take into account the unique nature of these societies. The Eleventh Schedule provides a separate set of rules for the computation of income, which takes into account the specific characteristics of co-operative societies.

How is the income of co-operative societies calculated under the Eleventh Schedule?

The income of a co-operative society is calculated under the Eleventh Schedule by taking into account the following components:

1. Income from members: This includes the income received from members in the form of membership fees, share capital, and other contributions.

2. Income from non-members: This includes the income received from non-members in the form of interest on loans, rent on leased property, and other sources.

3. Other income: This includes any other income earned by the co-operative society, such as income from investments, grants, and subsidies.

Once these components are identified, the income of the co-operative society is calculated by subtracting the allowable deductions from the gross income. The allowable deductions include expenses incurred for the purposes of the co-operative society, such as salaries, rent, and other overheads.

What are the tax implications of the Eleventh Schedule?

The tax implications of the Eleventh Schedule depend on the income earned by the co-operative society. Co-operative societies are taxed at a flat rate of 30% on their income. However, certain deductions and exemptions are available, which can reduce the tax liability of the society.

For example, co-operative societies are eligible for a deduction of up to 10% of their income for the creation of a reserve fund. They are also eligible for a deduction of up to 20% of their income for the contribution to the National Co-operative Development Corporation. In addition, co-operative societies are exempt from paying tax on the interest earned on government securities and other specified investments.

What are the compliance requirements under the Eleventh Schedule?

Co-operative societies are required to file their income tax returns by the specified due dates, failing which penalties may be imposed. In addition, they are required to maintain proper books of accounts, including cash books, ledgers, and balance sheets. The books of accounts should be audited by a qualified auditor, and the audit report should be submitted along with the income tax return.

Conclusion

The Eleventh Schedule of Income Tax Act 1961 provides a specific framework for the taxation of co-operative societies. Understanding the provisions of this schedule is essential