Coop banks look at FM for tax deductions in Budget

Demand restoration of income tax deductions u/s 80(P)

While the year 2012 is being celebrated as the United Nations International Year of Cooperatives, all eyes among Indian co-operatives are on Union Finance Minster, Pranab Mukherjee in anticipation of some relief in the upcoming union budget for the year 2012-13.

The cooperative banks (UCBs) have demanded restoration of income tax deduction for all cooperative banks under section 80 (P) of the Income Tax Act.

The deduction under section 80 P was available to all cooperative banks up to and including assessment year of 2006-07, post which, the government imposed income tax on cooperative banks by introducing section 80(P)(4).

In a letter written to the Finance Minister on January 23, 2012, National Federation of Urban Cooperative Banks and Credit Societies Ltd (Nafcub) has demanded restoration of the income tax deduction for all the cooperative banks and deletion of section 80(P) (4).

"We have demanded the finance minster to restore the pre-2006 condition with respect to the deductions to cooperative banks. Cooperative banks have to pay 30 per cent income tax, which is about one third of its income. Due to this, they are not able to retain enough surpluses thereby making them uncompetitive," said a senior official at Nafcub.

Currently, in India there are more than 2000 cooperative banks including UCBs, State cooperative banks (SCBs) and District Central Cooperative Banks (DCCBs) having a combined deposits of Rs 3.80 lakh crore, which according to Nafcub constitutes less than 9 per cent of the total deposits of India's banking industry.

"It is submitted that the issue of imposition of income tax on cooperative banks be kindly revisited and the applicability of Section 80(P)(2)(i) of the Income Tax Act be restored for cooperative banks by deletion of Section 80(P)(4) that was introduced through Finance Act 2006," the letter stated.

"We have been making representations to the finance minister repeatedly, but somehow we have not succeeded so far. But this time, considering the current year as the UN international year of cooperatives, we are hopeful to get our suggestions cleared," informed the Nafcub official.

The entire income tax foregone by the exemption to the 2,100 odd cooperative banks (1645 UCBs, 31 SCBs, 370 DCCBs and 20 State Rural Development Banks) would not have exceeded Rs 1000 crore, the Nafcub informed in the letter. The deduction was withdrawn in 2006-07, with insertion of a new sub section 80(P)(4) to the Act.

According to Nafcub, the cooperative banking sector catered to agriculture, small businesses in unorganized sector of the economy, and to small housing loans. The cooperative banks had many constraints of raising capital unlike the companies.

"Taxing the cooperative banks proves as a deterrent for the growth of cooperative banking structure and the objective of financial inclusion. Hence, our primary demand is to restore income tax deduction for all the cooperative banks," said Jyotindra Mehta, chairman, Gujarat Urban Cooperative Banks Federation (GUCBF).

As per the figures provided by the GUCBF, UCBs in Gujarat have recorded advances at Rs 12,056 crore while deposits stood at Rs 21,404 crore as on March, 2011.