income of society is taxable in hands of members

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

26 February 2010 My question is that

Is income of the society is taxable under Income Tax act?
If yes
then profit share of such society is also taxable in hand of member of such society?

Please give me your suggestion with legal reasons

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)
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26 February 2010 Income of society is taxable under income tax as Association of persons (AOP) the income is not taxable in the hands of individual members.

Querist : Anonymous

Querist : Anonymous (Querist)

27 February 2010 I am not satisfied the answer of CA. B.SRINIVASULU because you have not given any legal reason .
please read the section 67A or section 86 of the Income tax act thereafter please replay me .

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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31 July 2024 Under the Income Tax Act of India, the taxation of a society and the treatment of its income in the hands of its members involve specific legal provisions. Here’s a detailed explanation:

### **1. Taxation of Societies**

**1. ** **Taxable Entity:**
- **Societies as Separate Entities:** A society, being a separate legal entity, is subject to tax on its income under the Income Tax Act, 1961. Societies are generally taxed as per the provisions applicable to non-profit organizations or charitable entities, depending on their nature and purpose.

**2. ** **Taxation of Profits:**
- **Business Income:** If a society is engaged in business activities, it is taxed under the head **“Profits and Gains of Business or Profession”**. The society must file its tax returns and pay tax on its profits as per the applicable tax rates for the relevant financial year.

**3. ** **Exemptions:**
- **Non-Profit Organizations:** If the society is registered under sections 12A or 12AA (for charitable purposes) or is a cooperative society, it may qualify for exemptions or concessional tax rates. The society must adhere to the requirements for maintaining such exemptions, like applying for registration and following the compliance requirements for charitable trusts or cooperatives.

### **2. Tax Treatment of Members**

**1. ** **Income Distribution:**
- **No Direct Taxation:** Generally, the income of a society is not directly taxable in the hands of its members. Instead, the society itself pays tax on its profits.
- **Distribution of Profits:** If the society distributes profits to its members, such distributions are not treated as income to the members in the form of dividends. Members are not taxed individually on the profit share received from the society.

**2. ** **Specific Cases:**
- **Cooperative Societies:** In the case of cooperative societies, the profit distribution among members can be considered for tax purposes under specific conditions. For example, cooperative societies may distribute dividends to members, which are generally exempt in the hands of members up to a certain limit.
- **Partnerships vs. Societies:** Unlike partnerships where profits are directly taxed in the hands of partners, societies are distinct legal entities. Therefore, the income of a society is taxable as per the society’s tax obligations, and profit shares received by members are not directly taxable.

### **3. Legal Provisions and Interpretation**

**1. ** **Taxation of Societies:**
- **Section 11:** Charitable or religious trusts (which can include certain types of societies) are governed by section 11 of the Income Tax Act, which provides for tax exemptions on income used for charitable purposes.
- **Section 10(23C):** Educational or medical institutions managed by societies may also qualify for exemptions under section 10(23C) if they meet the prescribed criteria.

**2. ** **Taxation of Members:**
- **No Direct Taxation:** Members are generally not taxed on the profit share received from a society unless the nature of the distribution is such that it falls under specific provisions requiring disclosure or taxation.

### **4. Practical Steps and Compliance**

**1. ** **Filing Returns:**
- **Society's Obligation:** The society must file its income tax returns, report its income, and pay tax according to the applicable provisions.
- **Compliance with Exemptions:** Ensure compliance with requirements for any exemptions claimed under sections 11, 12A, or other relevant provisions.

**2. ** **Member Reporting:**
- **No Tax on Share of Profits:** Members do not need to report or pay tax on the profit share received from the society, provided that the society has properly paid tax on its income.

### **Summary**

- **Taxation of Society:** A society is taxable as a separate entity under the Income Tax Act, 1961. It must file tax returns and pay tax on its income.
- **Taxation of Members:** The profit share received by members from the society is generally not taxable in the hands of members. Members are not directly taxed on distributions made by the society.

In conclusion, societies are taxed on their income as separate entities, and their profits are not directly taxed in the hands of their members. Members do not report profit shares received from the society as taxable income under normal circumstances.