Taxation of society registered under societies reg. act 1860
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
04 January 2014
Society is registered under Soc Reg Act 1860
collecting membership fees from its member
whether these fees are taxable or exempt
if exempt under what section
How tax is calculated of these societies
kindly help if possible with exemples
collecting membership fees from its member
whether these fees are taxable or exempt
if exempt under what section
How tax is calculated of these societies
kindly help if possible with exemples
05 January 2014
If membership fee is not refundable then it is taxable as business receipt and to be taxed under the head Business Income. If it is refundable then there is no tax payable.
Querist : Anonymous
Querist :
Anonymous
(Querist)
06 January 2014
Thank u sir for quick reply,
It is non refundable fees
but as per concept of mutuality one can not earn profit with dealing himself
and which itr should be filed
kindly guide me
It is non refundable fees
but as per concept of mutuality one can not earn profit with dealing himself
and which itr should be filed
kindly guide me
26 July 2025
You're absolutely right to bring up the **concept of mutuality**, and it plays a crucial role in determining the **taxability of non-refundable membership fees** collected by a **society registered under the Societies Registration Act, 1860**.
Let me explain in a structured way.
---
### ✅ 1. **Is Membership Fee Taxable or Exempt?**
#### 👉 **Under the Concept of Mutuality:**
* If the **members contribute to a common fund** and that fund is **used only for the collective benefit of members**, then **no income can be said to arise** — because **no one can make a profit from themselves**.
* Thus, **membership fees (even if non-refundable)** can be **exempt from tax under the doctrine of mutuality**, provided:
* The society is working **only for the welfare of its members**.
* There is **no profit motive**.
* **No income arises from non-members** (like outsiders, general public, or commercial activities).
#### 👉 **When Mutuality Does Not Apply:**
* If the society **engages in business activities** or **earns from non-members**, or **invests funds commercially**, then **mutuality breaks down** and income (including membership fees) may become **taxable** as business income.
---
### ✅ 2. **Relevant Sections of Income Tax Act:**
* **Section 2(24)**: Defines income, and it can include receipts from members **unless mutuality applies**.
* **Section 44AB**: For audit applicability (if turnover crosses limits).
* If the society has **registered under Section 12A** (for charitable purpose), then it can claim **exemption under Section 11**, but this only applies to **charitable/religious trusts**, not purely mutual benefit societies.
---
### ✅ 3. **Which ITR to File?**
| **Scenario** | **Applicable ITR** |
| ------------------------------------------------------------- | ------------------ |
| Mutuality applies (pure member-based society) | **ITR-5** |
| Charitable society registered under 12A/12AB | **ITR-7** |
| Society earns taxable income (business or non-member sources) | **ITR-5** |
---
### ✅ 4. **Example with Tax Calculation**
#### 🧾 Example:
* Society collects **₹5,00,000** non-refundable membership fees.
* Spends ₹4,20,000 on member welfare (cultural events, maintenance).
* Balance surplus: **₹80,000**
#### 🧾 Tax Treatment:
* **If Mutuality Applies:**
₹5,00,000 is **not taxable**, hence **no tax on ₹80,000 surplus**.
* **If Mutuality Does NOT Apply (e.g., earns income from outsiders, or invested in FDs etc.):**
* Surplus ₹80,000 = **taxable business income**
* Tax @ flat 30% for AOP (Body of Individuals): ₹24,000 + cess
---
### ✅ 5. **Books of Accounts and Audit:**
* If gross receipts exceed **₹2.5 lakh**, it's advisable to **maintain books of accounts** under Section 44AA.
* **Audit (Section 44AB)** is applicable if:
* Gross receipts/business income exceeds ₹1 crore (for business) or
* Professional receipts exceed ₹50 lakh
---
### ✅ Summary Table:
| Criteria | Taxability |
| ------------------------------------ | ----------------------------------- |
| Fees from members only (mutuality) | **Exempt** |
| Fees from non-members / business | **Taxable** under “Business Income” |
| Registered u/s 12A as charitable org | Exempt u/s 11 (if conditions met) |
---
### ✅ Final Notes:
* Be cautious if the society receives **donations, interest on FDs**, or **rents out facilities**, as that may break the mutuality.
* **Documentation** and **clear record of member contributions and utilization** is key in case of scrutiny.
---
Would you like a sample ITR-5 filled for such a society to understand reporting better?
Let me explain in a structured way.
---
### ✅ 1. **Is Membership Fee Taxable or Exempt?**
#### 👉 **Under the Concept of Mutuality:**
* If the **members contribute to a common fund** and that fund is **used only for the collective benefit of members**, then **no income can be said to arise** — because **no one can make a profit from themselves**.
* Thus, **membership fees (even if non-refundable)** can be **exempt from tax under the doctrine of mutuality**, provided:
* The society is working **only for the welfare of its members**.
* There is **no profit motive**.
* **No income arises from non-members** (like outsiders, general public, or commercial activities).
#### 👉 **When Mutuality Does Not Apply:**
* If the society **engages in business activities** or **earns from non-members**, or **invests funds commercially**, then **mutuality breaks down** and income (including membership fees) may become **taxable** as business income.
---
### ✅ 2. **Relevant Sections of Income Tax Act:**
* **Section 2(24)**: Defines income, and it can include receipts from members **unless mutuality applies**.
* **Section 44AB**: For audit applicability (if turnover crosses limits).
* If the society has **registered under Section 12A** (for charitable purpose), then it can claim **exemption under Section 11**, but this only applies to **charitable/religious trusts**, not purely mutual benefit societies.
---
### ✅ 3. **Which ITR to File?**
| **Scenario** | **Applicable ITR** |
| ------------------------------------------------------------- | ------------------ |
| Mutuality applies (pure member-based society) | **ITR-5** |
| Charitable society registered under 12A/12AB | **ITR-7** |
| Society earns taxable income (business or non-member sources) | **ITR-5** |
---
### ✅ 4. **Example with Tax Calculation**
#### 🧾 Example:
* Society collects **₹5,00,000** non-refundable membership fees.
* Spends ₹4,20,000 on member welfare (cultural events, maintenance).
* Balance surplus: **₹80,000**
#### 🧾 Tax Treatment:
* **If Mutuality Applies:**
₹5,00,000 is **not taxable**, hence **no tax on ₹80,000 surplus**.
* **If Mutuality Does NOT Apply (e.g., earns income from outsiders, or invested in FDs etc.):**
* Surplus ₹80,000 = **taxable business income**
* Tax @ flat 30% for AOP (Body of Individuals): ₹24,000 + cess
---
### ✅ 5. **Books of Accounts and Audit:**
* If gross receipts exceed **₹2.5 lakh**, it's advisable to **maintain books of accounts** under Section 44AA.
* **Audit (Section 44AB)** is applicable if:
* Gross receipts/business income exceeds ₹1 crore (for business) or
* Professional receipts exceed ₹50 lakh
---
### ✅ Summary Table:
| Criteria | Taxability |
| ------------------------------------ | ----------------------------------- |
| Fees from members only (mutuality) | **Exempt** |
| Fees from non-members / business | **Taxable** under “Business Income” |
| Registered u/s 12A as charitable org | Exempt u/s 11 (if conditions met) |
---
### ✅ Final Notes:
* Be cautious if the society receives **donations, interest on FDs**, or **rents out facilities**, as that may break the mutuality.
* **Documentation** and **clear record of member contributions and utilization** is key in case of scrutiny.
---
Would you like a sample ITR-5 filled for such a society to understand reporting better?
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