Interest Income Deduction under Section 80P(2)(d): Gujarat HC Favouring Cooperative Banks
The Gujarat High Court has clarified a major issue in cooperative tax law—whether cooperative banks can claim deduction under Section 80P(2)(d) for interest income received from investments in other cooperative societies. The answer: Yes, they can.
This ruling offers significant relief to many urban and district cooperative banks facing scrutiny over this provision. Here’s a breakdown of what this means and how you can benefit from it.
What is Section 80P(2)(d)?
Section 80P of the Income Tax Act, 1961 provides deductions to cooperative societies. Under clause (2)(d):
“Any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society is deductible.”
This means:
- If a cooperative society earns interest or dividends from another cooperative society, it need not pay tax on that income.
The Controversy: Are Cooperative Banks Excluded?
In recent years, the Income Tax Department has been rejecting 80P(2)(d) claims by cooperative banks, arguing:
- They are not regular cooperative societies;
- They fall under Section 80P(4), which excludes “co-operative banks other than primary agricultural credit societies” from Section 80P benefits.
This led to conflicting decisions by various appellate authorities and High Courts.
Gujarat HC Verdict: Relief for Cooperative Banks
In [2025 TAXSCAN (HC) 1264], the Gujarat High Court ruled in favour of the assessee (a cooperative bank), holding:
- The interest received from another cooperative society qualifies for deduction under Section 80P(2)(d);
- The bar under Section 80P(4) does not override 80P(2)(d) when it comes to interest income, especially from other cooperative societies;
- A cooperative bank is still a ‘cooperative society’ for the purposes of Section 80P(2)(d).
Legal Reference and CBDT Stand
- Section 80P(4) disallows deductions under Section 80P for cooperative banks engaged in banking—but it doesn’t explicitly deny 80P(2)(d) relief.
- CBDT has not issued any circular directly denying this benefit.
- In prior decisions like PCIT v. Totagars Cooperative Sale Society Ltd (2023), the Supreme Court clarified similar points, but this Gujarat HC ruling brings further clarity in favour of taxpayers.
Practical Impact: Who Benefits?
This judgment directly benefits:
- Urban cooperative banks
- District and central cooperative banks
- Credit societies investing in federations or other cooperatives
They can now:
- Claim 100% deduction on interest income earned from deposits with other cooperative societies;
- Defend past claims disallowed by the Assessing Officer;
- Avoid litigation if their facts match this judgment.
Expert View: How to Make Safe 80P(2)(d) Claims
“Ensure proper documentation showing that the recipient is a registered cooperative society. Maintain copies of registration certificates, FDRs, and interest statements to support your claim under Section 80P(2)(d),”
– Tax Partner, Efiletax
Steps to Claim Deduction under 80P(2)(d)
- Verify the counterparty is a registered cooperative society.
- Maintain proper investment agreements and FDR receipts.
- Disclose such income separately in ITR under ‘Income from Other Sources’.
- Claim deduction under Chapter VI-A – Section 80P with computation.
- Be prepared for scrutiny and cite Gujarat HC ruling if needed.
Comparison Table: Cooperative Bank vs Regular Society under 80P
| Feature | Cooperative Bank | Cooperative Society |
|---|---|---|
| 80P(4) Exclusion | Yes | No |
| 80P(2)(d) Deduction | Now allowed (per Gujarat HC) | Allowed |
| Common Income | Interest from other societies | Interest, dividend |
| Key Risk | Misclassification under 80P(4) | Low |
Internal Link
Also Read: Income Tax Benefits for Co-operative Societies under Section 80P – Efiletax Blog
External Link
Section 80P – Income Tax Act on incometaxindia.gov.in
Summary
Gujarat HC allows cooperative banks to claim Section 80P(2)(d) deduction on interest income from other cooperative societies. A major relief for the sector.
FAQs on Section 80P(2)(d)
Q1. Can cooperative banks still claim 80P benefits?
Only under 80P(2)(d), for interest/dividend from other cooperative societies, as per Gujarat HC ruling.
Q2. Does this apply to NBFCs or private banks?
No. Only registered cooperative societies and cooperative banks qualify.
Q3. What documents should I keep to prove eligibility?
Investment certificates, FDR receipts, PAN and registration proof of the other cooperative society.
Final Word
If you’re a cooperative bank or society earning interest income from another registered cooperative entity, this ruling gives you a tax shield under Section 80P(2)(d). Don’t miss out on rightful deductions due to confusion around Section 80P(4).
Let Efiletax help you file accurate returns and defend your claims legally.
Contact us today for tax support tailored to cooperative institutions.