The Union Budget 2026–27 continues its focused approach towards strengthening the cooperative sector by extending specific income-tax provisions for cooperative societies registered under the Multi-State Cooperative Societies Act, 2002. Under this classification, the Budget 2026 cooperative societies amendments propose changes to ensure uniform tax treatment, legal clarity, and consistency in the application of income-tax provisions across different categories of cooperative societies. These measures are aimed at removing ambiguities, promoting certainty in tax compliance, and aligning the tax framework for multi-state cooperative societies with that applicable to other recognised cooperative entities under the Income-tax Act, 2025.
The Budget 2026 cooperative societies FAQs on tax provisions classify and explain the key proposals relating to the inclusion of cooperative societies registered under the Multi-State Cooperative Societies Act, 2002, enabling readers to clearly understand the scope, applicability, and legislative intent of these amendments without interpretational overlap.
Budget 2026: FAQs on Inclusion of Multi-State Cooperative Societies
I. Inclusion of Cooperative societies registered under under the Multi-State Cooperative Societies Act, 2002.
Q.1 What is the meaning of a “co-operative society” under the present provisions of Section 2(32) of the Income-tax Act, 2025?
Ans: Under Section 2(32), a “co-operative society” refers to any cooperative entity that is registered under one of the following laws:
• The Co-operative Societies Act, 1912; or
• Any other law currently in force in a State or Union Territory governing the registration of cooperative societies.
Q.2 What is the proposed amendment to the definition of “co-operative society” in the Finance Bill, 2026?
Ans: In the Finance Bill, 2026, a cooperative entity that is registered under the Multi-State Cooperative Societies Act, 2002, is also added to the definition of cooperative societies. This definition ensures recognition of cooperatives across various statutory frameworks.
Q.3 Are societies registered under the Multi-unit Co-operative Societies Act, 1942 (6 of 1942) or the Multi-State Co-operative Societies Act, 1984 (51 of 1984) included under this definition?
Ans: Yes, the provisions of the Repeal and Savings clause of the Multi-State Cooperative Societies Act, 2002, state that a multi-State co-operative society registered in pursuance of the provisions of the Multi-unit Co-operative Societies Act, 1942 (6 of 1942) or the Multi-State Co-operative Societies Act, 1984 (51 of 1984), shall be deemed to be registered under the corresponding provisions of the Multi-State Cooperative Societies Act, 2002 itself. Therefore, all these societies will also be included in this definition.
II. Deduction of profit and gains to a primary co-operative where they supply cattle feed and cotton seed to a federal co-operative.
Q.1 What items of supply are presently eligible for deduction in the case of primary co-operative society under section 149(2)(b) of the Income-tax Act, 2025?
Ans: Presently, the exemption applies only to primary co-operative societies that are engaged in supplying milk, oilseeds, fruits, or vegetables which are raised or grown by their members. Only societies meeting both the “primary society” and “member-grown produce” criteria qualify.
Q.2 What items of supply are proposed to be added in the proposed amendment of section 149(2)(b) of the Income-tax Act, 2025?
Ans: The deduction is proposed to apply also to supply of cotton seed and cattle feed.
Q.3 What is the deduction available to co-operative societies under section 149(2)(b) of the Income-tax Act, 2025?
Ans: The deduction is available on the profit and gains earned from the business of supplying milk, oilseeds, cotton seed, cattle feed, fruits, or vegetables which are raised or grown by their members.
Q.4 To whom must the primary co-operative society supply its produce in order to claim the exemption under section 149(2)(b) of the Income-tax Act, 2025?
Ans: To claim the exemption, the society must supply the specified produce to any of the following:
• A federal co-operative society engaged in supplying the same categories of produce;
• The Government or a local authority; or
• A Government company (as per section 2(45) of the Companies Act, 2013) or a statutory corporation established under a Central, State, or Provincial Act, engaged in supplying the same produce to the public.
Q.5 What is the extent of the exemption provided under section 149(2)(b) of the Income-tax Act, 2025?
Ans: The section provides exemption for the entire number of profits and gains derived from the qualifying business activities of the primary co-operative society. Thus, the exemption is 100%, subject to fulfilment of statutory conditions.
Q.6 What are the conditions specified for the recipient’s business so as to allow the deduction under section 149(2)(b) of the Income-tax Act, 2025?
Ans: The federal co-operative society, Government company, or statutory corporation to which the products are supplied by the primary co-operative society must also be engaged in supplying milk, oilseeds, cotton seed, cattle feed, fruits, or vegetables to the public. The exemption is linked not only to the supplier’s activities but also to the qualifying nature of the recipient.
III. Deduction of inter-cooperative society dividend income under the new tax regime
Q.1 What are the provisions for taxation of dividend received by cooperative societies?
Ans: The dividend received by a cooperative society from a company is taxed in the hands of the cooperative society.
The dividend received by a cooperative society from any other co-operative society is allowed as a deduction in the hands of the cooperative society under the provisions of section 149(2)(d) of the Income-tax Act, 2025. This deduction is presently allowable to the co-operative society if it is in the old regime.
Q.2 What is the key change proposed for inter cooperative societies dividends?
Ans: It is proposed that the deduction for dividends received from other cooperative societies may be allowed under the new tax regime as well. This deduction will be allowed provided that these dividends are further distributed to their members.
IV. Deduction of dividend income received by a notified national co-operative federation
in the new tax regime
Q.1 What are the provisions proposed under section 150 of the Income-tax Act, 2025?
Ans: Section 150 of the Income-tax Act, 2025 provides a deduction for a notified federal cooperative on the dividend income received from its investments in a company subject to certain conditions.
Q.2 Does the entire dividend income received from companies qualify for deduction under section 150 of the Income-tax Act, 2025?
Ans: No, only the dividend income received by a notified federal cooperative from investments in a company qualifies, and to the extent that such income meets the conditions regarding investment date and distribution to members.
• The deduction is limited to dividend income arising from investments already recorded in the cooperative’s books as of 31 January 2026.
• The deduction is available up to tax year 2028-29. After this period, the benefit will expire.
• The deduction can be claimed only if the dividends received from companies are distributed by the federal cooperative to its members.
Q.3 How many years is this deduction under section 150 of the Income-tax Act, 2025 applicable?
Ans: The deduction under section 150 of the Income-tax Act, 2025 will be applicable only for 3 years, i.e. for tax years 2026-27, 2027-28 and 2028-29.
Q.4 Who is considered a “federal cooperative” for this deduction?
Ans: To be eligible for this deduction, a federal cooperative must:
• Be the same as defined in section 3(k) of the Multi-State Co-operative Societies Act, 2002; and
• Be notified by the Central Government for the purposes of section 150 of the Income-tax Act, 2025.
Q.5 Does every federal cooperative automatically qualify for the deduction?
Ans: No. even if it fits the statutory definition, the cooperative must be specifically notified by the Central Government to avail the benefits of section 150 of the Income-tax Act, 2025.
Q.6 Is the deduction under section 150 of the Income-tax Act, 2025 available in the new regime?
Ans: Yes, the deduction under section 150 of the Income-tax Act, 2025 is allowed under both the old and new regimes.
Q.7 Is the deduction allowed for dividend on new investments?
Ans: No, the dividends from investments made after 31.01.2026 will not qualify for this deduction. Even if the dividend is received in tax year 2026-27, it should be from an
investment made before 31.01.2026 for it to be eligible for deduction.
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Sources and References
The information presented on this page is based on official clarifications and FAQs issued by the Income Tax Department in connection with the Finance Bill, 2026 and the proposed provisions of the Income-tax Act, 2025 and allied laws.
Key reference materials include:
- Finance Bill, 2026 and Explanatory Memorandum
- Official FAQs and press clarifications issued by the Income Tax Department
The FAQs reproduced on this page are presented in their official form, without interpretation or modification, to ensure accuracy and legislative fidelity.
Disclaimer: The FAQs reproduced in this article are based on the clarifications issued in relation to Budget 2026–27. They are presented verbatim for informational purposes only and should not be construed as legal or tax advice.
