Direct and Indirect Taxation · Agricultural Income

Section 149 Deduction for Co-operative Societies Explained

Updated 10 October 2026 · Fact-checked

Section 149 of the Income-tax Act, 2025 lets a co-operative society deduct certain income from its gross total income. Banking, credit, cottage industry, marketing of members' produce and similar activities get full deduction of attributable business profit. Other activities get a capped deduction. To solve, classify each income, apply the clause, then total.

Understand Co-operative Societies and Agricultural Income Deduction

A co-operative society is taxed as a separate person, but the law gives it relief because it exists for its members. Section 149 is that relief. It works as a deduction from gross total income, and only if the gross total income includes the income covered by the section.

The section sorts income into groups. Clause (a) covers profits and gains of business attributable to listed activities: banking or providing credit to members, cottage industry, marketing of members' agricultural produce, buying agricultural implements, seeds, livestock or other agricultural articles to supply to members, processing members' produce without the aid of power, collective disposal of members' labour, and fishing or allied activities. For these, the whole of the attributable business profit is deducted.

Clause (b) covers a primary society supplying milk, oilseeds, cotton seed, cattle feed, fruits or vegetables raised or grown by its members to a federal society, the Government or a local authority, or a Government company or statutory corporation that supplies these to the public. The whole profit of that business is deducted. Cotton seed and cattle feed were added with effect from 1-4-2026.

Clause (c) is the residual rule for other activities. The deduction is limited to ₹1,00,000 for a consumers' co-operative society and ₹50,000 in any other case. Clauses (d) and (e) cover the whole of interest or dividend from investments with another co-operative society, and the whole of income from letting godowns or warehouses for storage, processing or marketing of commodities. Clause (f) gives a small deduction for interest on securities and house property income, but only where the society is not a housing society, urban consumers' society, transport society or power-aided manufacturing society, and the gross total income does not exceed ₹20,000.

There are limits. Clauses (a)(vi) and (vii) apply only if the bye-laws restrict voting rights to the classes of members named in sub-section (3). Section 203 offers a 22% option for resident co-operative societies. Section 204 offers a 15% option, but only for new manufacturing co-operative societies that meet its conditions. Under these options, Chapter VIII deductions (including section 149) and the deductions listed in section 205(1)(a) to (g) are not allowed. The exceptions are section 146, section 150 and section 149(2)(d)(ii), the last only up to the dividend distributed to members at least one month before the return due date.

Key rules to remember

Clause (a) activities: Deduction = whole profits and gains of business attributable to the listed activities; Banking or credit to members, cottage industry, marketing members' agricultural produce, supply of agricultural inputs to members, processing members' produce without power, collective disposal of labour, fishing and allied activities.
Clause (b) primary supply society: Deduction = whole profits and gains of the milk, oilseeds, cotton seed, cattle feed, fruits or vegetables supply business; The society must be a primary society and the produce must be raised or grown by members and supplied to the specified buyers.
Clause (c) other activities: Deduction = lower of attributable profit and ₹1,00,000 (consumers' society) or ₹50,000 (any other society); Applies to activities not covered by clause (a) or (b), alone or along with them.
Clause (d) and (e): Deduction = whole income from investments with another co-operative society (interest or dividend) + whole income from letting godowns or warehouses; Godown letting must be for storage, processing or facilitating marketing of commodities.
Clause (f) small societies: Deduction = interest on securities + income from house property, if GTI ≤ ₹20,000; Not for housing, urban consumers', transport or power-aided manufacturing societies.
Order of deduction: Section 149(2)(a), (b), (c) deduction is allowed on the income included in GTI after reducing any section 138 deduction; Sub-section (4) applies only to clauses (a), (b) and (c) and the cases in sub-section (3). It avoids a double deduction on the same income.
Co-operative banks: Section 149 does not apply to a co-operative bank unless it is a primary agricultural credit society or a primary co-operative agricultural and rural development bank; A standard exam trap.

How to solve Co-operative Societies and Agricultural Income Deduction questions

Treat each stream of income separately. The deduction depends on the nature of the activity, not on the total profit.

1Check the assessee is a co-operative society and, if a bank, whether it is a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
2List each income stream and the profit attributable to it.
3Match each stream to clause (a), (b), (c), (d), (e) or (f).
4For clauses (a) and (b), check conditions: members' produce, primary society, eligible buyer, and voting-rights restriction for labour and fishing societies.
5Apply the cap under clause (c): ₹1,00,000 for a consumers' society, ₹50,000 otherwise. Use the lower of profit and cap.
6Test clause (f): society type and GTI not above ₹20,000.
7For clauses (a), (b) and (c), reduce any section 138 deduction from the relevant income before computing the deduction, then total the deductions.
8Subtract the deduction from gross total income and state the total income. If the question mentions a section 203 option (or a section 204 option for a new manufacturing society), state that Chapter VIII deductions are barred, except sections 146 and 150 and, up to the dividend distributed in time, section 149(2)(d)(ii).

Quickest way: Clause-tagging method

When to use it: Use it for numerical questions with several income items for one society.

Write the income items in a column and tag each with its clause letter.
Mark clauses (a), (b), (d), (e) as full deduction, clause (c) as capped.
Apply the cap only to the profit tagged (c).
Check for traps: co-operative bank, power used in processing, bye-law condition, GTI above ₹20,000.
Add the deductions and subtract from gross total income.

Common mistakes in Co-operative Societies and Agricultural Income Deduction

Giving full deduction for all business profit of a society.
Students think any co-operative society is fully exempt.
Fix: Only clauses (a), (b), (d) and (e) give the whole amount. Activities outside them fall under clause (c) with a cap.
Allowing the deduction to a co-operative bank.
Banking appears in clause (a)(i).
Fix: Sub-section (5) excludes co-operative banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
Allowing clause (a)(v) processing where power is used.
The words 'without the aid of power' are missed.
Fix: Processing with power does not qualify under that sub-clause.
Ignoring the voting-rights condition for labour and fishing societies.
Sub-section (3) is in a separate part of the section.
Fix: Deduction under (a)(vi) and (vii) needs bye-laws restricting voting to the classes listed in sub-section (3).
Claiming section 149 deductions under the section 203 or 204 concessional rate.
Students forget that these options bar most Chapter VIII deductions.
Fix: Under these options, Chapter VIII deductions (including section 149) and the deductions listed in section 205(1)(a) to (g) are not allowed. The exceptions are section 146, section 150 and section 149(2)(d)(ii) up to the dividend distributed at least one month before the return due date.
Applying the ₹1,00,000 cap to every society.
The two caps are confused.
Fix: ₹1,00,000 applies only to a consumers' co-operative society; others get ₹50,000.

Worked examples

Example 1

A resident co-operative society, not a bank, has gross total income including: profit from marketing agricultural produce grown by its members ₹4,20,000; profit from selling consumer goods to the public ₹80,000. It is not a consumers' society. Find the deduction under section 149.

Show the solution

Marketing members' produce falls under clause (a)(iii), so the whole ₹4,20,000 is deductible.
Selling consumer goods is another activity under clause (c).
The society is not a consumers' society, so the cap is ₹50,000.
Deduction for clause (c) = lower of ₹80,000 and ₹50,000 = ₹50,000.
Total deduction = ₹4,20,000 + ₹50,000 = ₹4,70,000.

Answer: ₹4,70,000

Example 2

A primary co-operative society has gross total income of ₹9,40,000: profit from supplying milk of members to a federal society ₹3,00,000; interest from deposits with another co-operative society ₹60,000; rent from letting godowns for storing commodities ₹1,10,000; other income ₹4,70,000 (income from other sources, not profit of any business activity and not covered by any clause). Compute total income, assuming no other deduction and no section 203 or 204 option.

Show the solution

Milk supply by a primary society to a federal society: clause (b), whole ₹3,00,000.
Interest from another co-operative society: clause (d), whole ₹60,000.
Godown letting for storage of commodities: clause (e), whole ₹1,10,000.
Other income ₹4,70,000 is not business profit, so clause (c) does not apply. No deduction.
Total deduction = ₹3,00,000 + ₹60,000 + ₹1,10,000 = ₹4,70,000.
Total income = ₹9,40,000 − ₹4,70,000 = ₹4,70,000.

Answer: Deduction ₹4,70,000; total income ₹4,70,000

Exam tips

In MCQs, look for the trigger words: primary society, consumers' society, without the aid of power, co-operative bank.
In written answers, name the clause for every deduction. Step marks follow the classification.
Show the cap calculation for clause (c) as 'lower of profit and cap'.
If the question mentions the 22% option (section 203) or the 15% option (section 204, only for new manufacturing societies meeting its conditions), say that Chapter VIII deductions are barred, except sections 146 and 150 and, up to the dividend distributed in time, section 149(2)(d)(ii).
Do not give a section number for rules you cannot recall. Use the clause letters from section 149 given here.

Practice questions from Agricultural Income

Co-operative Societies and Agricultural Income Deduction in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Co-operative Societies and Agricultural Income Deduction: frequently asked questions

What does section 149 of the Income-tax Act, 2025 provide?

It allows a co-operative society to deduct certain income from its gross total income. The deduction depends on the activity, such as banking to members, marketing members' produce or supplying milk. Some deductions are full and some are capped.

Is income from marketing agricultural produce of members fully deductible?

Yes, profit attributable to marketing agricultural produce grown by its members is deductible in full under section 149(2)(a)(iii). The profit must come from that business. Profit from other activities is treated separately.

What is the limit for other activities of a co-operative society?

Under clause (c), the deduction is limited to ₹1,00,000 for a consumers' co-operative society and ₹50,000 for any other society. It is the lower of the attributable profit and the limit.

Can a society claim section 149 if it opts for the 22% rate under section 203?

Generally no, because the option requires computing income without Chapter VIII deductions other than sections 146 and 150, and without the sections listed in section 205(1)(a) to (g). There is a limited exception for dividend income from another co-operative society under section 149(2)(d)(ii), up to the dividend the society distributes to its members at least one month before the return due date.