Section 203 — Tax on income of certain resident co-operative societies. Successor to s.115BAD of the 1961 Act.
Section 203 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Sub-section (1) gives a resident co-operative society an option to pay income-tax for a tax year at the rate of 22%, notwithstanding anything in the Act but subject to Parts A, B and E and the rest of this Part other than section 204. It is available only if total income is computed without any deduction under Chapter VIII other than section 146 or section 150, without the deductions in the sections specified in section 205(1)(a) to (g), and without set off of any carried forward loss or depreciation attributable to those deductions. The words "or 150" were inserted by Act No. 4 of 2026 with effect from 1 April 2026.
Sub-section (2) makes the option invalid for the tax year in which its requirements are not satisfied and for all subsequent tax years, the Act then applying as if it had never been exercised, and sub-section (3) deems the loss and depreciation referred to in sub-section (1)(b) to have been given full effect to. Sub-section (4) preserves the section 147 deduction for a Unit in the International Financial Services Centre that has exercised the option. Sub-section (5) requires the option to be exercised in the prescribed manner on or before the due date under section 263(1), after which it applies to subsequent tax years, and sub-section (6) bars withdrawal.
Sub-section (7), inserted by Act No. 4 of 2026 with effect from 1 April 2026, makes the deduction under section 149(2)(d)(ii) available to a society that has exercised the option, to the extent it does not exceed the dividend distributed to its members at least one month before the due date for filing the return under section 263(1).
It offers a lower flat rate in exchange for giving up the incentive deductions and the losses and depreciation attributable to them. The exclusivity is the point: without sub-sections (1)(b) and (3) a society could take the incentives in early years and then switch to the concessional rate while still carrying the resulting losses forward. Sub-sections (2), (5) and (6) make the choice a hard one — made by the return due date, not withdrawable, and destroyed for all later years by a breach.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Rate of income-tax under the option | 22% | At the option of a resident co-operative society, on total income computed without the Chapter VIII deductions other than sections 146 and 150, without the section 205(1)(a) to (g) deductions, and without set off of attributable carried forward loss or depreciation | Sub-section (1) |
| Last date for exercising the option | On or before the due date specified under section 263(1) for furnishing the return of income | Exercised in the prescribed manner; it then applies to subsequent tax years and cannot be withdrawn | Sub-sections (5) and (6) |
| Timing condition on the section 149(2)(d)(ii) deduction | Dividend distributed at least one month before the due date for filing the return under section 263(1) | Inserted by Act No. 4 of 2026 w.e.f. 1-4-2026; the deduction is capped at the dividend so distributed | Sub-section (7) |
The 22% is the rate this section fixes for income-tax on total income computed as it directs; the section says nothing about surcharge or cess, so nothing about them should be read into it. The requirements are not one-year conditions — a failure in any year destroys the option for that year and every subsequent year, which is far heavier than losing the concession once. Sub-section (3) is the price of entry: the attributable loss and depreciation are treated as fully given effect to and never come back. The 2026 changes soften this for particular societies: "or 150" keeps that deduction available inside the option, and sub-section (7) restores the section 149(2)(d)(ii) deduction, capped at the dividend actually distributed and only where that distribution was at least one month before the section 263(1) due date, not merely before the return was filed.
A resident co-operative society opts under sub-section (5), before the section 263(1) due date, to be taxed at 22%. It computes total income without the Chapter VIII deductions other than sections 146 and 150 and without setting off Rs. 40 lakh of carried forward depreciation attributable to a surrendered deduction; under sub-section (3) that Rs. 40 lakh is gone for good. If in a later year it claims a deduction the option does not permit, sub-section (2) invalidates the option for that year and every year after.
You meet this section when the option is exercised, in the prescribed manner on or before the section 263(1) due date; it then governs the rate applied in every later return of the society. It surfaces adversely in an assessment order holding a requirement of sub-section (1) to have failed, because the consequence reaches the subsequent tax years too.
the income-tax payable for a tax year shall be at the rate of 22%, at the option of a person being a co-operative society resident in India
as does not exceed the amount of dividend distributed by it to its members at least one month before the due date for filing the return of income under section 263(1)
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
