Coop banks to protest tax on income

The proposal to charge tax on income earned by cooperative banks has evoked strong protests. Urban cooperative banks, state and district cooperative banks are planning to seek the agriculture ministry's intervention to shoot down the Budget proposal.

Maharashtra state chief minister Vilasrao Deshmukh said prima facie move to levy tax on cooperative banks is a retrograde step. It would harm their financial position. The state will raise the issue with the Centre as many cooperative institutions would be hit be hit badly.

Most cooperative banks in the state are struggling and taxing those who are making profits will send wrong signal. It is not apt step encourage growth of this important sector, Deshmukh said.

The move to tax income of cooperatives is irrational as well as futile since it (taxing income of UCBs) goes against idea of providing impetus to cooperative bodies.

Few make profits and if they end up paying tax very little would remain for building reserves, a imperative for having adequate capital, said D Krishana, chief executive of National federation of UCBs and Credit Societies (NAFCUB) said.

The step could affect business plans of cooperative banks. They were given tax sops since over 60 per cent of their advances are to the priority sector. Commercial banks are required to extend only 40 per cent of their total credit to priority sector.

A coop bank enjoys tax-free status under Section 80P of the Income-Tax Act. The situation at the time of granting such tax benefit has not changed till date and hence there is no reason to withdraw this benefit now, Krishna said.

NAFCUB and forum of state and district cooperative banks would take up matter with the union agriculture ministry, a administrative body for cooperative affairs, and its cabinet minister Sharad Pawar, he added.