Sections 203-204 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 203 and 204 give a resident co-operative society an optional lower rate of tax: 22% on total income under section 203, or, for a new manufacturing co-operative society, 15% on the main part of its income under section 204. Both are tied to computing income without a list of deductions and to a bar on withdrawing the option. This article reads them as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
A resident co-operative society may opt for tax at 22% on total income computed without Chapter VIII deductions (other than sections 146 and 150) and without the section 205(1) deductions (section 203). A resident co-operative society engaged in manufacture or production, set up and registered on or after 1 April 2023 and commencing production on or before 31 March 2024, may opt for 15% on its main income (section 204). Both options are exercised by the due date under section 263(1) and cannot later be withdrawn. The Finance Act, 2026 amended both sections with effect from 1 April 2026.
Scope and the amendments by the Finance Act, 2026
Both sections are in Chapter XIII, Part C. Section 203 was amended by section 57 of the Finance Act, 2026 and section 204 by section 58, each with effect from 1 April 2026: the words "or 150" were inserted in the lists of deductions that remain available (section 203(1)(a)(i) and section 204(3)(a)(i)), and new sub-sections were inserted (section 203(7) and section 204(5)). The Act came into force on the 1st April, 2026 (section 1(3)). The rates are those printed in the sections; later amendments, rules and notifications should be checked.
The conditions common to both are in section 205. The regime for individuals is in section 202. For the Chapter overview, see Chapter XIII of the Income-tax Act, 2025. If your society is choosing between regimes, our tax planning advisory team can help.
Section 203: resident co-operative societies at 22%
Section 203(1): the option
Irrespective of anything contained in the Act, but subject to Parts A, B, E and Part C (other than section 204), the income-tax payable for a tax year is at the rate of 22%, at the option of a co-operative society resident in India, on its total income computed:
- (a) without any deduction under (i) Chapter VIII other than the provisions of section 146 or 150; or (ii) the sections specified in section 205(1)(a) to (g); and
- (b) without set off of any loss carried forward or depreciation from any earlier tax year, if the loss or depreciation is attributable to any of the deductions referred to in clause (a).
The words "or 150" were inserted by the Finance Act, 2026. Section 146 is the additional employee cost deduction and section 150 the federal co-operative dividend deduction; see our articles on section 146 and sections 148 to 150.
Section 203(2) and (3)
If the society fails to satisfy the requirements in sub-section (1) in any tax year, the option becomes invalid for that year and subsequent years, and the other provisions of the Act apply as if the option had not been exercised. The loss and depreciation in sub-section (1)(b) are deemed to have been given full effect, and no further deduction is allowed in any subsequent tax year.
Section 203(4): units in an International Financial Services Centre
Where a person has a Unit in the International Financial Services Centre and has exercised the option, the requirements in sub-section (1) are modified to the extent that the deduction under section 147 is available to that Unit, subject to the conditions of that section. The sub-section refers to an option "under sub-section (5)". See our article on section 147.
Section 203(5) and (6)
The section does not apply unless the option is exercised in the prescribed manner on or before the due date under section 263(1) for furnishing the return of income, and the option once exercised applies to subsequent tax years. Once exercised for any tax year, it is not subsequently withdrawn for the same or any other tax year.
Section 203(7): dividend deduction (inserted by the Finance Act, 2026)
In the case of a co-operative society that has exercised the option under sub-section (5), the requirements in sub-section (1) are modified to the extent that the deduction under section 149(2)(d)(ii) is available to the society, 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 under section 263(1). Section 149(2)(d)(ii) is the deduction for dividends from investments with another co-operative society.
Section 204: new manufacturing co-operative societies
Section 204(1) and the Table
Subject to Parts A, B, E and Part C (other than section 203), the income-tax payable on the total income of a resident co-operative society engaged in the business of manufacture or production of any article or thing is, at its option, computed at the rates in column A of the Table, if the conditions in column B are fulfilled.
| Column A: total income and rate of tax | Column B: conditions |
|---|---|
| (a) 15% on the total income other than the income mentioned in (b), (c) and (d) | The co-operative society (a) exercises the option as provided in sub-section (2); (b) has been set up and registered on or after the 1st April, 2023; (c) has commenced manufacturing or production of an article or thing on or before the 31st March, 2024; (d) has its total income computed as per sub-section (3); and (e) fulfils all the conditions in section 205(2) |
| (b) 22% (without any deduction or allowance in respect of any expenditure or allowance) on income (i) which has neither been derived from nor is incidental to manufacturing or production of an article or thing, and (ii) in respect of which no specific rate of tax has been provided separately under Part C | |
| (c) 22% on short-term capital gains derived from transfer of a capital asset on which no depreciation is allowable under the Act | |
| (d) 30% on the income deemed so under section 205(4) |
The Table is printed across two pages with its conditions column continuing after the page break; the conditions above are read together.
Section 204(2): exercising the option
The option is exercised in the prescribed manner, subject to:
- (a) exercise on or before the due date under section 263(1) for furnishing the first of the returns of income for any tax year;
- (b) once exercised, it applies to subsequent tax years;
- (c) once exercised for any tax year, it is not subsequently withdrawn for the same or any other tax year; and
- (d) if the society fails to fulfil the conditions in column B of the Table in any tax year, the option becomes invalid for that and subsequent tax years, and the other provisions of the Act apply as if the option had not been exercised.
A printing slip: clause (d) refers to the conditions by a serial number and column letter, but this Table has no serial numbers; the reference is to column B of the Table.
Section 204(3) to (5)
For the purposes of sub-section (1), total income is computed without any deduction under (i) Chapter VIII other than section 146 or 150 (the words "or 150" inserted by the Finance Act, 2026), or (ii) the sections specified in section 205(1)(a) to (g), and without set off of any loss carried forward or depreciation attributable to those deductions. The loss and depreciation so specified are deemed to have been given full effect, and no further deduction is allowed for any subsequent year (sub-section (4)). Sub-section (5), inserted by the Finance Act, 2026, modifies the requirements of sub-section (3) for a society that has exercised the option, so that the deduction under section 149(2)(d)(ii) is available up to the dividend distributed to its members at least one month before the due date under section 263(1).
A printing slip: after the reference to section 205(1)(a) to (g) in sub-section (3)(a)(ii) the copy shows a stray number "32"; it is not part of the text.
Comparing sections 203 and 204
| Point | Section 203 | Section 204 |
|---|---|---|
| Who | a co-operative society resident in India | a resident co-operative society engaged in manufacture or production |
| Rate | 22% on total income | 15% on main income; 22% on two other kinds of income; 30% on income deemed under section 205(4) |
| Set up and registered | not stated | on or after 1 April 2023 |
| Manufacturing began | not stated | on or before 31 March 2024 |
| Extra conditions | none beyond sub-section (1) | section 205(2) |
A worked example
Names and amounts are invented; the rates, dates and one-month rule are as printed.
Kamal Dairy Producers Co-operative Society, resident in India, opts under section 203 by the due date for its return. Its total income, computed without Chapter VIII deductions other than sections 146 and 150, is Rs. 15,00,000. Tax at 22% = Rs. 3,30,000 (before any surcharge or cess; those are not printed in this section).
If the society also received Rs. 2,00,000 of dividend from investments with another co-operative society and distributed Rs. 1,50,000 to its members at least one month before the return due date, the deduction under section 149(2)(d)(ii) is available up to Rs. 1,50,000 under section 203(7), the amount distributed.
Now take Triveni Grain Mills Co-operative Society, set up and registered on the 10th June, 2023, which began producing on the 1st February, 2024. It opts under section 204, so its total income from manufacturing is taxed at 15%; short-term capital gains on non-depreciable land at 22%; and any income deemed under section 205(4) at 30%.
Need help choosing a co-operative society regime?
The option is made once and cannot be withdrawn, and a failure of the conditions invalidates it from that year. Our tax planning advisory service can help a society compare the options before the first return.
Key takeaways
- Section 203 offers 22% on total income to a resident co-operative society that gives up the listed deductions and loss set-offs.
- Section 204 offers 15% on the main income of a new manufacturing co-operative society set up on or after 1 April 2023 that began production by 31 March 2024.
- Both options are exercised by the section 263(1) due date and cannot be withdrawn.
- The Finance Act, 2026 added section 150 to the permitted deductions and inserted the dividend modification (203(7) and 204(5)).
- A failure of the conditions invalidates the option from that year onward.
Read next
- Section 205: conditions for tax on certain companies and co-operative societies
- Sections 199 and 201: tax on manufacturing domestic companies
- Section 202: new tax regime
- Chapter XIII of the Income-tax Act, 2025
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.