Section 63 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.
Section 63 says what a multi-State co-operative society must do with its net profits each year before anything is left for members: an amount to the reserve fund, one per cent to the co-operative education fund, and an amount to a reserve fund for unforeseen losses. It then lists what the balance may be used for. The 2023 Amendment Act rewrote clause (b) of sub-section (1), which deals with the education fund. This article states the section as per the Ministry of Cooperation copy of the Act read with the Multi-State Co-operative Societies (Amendment) Act, 2023.
Out of net profits in any year the society shall transfer not less than twenty-five per cent to the reserve fund, credit annually one per cent of net profit to the co-operative education fund (maintained by the Central Government after 2023) and transfer not less than ten per cent to a reserve fund for meeting unforeseen losses. The balance may then be used for dividend on paid-up share capital, special funds, donations not exceeding five per cent of net profits, and ex gratia to employees, subject to conditions as may be prescribed.
Section 63(1): the three compulsory transfers
Section 63(1) begins: "A multi-state cooperative society shall, out of its net profits in any year—". Three transfers follow. The word "shall" makes each compulsory, and they come before the balance can be used.
| Clause | Transfer |
|---|---|
| (a) | "transfer an amount not less than twenty-five per cent, to the reserve fund" |
| (b) | as substituted in 2023: "credit annually one per cent. of net profit to co-operative education fund to be maintained by the Central Government in such manner as may be prescribed and the proceeds from such fund shall be used for co-operative education and training through the National Co-operative Union of India and any other agency in such manner as may be determined by the Central Government" |
| (c) | "transfer an amount not less than ten per cent to a reserve fund for meeting unforeseen losses" |
The calculation of "net profits" is in section 62(2); see our note on funds not to be divided by way of profit. A board that wants to check its year-end allocations against this section can take advice from our legal consultation team.
Clauses (a) and (c)
Both state a floor ("not less than"), not a fixed percentage, so a society may put in more. Clause (a) goes to "the reserve fund" and clause (c) to a separate "reserve fund for meeting unforeseen losses". The two are distinct funds. The Act does not define either in this section.
Clause (b): the education fund, before and after 2023
The 2023 Amendment Act (Act 11 of 2023, in force from 3 August 2023 by notification S.O. 3493(E)) substituted clause (b). The percentage remains one per cent. What changed is the words around it.
| Point | Before 2023 | After 2023 |
|---|---|---|
| Frequency | "credit one per cent" out of net profits in any year | "credit annually one per cent. of net profit" |
| Who maintains the fund | The National Cooperative Union of India Limited, New Delhi | "to be maintained by the Central Government in such manner as may be prescribed" |
| Use of proceeds | Not stated in the clause | "co-operative education and training through the National Co-operative Union of India and any other agency in such manner as may be determined by the Central Government" |
The manner of maintaining the fund is left to rules. Amendment rules were notified on 4 August 2023 (G.S.R. 591(E)); the consolidated Rules should be checked. The manner of using the proceeds is left to the Central Government. No figure beyond "one per cent." is in the text.
A failure to contribute to this fund has a consequence for board members under section 43(2)(d): a person is not eligible for election to the board for five years if the board fails to make the contribution. See our note on disqualifications for being a member of the board.
Section 63(2): the balance
"Subject to such conditions as may be prescribed, the balance of the net profits may be utilised for all or any of the following purposes, namely:—"
| Clause | Purpose |
|---|---|
| (a) | payment of dividend to the members on their paid-up share capital at a rate not exceeding the prescribed limit |
| (b) | constitution of, or contribution to, such special funds including education funds, as may be specified in the bye-laws |
| (c) | donation of amounts not exceeding five per cent, of the net profits for any purpose connected with the development of cooperative movement or charitable purpose as defined in section 2 of the Charitable Endowments Act, 1890 (6 of 1890) |
| (d) | payment of ex gratia amount to employees of the society to the extent and in the manner specified in the bye-laws |
"May be utilised" is permissive: the society is not compelled to spend the balance on all four, and the words "all or any" confirm that. The dividend rate limit and the conditions are left to rules. The Act names the Charitable Endowments Act, 1890 for the meaning of "charitable purpose"; check the current law for the corresponding provision. Dividend is available only to members and only "on their paid-up share capital".
Where section 63 fits in the profit scheme
Section 62 says only net profits may be distributed. Section 63 says what must come out of net profits first and what the balance may do. New section 63A requires certain societies to contribute annually to the Co-operative Rehabilitation, Reconstruction and Development Fund; that is separate from the education fund and is covered in our note on sections 63A and 63C. The sources do not say whether the 63A contribution comes out of net profits before or after the section 63 transfers, and we do not guess. For the tax side, see our income-tax guides.
A practical example
Kamdhenu Multi-State Co-operative Society closes a year with net profits of Rs 40 lakh after the deductions in section 62(2). It must transfer not less than twenty-five per cent (Rs 10 lakh) to the reserve fund, credit one per cent (Rs 40,000) to the co-operative education fund, and transfer not less than ten per cent (Rs 4 lakh) to the reserve fund for unforeseen losses. The balance, Rs 25.6 lakh at the minimum transfers, may be used for dividend within the prescribed limit, a donation of up to five per cent of net profits (Rs 2 lakh) and ex gratia to employees as the bye-laws provide.
What the 2023 Amendment Act changed
| Provision | Before | After |
|---|---|---|
| s.63(1)(b) | One per cent credited to the co-operative education fund maintained by the National Cooperative Union of India Limited, New Delhi | One per cent of net profit credited annually to the co-operative education fund maintained by the Central Government; proceeds used for education and training through the National Co-operative Union of India and any other agency |
| s.63(1)(a), (c), (2) | As above | Unchanged |
Need help with year-end allocations?
If your accounts team is closing the year and wants the transfers, dividend proposal and donation limit checked against section 63 and the bye-laws, a short review can help. Speak to our legal consultation team before the general body meets.
Key takeaways
- Not less than twenty-five per cent of net profits goes to the reserve fund and not less than ten per cent to a reserve fund for unforeseen losses.
- One per cent of net profit is credited annually to the co-operative education fund, maintained by the Central Government since 2023.
- The balance may be used for dividend, special funds, donations up to five per cent and ex gratia for employees, subject to prescribed conditions.
- A board that fails to contribute to the education fund risks a five-year bar under section 43(2)(d).
Read next
- Funds not to be divided by way of profit (section 62)
- Rehabilitation, Reconstruction and Development Fund (sections 63A and 63C)
- Investment of funds (section 64)
- Multi-State Co-operative Societies Act, 2002: complete guide
Disclaimer: Based on the Ministry of Cooperation copy of the Multi-State Co-operative Societies Act, 2002 read with the Multi-State Co-operative Societies (Amendment) Act, 2023 (in force from 3 August 2023), as consulted on 2 October 2026. The Multi-State Co-operative Societies Rules, 2002 as amended, later notifications and later amendments are not covered and should be checked. This article is general information, not legal advice; check the official text before acting.