Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
Bank FD interest taxable
Interest from commercial-bank deposits is taxed in the society’s hands.
80P for co-op bank interest
Interest from co-operative bank/society deposits can be deductible under 80P(2)(d). Confirm current position.
The 80P(2)(d) point, and planning deposits
The taxability of a society’s interest income turns largely on where the money is parked. Interest earned on deposits with a commercial bank is taxable in the society’s hands and goes into the return. Interest earned on deposits or investments with a co-operative bank or another co-operative society can qualify for a full deduction under Section 80P(2)(d), which effectively makes that interest tax-free for the society. This distinction has been the subject of litigation — particularly whether a co-operative bank counts as a co-operative society for 80P(2)(d) — and the position has generally favoured the deduction, though it’s worth confirming the current view. The practical planning point is that a society sitting on sinking-fund and repair-fund balances can often reduce its tax simply by holding those deposits with a co-operative bank rather than a commercial one, where that’s consistent with safety and the byelaws. The society still reports all the interest in its return and claims the 80P deduction on the qualifying part. Keeping the deposit documentation and the interest certificates, and classifying each source correctly, is what supports the claim. Confirm the current 80P(2)(d) position for your facts, since it rests on case law that continues to develop.