Question : Income Tax Exemption to Urban Cooperative Banks

(a) whether the Government is aware that by withdrawing exemption under section 80P
of the Income Tax Act, 1961, the Urban Cooperative Banks have been deprived of
the funds that could be loaned to small traders, professionals and middle class of the
urban society, if so, the details thereof and the reasons therefor;
(b) whether the Government is reconsidering the issue and contemplating to exempt the
Urban Cooperative Banks under section 80P of the Income Tax Act; and
(c) if so, the details thereof and if not, the reasons therefor?

(SHRI ARUN JAITLEY)
(a) to (c) A statement is laid on the table of the House.
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Statement referred to in the reply to the Lok Sabha Starred Question
No *161 for answer on 29/12/2017 raised by Shri Ramsinh Rathwa,
regarding “Income Tax Exemption to Urban Cooperative Banks”
(a) Finance Act, 2006 withdrew the exemption provided under section
80P of the Income tax Act,1961,(‘the Act’) to co-operative banks other than
primary agricultural credit societies (PACS) or primary co-operative
agricultural and rural development banks (PCARDBs) on certain grounds
which inter-alia, includes:-
(i) Co-operative banks function like any other commercial bank and
the principle of mutuality, which is central to granting exemption
under section 80P of the Act does not apply because their area of
operations extends even to non-members.
(ii) Most of these banks are providing standard banking facilities like
opening of letters of credit, bill discounting and collection, lockers
and safe deposit vaults, bank guarantees etc. Many of these deal in
foreign exchange and have also opened ATM kiosks. These banks are
thus no different from commercial banks and therefore are required
to be treated at par with them.
(iii) Income-tax is a tax on profits and there is no rationale for exempting
profit-making co-operative banks from payment of income-tax.
Since cooperative banks are like any other commercial banks who do not
enjoy exemption under section 80P of the Act, the availability of funds is
predominantly determined by its ability to mobilize savings through
improved machinery, technology and governance. Taxation, per se, does
not discriminate between various types of banks for the purposes of cash
flow.
(b) to (c) No, Madam, at present the government is not reconsidering the
issue for the reasons discussed above.
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