Special provision for computing deductions in case of business reorganisation of co-operative banks
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 65(1) of Income Tax Act 2025
65(1) The deduction under section 33 or 44 or 52(1) (Table: Sl. No. 1 or 2) shall, in a case where business reorganisation of a co-operative bank has taken place during the tax year, be allowed as per provisions of this section.
Section 65(2) of Income Tax Act 2025
65(2) The amount of deduction allowable to the predecessor co-operative bank or to the successor co-operative bank or to the converted banking company under section 33 or 44 or 52(1) (Table: Sl. No. 1 or 2) shall be determined as per the formula—
- (i) for predecessor co-operative bank:—
- A × B/ C
- (ii) for successor co-operative bank or converted banking company:—
- A × D/ C
- where,—
- A = the amount of deduction allowable to the predecessor co-operative bank, if the business reorganisation had not taken place;
- B = the number of days comprised in the period beginning with the 1st day of the tax year and ending on the day immediately preceding the date of business reorganisation; and
- C = the total number of days in the tax year in which the business reorganisation has taken place.
- D = the number of days comprised in the period beginning with the date of business reorganisation and ending on the last day of the tax year.
Section 65(3) of Income Tax Act 2025
65(3) The provisions of section 44 or 52(1) (Table: Sl. No. 1 or 2) shall, in a case where an undertaking of the predecessor co-operative bank entitled to the deduction under the said section is transferred before the expiry of the period specified therein to a successor co-operative bank or to a converted banking company on account of business reorganisation, apply to the successor co-operative bank or to the converted banking company in the tax years subsequent to the year of business reorganisation as they would have applied to the predecessor co-operative bank, as if the business reorganisation had not taken place.
Section 65(4) of Income Tax Act 2025
65(4) In this section,––
- (a) “amalgamation” means the merger of an amalgamating co-operative bank with an amalgamated co-operative bank, if—
- (i) all the assets and liabilities of the amalgamating co-operative bank or banks immediately before the merger (other than the assets transferred, by sale or distribution on winding up, to the amalgamated co-operative bank) become the assets and liabilities of the amalgamated co-operative bank;
- (ii) the members holding 75% or more voting rights in the amalgamating co-operative bank become members of the amalgamated co-operative bank; and
- (iii) the shareholders holding 75% or more in value of the shares in the amalgamating co-operative bank (other than the shares held by the amalgamated co-operative bank or its nominee or its subsidiary, immediately before the merger) become shareholders of the amalgamated co-operative bank;
- (b) “amalgamating co-operative bank” means—
- (i) a co-operative bank which merges with another co-operative bank; or
- (ii) every co-operative bank merging to form a new co-operative bank;
- (c) “amalgamated co-operative bank” means—
- (i) a co-operative bank with which one or more amalgamating co-operative banks merge; or
- (ii) a co-operative bank formed as a result of merger of two or more amalgamating co-operative banks;
- (d) “business reorganisation” means reorganisation of business involving the amalgamation or demerger of a co-operative bank or conversion of a primary co-operative bank;
- (e) “conversion” means transition of a primary co-operative bank to a banking company under the scheme of the Reserve Bank of India as notified vide its circular number DCBR. CO. LS. PCB. Cir. No. 5/07.01.000/2018-19, dated 27th September, 2018;
- (f) “converted banking company” means a banking company formed as a result of conversion from primary co-operative bank;
- (g) “demerger” means the transfer by a demerged co-operative bank of one or more of its undertakings to any resulting co-operative bank, in such manner that—
- (i) all the assets and liabilities of the undertaking or undertakings immediately before the transfer become the assets and liabilities of the resulting co-operative bank;
- (ii) the assets and the liabilities are transferred to the resulting co-operative bank at values (other than change in the value of assets consequent to their revaluation) appearing in its books of account immediately before the transfer;
- (iii) the resulting co-operative bank issues, in consideration of the transfer, its membership to the members of the demerged co-operative bank on a proportionate basis;
- (iv) the shareholders holding 75% or more in value of the shares in the demerged co-operative bank (other than shares already held by the resulting bank or its nominee or its subsidiary immediately before the transfer), become shareholders of the resulting cooperative bank, otherwise than as a result of the acquisition of the assets of the demerged cooperative bank or any undertaking thereof by the resulting co-operative bank;
- (v) the transfer of the undertaking is on a going concern basis; and
- (vi) the transfer is as per the conditions specified by the Central Government, by notification, having regard to the necessity to ensure that the transfer is for genuine business purposes;
- (h) “demerged co-operative bank” means the co-operative bank whose undertaking is transferred, pursuant to a demerger, to a resulting bank;
- (i) “predecessor co-operative bank” means the amalgamating co-operative bank or the demerged co-operative bank, or the primary co-operative bank, which has been succeeded as a result of conversion;
- (j) “resulting co-operative bank” means—
- (i) one or more co-operative banks to which the undertaking of the demerged co-operative bank is transferred in a demerger; or
- (ii) any co-operative bank formed as a result of demerger;
- (k) “successor co-operative bank” means the amalgamated co-operative bank or the resulting bank.
FAQs on Section 65 of Income Tax Act 2025
1. What is the purpose of Section 65 of the Income Tax Act, 2025?
Section 65 provides a mechanism for allowing deductions under Section 33, 44, or 52(1) when there is a business reorganisation of a co-operative bank during the tax year.
2. When is Section 65 applicable?
Section 65 applies if a business reorganisation of a co-operative bank occurs during the tax year.
3. Which deductions are covered under Section 65(1)?
Deductions under Section 33, Section 44, and Section 52(1) (Table: Sl. No. 1 or 2) are covered under Section 65.
4. How is the deduction split between the predecessor and successor co-operative banks?
The deduction is split based on the number of days each entity operated during the tax year using the prescribed formulas in Section 65(2).
5. What is the formula for the predecessor co-operative bank’s deduction?
A × B / C
Where A = total deduction if no reorganisation occurred, B = days before reorganisation, C = total days in the year.
6. What is the formula for the successor co-operative bank or converted banking company’s deduction?
A × D / C
Where A = total deduction if no reorganisation occurred, D = days after reorganisation, C = total days in the year.
7. Who is considered the predecessor co-operative bank?
It is the amalgamating co-operative bank, the demerged co-operative bank, or the primary co-operative bank that was succeeded due to conversion.
8. Who qualifies as a successor co-operative bank?
It is the amalgamated co-operative bank or the resulting bank after reorganisation.
9. What happens to unexpired deduction periods after reorganisation?
Section 65(3) allows the successor or converted bank to continue availing deductions for the remaining period as if reorganisation had not occurred.
10. What does “business reorganisation” include under Section 65(4)(d)?
It includes amalgamation, demerger, or conversion of a co-operative bank.
11. What is meant by “amalgamation” under this section?
It means a merger where all assets and liabilities transfer to the new entity and 75% of members/shareholders of the old bank become part of the new one.
12. How is “conversion” defined in this context?
Conversion refers to the transition of a primary co-operative bank into a banking company as per RBI’s circular dated 27th September, 2018.
13. What is a “converted banking company”?
It is the banking company that results from the conversion of a primary co-operative bank.
14. How is a “demerger” defined for co-operative banks?
It is the transfer of an undertaking from a demerged co-operative bank to a resulting bank, meeting specific conditions including proportionate membership and shareholding.
15. What is a “demerged co-operative bank”?
It is the co-operative bank whose undertaking is transferred under a demerger.
16. Who is a “resulting co-operative bank”?
It is the bank receiving the undertaking in a demerger or formed as a result of it.
17. Are there conditions that must be met for a demerger to be valid?
Yes, several conditions must be met, such as asset transfer on a going concern basis and issuing proportionate membership/shares.
18. Can the successor claim the full deduction after reorganisation?
No, the deduction is proportionately split based on the number of days operated by each entity during the tax year.
19. Are values of assets re-evaluated during demerger?
No, assets must be transferred at book values excluding revaluation changes.
20. What role does the Central Government play in demergers?
It can notify specific conditions to ensure transfers are for genuine business purposes.
21. Are intra-group transfers excluded from ownership tests in amalgamation/demerger?
Yes, shares held by the amalgamated/resulting bank or its nominee/subsidiary are excluded.
22. Does Section 65 override other deduction conditions?
No, it supplements them by providing a method for allocation in reorganisation scenarios.
23. What is the significance of the dates in the deduction formulas?
They determine the operational period of each entity within the tax year for proportional deduction computation.
24. Can the converted banking company avail of previous deductions?
Yes, it can claim remaining eligible deductions under Section 65(2) and 65(3).
25. From when is Section 65 applicable?
It applies from the tax year beginning on or after 1st April, 2026.
Conclusion
Section 65 of the Income Tax Act, 2025 introduces a structured and equitable approach for allowing deductions in cases of business reorganisation of co-operative banks, effective from 1st April, 2026. It ensures that deductions under Sections 33, 44, and 52(1) are fairly allocated between predecessor and successor entities based on their respective periods of operation during the tax year.
The provision supports seamless transitions during amalgamation, demerger, or conversion, while preserving eligibility for deductions and continuity of tax benefits. By clearly defining key terms and laying out detailed conditions, the section aims to facilitate genuine reorganisations without disrupting the tax incentive framework for co-operative banks.
