Almost everyone who is earning money wants to have income that is free from income tax. But Income Tax rules and regulations have been designed in such a way that it is not very easy to escape the tax net.
However, a recent Supreme Court Judgment does open a door for getting some income that is tax free.
In a recent judgment, Supreme Court has ruled that income from money lent to members of a cooperative society, which is not a cooperative bank and is not carrying out banking activities as defined in the Banking Regulation Act, can be entirely tax free under Section 80(P) of the Income Tax Act.
The case arose because an apex cooperative society did not pay taxes on the income that it got from lending operations to its own members. The assessing officer disallowed this income. The cooperative went in appeal to the High Court, where its appeal was turned down. Finally they approached the Supreme Court and the SC has ruled that as long as the Cooperative Society was not a bank defined under the Banking Regulation Act and as long as it did not indulge in normal banking activities and as long as it took money and gave money only to its own members and in this specific case, all the lenders and borrowers were members of the same cooperative society bank, all the income that the cooperative society generated is free from tax under section 80(P) of Income Tax Act.
So, here is an opportunity for anyone who wants to earn tax free income. Set up a cooperative where people deposit money and people borrow money, ensure that all of the depositors and borrowers are members of the cooperative and that the borrowers repay their loans in time, then the total profit of the cooperative can be divided among all the members at the end of the year in proportion of their deposits. All the income that you so derive is free from Income Tax in your personal balance sheet too!
This serves two purposes, one is it creates a close network of people who want to help each other and at the same time ensure that their friends don’t get exploited by the banking system, second is that it the members can earn some tax free income!
You can read / download the judgment provided below.