The Union Budget 2026–27, presented in Parliament by Finance Minister Nirmala Sitharaman, has brought several benefits for the cooperative sector. While tax deductions on dividend income have been extended to provide direct financial relief to farmers and cooperative members, the government has also announced a grant of Rs 450 crore for the National Cooperative Exports Limited (NCEL) to strengthen cooperative-led agricultural exports and enhance its competitiveness.
According to the Budget announcements, multiple tax incentives have been introduced for the cooperative sector. Primary cooperative societies engaged in supplying cattle feed and cotton seed will now be eligible for deductions, provided such supplies are made to government organizations or federal cooperatives. Deduction is already allowed to a primary cooperative society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members.
Under the new tax regime, inter-cooperative society dividend income will be allowed as a deduction, to the extent it is further distributed to its members. A notified National Cooperative Federation will receive a three-year exemption on dividend income earned from investments in companies up to January 31, 2026. This exemption would be allowed only for dividends further distributed to its member co-operatives.
These tax concessions are expected to provide major relief to the cooperative sector, as the income received by farmers will effectively become tax-free. With the implementation of the deduction mechanism, cooperative societies will also pay lower taxes on their profits. Until now, cooperatives had to distribute dividends from post-tax profits, but from the next financial year, this requirement will no longer apply.
The government believes this step will not only strengthen the financial position of the cooperative sector but also promote the expansion of cooperative institutions across the country.
Experts from the cooperative sector argue that profits earned by cooperaives are their own income generated through agricultural production and business activities involving farmers. Therefore, such income should be treated as agricultural income. The government has acknowledged this reasoning while introducing the tax relief measures.
Another major Budget announcement for the cooperative sector is the Rs 450 crore grant-in-aid for NCEL. The objective is to make NCEL competitive as an agricultural exporter. NCEL is one of the three new national cooperatives established by the government to ensure that the benefits of agricultural exports reach farmers directly.
As NCEL has to compete with established export companies, the government has decided to provide financial support to help it scale operations, create infrastructure and strengthen its presence in international markets.
Stakeholders in the cooperative sector believe that government support for NCEL will help farmers compete with large domestic traders and multinational companies in agricultural exports. Farmer cooperative societies from across the country are becoming members of NCEL, which will ensure that export earnings flow directly to farmers rather than intermediaries.