Section 65 Income Tax Act 2025: What Is Co-operative Bank Reorganisation?
Section 65 defines the banking entities and transactions that qualify for the special deduction-allocation rules under Section 64 of the Income-tax Act, 2025. It explains when a merger, demerger or conversion of a co-operative bank meets the statutory conditions.
What does Section 65 cover?
Section 65 supplies definitions for the application of Section 64, which addresses computation and allocation of specified deductions when co-operative banks undergo qualifying business reorganisation. Whether an arrangement is called a merger or a demerger in commercial documents is not enough: the statutory conditions must be satisfied.
Definitions under Section 65
1. Amalgamation - Section 65(a)
A merger of an amalgamating co-operative bank into an amalgamated co-operative bank is an amalgamation only if the prescribed continuity requirements are met:
- All assets and liabilities of the merging bank immediately before merger transfer to the amalgamated bank, subject to the statutory exclusion for assets transferred by sale or distribution on winding up.
- Members holding at least 75% of voting rights in the amalgamating bank become members of the amalgamated bank.
- Shareholders holding at least 75% by value of shares in the amalgamating bank become shareholders of the amalgamated bank, excluding specified pre-existing holdings of the amalgamated bank, its nominee or subsidiary.
2. Amalgamating co-operative bank - Section 65(b)
A co-operative bank merging into another co-operative bank, or each co-operative bank combining to form a new co-operative bank.
3. Amalgamated co-operative bank - Section 65(c)
The co-operative bank into which one or more banks merge, or a new co-operative bank formed by the merger of two or more co-operative banks.
4. Business reorganisation - Section 65(d)
Reorganisation involving amalgamation or demerger of a co-operative bank, or conversion of a primary co-operative bank.
5. Conversion - Section 65(e)
Transition of a primary co-operative bank into a banking company under the Reserve Bank of India scheme referred to in RBI circular DCBR.CO.LS.PCB.Cir.No.5/07.01.000/2018-19, dated 27 September 2018.
6. Converted banking company - Section 65(f)
A banking company formed through the conversion of a primary co-operative bank.
7. Demerger - Section 65(g)
Transfer of one or more undertakings of a demerged co-operative bank to a resulting co-operative bank, subject to all of these conditions:
- All assets and liabilities of the transferred undertaking become those of the resulting bank.
- Transfer is recorded at the book values immediately preceding the transfer, excluding changes arising from revaluation.
- The resulting bank issues membership to members of the demerged bank on a proportionate basis.
- Shareholders holding at least 75% by value of the relevant shares in the demerged bank become shareholders of the resulting bank, subject to the statutory exclusions and conditions.
- The undertaking transfers on a going-concern basis.
- The transfer complies with Central Government-notified conditions designed to ensure genuine business purposes.
8. Demerged co-operative bank - Section 65(h)
The co-operative bank whose undertaking is transferred to a resulting bank pursuant to a demerger.
9. Predecessor co-operative bank - Section 65(i)
The amalgamating bank, demerged bank, or primary co-operative bank succeeded as a result of conversion, as applicable.
10. Primary co-operative bank - Section 65(j)
Has the meaning assigned by Section 5(ccv) of the Banking Regulation Act, 1949. The banking-law definition must be consulted rather than assuming every co-operative credit institution qualifies.
11. Resulting co-operative bank - Section 65(k)
One or more co-operative banks receiving the undertaking in a demerger, or a co-operative bank formed as a result of the demerger.
12. Successor co-operative bank - Section 65(l)
The amalgamated co-operative bank or resulting co-operative bank. In a conversion, the converted banking company is separately identified for purposes of Section 64.
Which conditions matter most?
For an amalgamation, test asset-and-liability continuity and both 75% membership voting-right and share-value thresholds. For a demerger, verify transfer of the undertaking at book values, proportionate membership, the 75% share-value continuity condition, going-concern status and applicable government-notified conditions. For conversion, check the relevant RBI framework and banking-law status.
Illustrations
Example 1: Merger
Bank A merges into Bank B. Members representing 80% of Bank A's voting rights become members of Bank B, but shareholders representing only 70% of the relevant share value become shareholders of Bank B. The share-value continuity test is not met, so the merger does not satisfy the Section 65(a) definition merely because the voting-right threshold is met.
Example 2: Demerger
Bank X transfers a complete undertaking to Bank Y at its recorded book values, with proportional membership, qualifying shareholder continuity, going-concern transfer and compliance with notified conditions. Such a transaction may qualify as a demerger under Section 65(g), subject to verification of every statutory condition.
Frequently asked questions
Does Section 65 itself allow a deduction?
No. Section 65 defines terms for Section 64. The deduction computation and allocation rules are in Section 64.
Is 75% continuity required for every reorganisation?
The specific 75% tests differ between amalgamation and demerger. Conversion is separately defined by reference to the RBI scheme.
Can an ordinary co-operative society use these provisions?
Not merely because it is registered as a co-operative society. The entity and transaction must satisfy the applicable statutory banking definitions and requirements.
What is the corresponding provision under the 1961 Act?
The definitions broadly correspond to the explanation to Section 44DB of the Income-tax Act, 1961. The precise wording and applicability should be checked for the relevant period.
Statutory text and official resources
For authoritative interpretation, refer to the enacted legislation, amendments, relevant notifications and banking regulations.
Updated: 10 November 2026. This article is general legal information, not a substitute for advice on a particular transaction.