Co-operative Bank Amalgamation, Demerger and Conversion: Depreciation and Deduction Split (Income Tax Act 2025)

When a co-operative bank is merged, demerged or converted into a banking company during a tax year, section 64 of the Income Tax Act 2025 decides who gets which deductions. The deductions covered are depreciation (section 33), amortisation of preliminary expenses (section 44) and amortisation of amalgamation or demerger costs and voluntary retirement payments (section 52(1), Table Sl. No. 1 or 2). The year's deduction is split by number of days between the old bank and the new one. Section 65 defines the terms and the conditions a merger or demerger must meet.

This rule is narrow. It applies to co-operative banks only, not to companies, firms or other co-operative societies. The text below follows the Act as amended by the Finance Act, 2026 and was last reviewed on 10 November 2026.

Who does section 64 apply to?

Section 64(1) applies where a "business reorganisation" of a co-operative bank has taken place during the tax year. Section 65(d) defines business reorganisation as one of three events:

• the amalgamation of co-operative banks (one bank merges into another, or two or more merge to form a new one);
• the demerger of a co-operative bank (an undertaking is transferred to a resulting co-operative bank);
• the conversion of a primary co-operative bank into a banking company.

Section 65(i) calls the old bank in each case the predecessor co-operative bank. Section 65(l) calls the bank that takes over the successor co-operative bank: the amalgamated bank or the resulting bank. In a conversion, the successor is the converted banking company (section 65(f)).

Event	Predecessor	Successor
Amalgamation	Amalgamating co-operative bank	Amalgamated co-operative bank
Demerger	Demerged co-operative bank	Resulting co-operative bank
Conversion	Primary co-operative bank	Converted banking company

Which deductions does section 64 split?

Three provisions are named in section 64(1):

• Section 33: depreciation on buildings, machinery, plant, furniture and specified intangible assets used in the business.
• Section 44: preliminary expenses (feasibility and project reports, surveys, legal charges and similar items), deducted at one-fifth a year for five successive tax years.
• Section 52(1), Table Sl. No. 1 or 2: expenditure on amalgamation or demerger of an undertaking by an Indian company, and amounts paid to employees under a voluntary retirement scheme, each allowed in equal instalments over five tax years.

Other deductions are outside section 64. The Sl. No. 3 and 4 items in section 52(1) (spectrum and licence fees) are not mentioned in it.

How is the deduction split between the old and the new bank?

Section 64(2) uses four letters. Define them once and the rule is simple:

• A: the deduction the predecessor bank would have got if the reorganisation had not happened.
• B: days from the first day of the tax year up to the day before the reorganisation date.
• C: total days in that tax year.
• D: days from the date of reorganisation to the last day of the tax year, both days counted.

The predecessor bank gets the share of A for the days B out of C (A x B / C). The successor bank or converted banking company gets the share for the days D out of C (A x D / C). Because B + D = C, the two shares add up to exactly A. Nothing is lost and nothing is claimed twice.

Worked example 1: depreciation split on an amalgamation

Assumptions: tax year 2026-27 (365 days). A co-operative bank merges into another co-operative bank on 1 October 2026 and the merger satisfies section 65(a). Depreciation under section 33 that the amalgamating bank would have got for the year had it carried on, is Rs 3,65,000 (A). The figure is illustrative.

Step	Working	Result
B: 1 April to 30 September	30 + 31 + 30 + 31 + 31 + 30	183 days
D: 1 October to 31 March	31 + 30 + 31 + 31 + 28 + 31	182 days
C	183 + 182	365 days
Predecessor (amalgamating bank)	3,65,000 x 183 / 365	Rs 1,83,000
Successor (amalgamated bank)	3,65,000 x 182 / 365	Rs 1,82,000
Check	1,83,000 + 1,82,000	Rs 3,65,000 = A

Worked example 2: preliminary expense instalment on a conversion

Assumptions: tax year 2026-27 (365 days). A primary co-operative bank is converted into a banking company on 1 January 2027 under the RBI scheme referred to in section 65(e). It is in the middle of writing off preliminary expenses under section 44, and the one-fifth instalment for the year (A) is Rs 73,000.

Step	Working	Result
B: 1 April to 31 December	183 + 31 + 30 + 31	275 days
D: 1 January to 31 March	31 + 28 + 31	90 days
Predecessor (primary co-operative bank)	73,000 x 275 / 365	Rs 55,000
Successor (converted banking company)	73,000 x 90 / 365	Rs 18,000
Check	55,000 + 18,000	Rs 73,000 = A

What happens in the years after the reorganisation?

Section 64(3) deals with deductions that run for several years. If an undertaking that was entitled to a deduction under section 44 or section 52(1) (Sl. No. 1 or 2) is transferred to the successor bank or converted banking company before the period in those sections runs out, the successor continues the deduction in later tax years as though the predecessor had never changed. The five-year clock is not restarted.

Section 64(3) speaks only of sections 44 and 52(1). Depreciation is handled through the day split in section 64(2).

What conditions must a merger or demerger meet under section 65?

Section 64 helps only where the event fits the definitions in section 65.

Test	Amalgamation (section 65(a))	Demerger (section 65(g))
Assets and liabilities	All of them become those of the amalgamated bank (assets sold or distributed on winding up to that bank are excluded)	All assets and liabilities of the undertaking become those of the resulting bank
Members	Members holding 75% or more of voting rights in the amalgamating bank become members of the amalgamated bank	The resulting bank issues its membership to the members of the demerged bank on a proportionate basis
Shareholders	Shareholders holding 75% or more in value of shares become shareholders of the amalgamated bank	Shareholders holding 75% or more in value of shares become shareholders of the resulting bank, not as a result of acquiring the undertaking's assets
Values	Not specified	Transfer at book values immediately before the transfer (revaluation changes aside)
Other	Not specified	Going concern basis; transfer must follow conditions notified by the Central Government for genuine business purposes

For the 75% shareholder tests, shares already held by the receiving bank, its nominee or its subsidiary immediately before the merger or transfer are left out of the count. A conversion qualifies only if it is under the Reserve Bank of India scheme notified by its circular dated 27 September 2018, as cited in section 65(e).

How are mergers and demergers of ordinary companies taxed?

Sections 64 and 65 cover co-operative banks only. For companies, three other provisions decide whether a merger or demerger is tax neutral.

• Definition: section 2(6) defines "amalgamation" (all property and liabilities pass to the amalgamated company, and holders of at least three-fourths in value of shares in the amalgamating company become its shareholders). Section 2(35) defines "demerger" as a transfer under a scheme of arrangement under sections 230 to 232 of the Companies Act, 2013, at book values, with the resulting company issuing shares proportionately to the demerged company's shareholders.
• Capital gains: under section 70(1)(e) the transfer of a capital asset by the amalgamating company to an Indian amalgamated company is not a transfer for section 67. Section 70(1)(f) does the same for a shareholder who receives shares of an Indian amalgamated company, and section 70(1)(j) and (k) cover the asset transfer and share issue in a demerger to an Indian resulting company.
• Losses: section 116(1) lets an amalgamated company take over the accumulated loss and unabsorbed depreciation of the amalgamating company only for the listed cases (an industrial undertaking, ship or hotel; certain banks; public sector companies). Section 116(4) adds conditions: the amalgamating company ran the business for three or more years and held three-fourths of its fixed assets' book value for two years; the amalgamated company holds three-fourths of those assets and continues the business for five years. Breaching them makes the loss set-off taxable income in the year of default (section 116(5)).

In a demerger, section 116(6) carries forward loss directly relatable to the transferred undertaking in the resulting company. Loss not directly relatable is split in the ratio of assets retained and transferred. For amalgamations on or after 1 April 2025, section 116(12) caps the carry-forward of the transferred loss at eight tax years from the year it was first computed for the original predecessor entity.

Costs of the merger or demerger itself are deducted in five equal yearly instalments under section 52(1), Table Sl. No. 1, starting in the tax year of the event.

Real-life examples

Ravi, accountant at a merging bank. Ravi's bank is amalgamated into a larger co-operative bank on 1 October. He closes the books and finds the section 33 depreciation for the whole year would have been Rs 3,65,000. He claims only the days up to 30 September, Rs 1,83,000, in the final return of the old bank. The larger bank claims the remaining Rs 1,82,000 on the same assets. If he claimed the full Rs 3,65,000, the same depreciation would be deducted twice across the two banks.

Meena, CA for a resulting co-operative bank. A bank demerges one of its undertakings into a new co-operative bank. The undertaking had two years of a five-year section 44 write-off left to run. Meena confirms the demerger meets every test in section 65(g), including the Central Government's notified conditions. She then records that, under section 64(3), the new bank takes up the remaining instalments in later tax years. She also splits the year of the demerger by days.

Common mistakes

• Applying section 64 to a company or a society. It covers co-operative banks and their conversion to a banking company, nothing else.
• Counting the reorganisation date twice. B ends on the day before the date, D starts on the date. Run the day-count and check that B + D equals the days in the year.
• Forgetting that A is a notional figure. It is the deduction the predecessor would have had if no reorganisation took place, not what either bank actually books.
• Assuming the five-year period restarts. Under section 64(3) the successor continues the remaining period for section 44 and section 52(1) items.
• Skipping the section 65 tests. A merger or demerger that misses the 75% conditions or the notified demerger conditions is not an "amalgamation" or "demerger" for section 64.

Quick reference

Item	Provision
Predecessor's deduction for the year	A x B / C (section 64(2)(i))
Successor's deduction for the year	A x D / C (section 64(2)(ii))
Later years (sections 44 and 52(1) Sl. No. 1, 2)	Successor continues as if no reorganisation (section 64(3))
Shareholder and voting threshold	75% or more (section 65(a), (g))

Where this is in the Act

• Section 64: special provision for computing deductions in business reorganisation of co-operative banks.
• Section 65: definitions of amalgamation, demerger, conversion, predecessor and successor.
• Section 33: depreciation. Section 44: amortisation of preliminary expenses. Section 52(1), Table Sl. No. 1 and 2: amalgamation, demerger and voluntary retirement expenditure.

For a CA who looks after a co-operative bank or a cluster of them, the hard part is the paperwork around the date of reorganisation: asset registers, deduction schedules, and which entity files what. Finexo's practice management software keeps client tasks and deadlines in one place. It does not compute the split for you. If a related deduction question comes up, such as TDS on rent, the other guides in this series cover it.

This article is general information on the Act and not tax advice. Confirm the facts of an actual reorganisation against the scheme and the official text.