Section 65 of the Income-tax Act, 2025 — Interpretation for Section 64 (Business Reorganisation of Co-operative Banks)

In plain language

What Section 65 actually does

Section 65 of the Income-tax Act, 2025 is a pure definition (interpretation) clause. It does not, by itself, allow any deduction or impose any tax. Its only job is to tell you the exact meaning of the technical terms used in Section 64, which is the operative provision that governs how business deductions are shared when a co-operative bank is reorganised — through amalgamation, demerger, or conversion into a banking company. Both sections sit in the "Profits and gains of business or profession" part of the Act and take effect for tax years beginning on or after 1 April 2026.

This scheme is the 2025 Act's re-drafting of the old Section 44DB of the Income-tax Act, 1961. If you have ever worked with 44DB, Sections 64–65 are the same idea, cleaned up and split into an operative section plus a definitions section.

Why an "interpretation" section is needed

Section 64 uses several very specific terms — "predecessor co-operative bank", "successor co-operative bank", "business reorganisation", "amalgamation", "demerger", "conversion". If these were left undefined, banks and the tax department could argue endlessly about whether a particular merger even qualifies. Section 65 removes that ambiguity by fixing each meaning in law.

• Business reorganisation — the amalgamation or demerger of a co-operative bank, or the conversion of a primary co-operative bank into a banking company.
• Predecessor co-operative bank — the bank that ceases to exist or hands over its undertaking: i.e. the amalgamating bank, the demerged bank, or the primary co-operative bank that is converted.
• Successor co-operative bank — the bank that takes over: the amalgamated bank or the resulting bank (in a conversion, the converted banking company).
• Amalgamation — a genuine merger where the assets and liabilities pass to the amalgamated bank and generally not less than 75% of the members/shareholders of the amalgamating bank become members/shareholders of the amalgamated bank.
• Demerger — transfer of an undertaking to a resulting bank on a going-concern basis, at book values, with shareholders holding at least the prescribed proportion continuing in the resulting bank.
• Conversion — a primary (urban) co-operative bank turning into a banking company, in line with the RBI circular dated 27 September 2018.

Who it applies to

This is a niche, sector-specific provision. It matters to:

• Co-operative banks (state, district central, urban/primary co-operative banks) that merge, split, or convert.
• The successor entity that inherits the business and wants to keep claiming deductions the predecessor was mid-way through.
• Auditors, tax consultants and CFOs of such banks who must compute and apportion deductions in the reorganisation year.

An ordinary salaried taxpayer, a proprietor, or a normal company will never use Section 65. Do not confuse it with the clubbing of income provisions (spouse/minor child income) that carried the number "Section 64" under the 1961 Act — under the 2025 Act those live in different sections.

How Section 65 interacts with Section 64 and the deduction sections

Section 64 says that in the tax year of the reorganisation, deductions the predecessor was enjoying are split between the predecessor and the successor on a day-count basis, so that neither gets a double benefit and the total remains what the predecessor alone would have claimed. It then lets the successor continue the unexpired deductions in later years as if no reorganisation had happened. The specific deductions typically covered are those under Section 33 (depreciation / capital-linked allowances), Section 44 and Section 52(1) categories carried into the 2025 Act. Section 65 simply supplies the vocabulary that makes those Section 64 rules workable.

Practical implications

• A reorganisation does not destroy the tax benefits the predecessor was carrying — continuity is preserved for the successor.
• The 75% member/shareholder test is critical. If a merger fails it, the transaction is not an "amalgamation" for this purpose and the smooth pass-through of deductions can be lost.
• The apportionment is time-based (number of days), so the exact date of reorganisation drives the split — get the effective date documented precisely.
• Because the wording mirrors old Section 44DB, existing CBDT clarifications and case law on 44DB remain useful guidance, though one should read the new text on its own terms.