TAXATION OF AOP AND BOI

“AOP means two or more person  who join for a common purpose with a view to earn an income that is two or more persons come together to carry on a business but do not constitute a partnership, they may be assessed as an Association of persons. BOI   means a conglomeration of individuals who carry on some activity with the objective of earning some income. It would consist only of individuals.

For further details you can refer to our previous article : ASSOCIATION OF PERSONS & BODY OF INDIVIDUALS

In this article we will discuss  about taxation of such entities

The tax incidence of an AOP/BOI depends on whether (or not) shares of members are determinate.

1. Where shares are determinate – Tax liability will be determined as under:

• If none of members of AOP/BOI has income in excess of the maximum amount which is not chargeable to tax –

In this case, tax is chargeable on the income of AOP/BOI at the same rate as is applicable in the case of an individual

• If any member of AOP/BOI has income in excess of the maximum amount which is not chargeable to tax-

In this case, income will be chargeable to tax at the maximum marginal rate (35.535% for A.Y 2018-19 and 35.88% for A.Y 2019-20)

• If total income of any member of AOP/BOI is chargeable to tax at a rate higher than the maximum marginal rate ( for instance in case when a foreign company is partner)-

In such case, tax will be charged as follows:

1. On that portion of the total income of AOP or BOI which is relatable to the share of such member, at such higher rate and
2. The balance of the total income shall be taxed at the maximum marginal rate (35.535% for A.Y 2018-19 and 35.88% for A.Y 2019- 20)

2. Where shares are indeterminate – Tax liability will be determined as under:

• Tax is charged on the total income of the AOP/BOI at the maximum marginal rate .
• However if any member is charged at a rate higher than maximum marginal rate , the income shall be taxed at such higher rate.

NOTE: The individual shares of the member of the AOP/BOI in the whole or any part of the income of AOP/BOI will be deemed to be indeterminate, if such shares are indeterminate or unknown on the date of formation of the AOP/BOI or at any time thereafter.

TO SUMMARIZE:

AOP/BOI	When none of the member is  a foreign company		When one(or more) of the member is a foreign company
	Tax incidence on AOP/BOI	Tax incidence on members	Tax incidence on AOP/BOI	Tax incidence on members
A. When shares of members are determinate
A.1 When none of the members has income exceeding the maximum amount not chargeable to tax	Income is taxable as if AOP/BOI is an individual	Share of members shall be included in taxable income of members and if AOP/BOI has paid tax, then the members can claim rebate u/s  86	Share of company shall be taxable at the rate applicable to the company and the remaining income is taxable at the maximum marginal rate	Share of members is not taxable
A.2 When one or more of the members has income exceeding the maximum amount not chargeable to tax	Income will be taxable at the maximum marginal rate	Share of members is not taxable	As given above	As given above
B. When shares of members are indeterminate	As given above	As given above	At the rate applicable to the company member	As given above

NOTE : Maximum marginal rate is 35.535% for A.Y 2018-19 and 35.88%      for A.Y 2019- 20

By

Maitri Badani (Article Assistant)