Association of Persons vs Body of Individuals

Association of Persons vs Body of Individuals

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Association of Persons vs Body of Individuals

Association of Persons (AOP), according to the Income Tax Act, 1961, is the integration of two or more persons for a common purpose, and primarily with an intention to earn some income. A person, in AOP terminology, can be a company or a body of individuals, whether or not incorporated. An AOP can be formed without a contract.

Body of Individuals (BOI) is also similar to an Association of Persons. However, in a Body of Individuals, only two or more individuals can join with an intention to earn some income. Hence, Body of Individuals only contains individuals, while an Association of Persons could contain legal entities.

Taxation – Association of Persons & Body of Individuals

An AOP or BOI can be assessed in the following manners:

  • Where in case of AOP or BOI, the individual share of members are unknown or intermediate.
  • Where in case of AOP or BOI, the individual share of members are known or determinate.

Individual Shares of Members – Unknown

When the individual share of the members of AOP/BOI in the whole or part of its income are intermediate or unknown, tax shall be charged on the Total Income (exclusive of income taxable at special rate) of the AOP/BOI at the maximum marginal rate. If the income of any member of AOP  is chargeable at a rate which is higher than the marginal rate, the former will apply i.e. higher rate will be charged on the total income of the AOP.

Individual Shares of Members – Known

Where the total income of any member of AOP/BOI exceeds the Maximum Exemption Limit, the particular member with a higher income will be charged at the maximum marginal rate @ 30% plus surcharge @ 10.15% as the case may be, if applicable, along with Cess at the rate of 3% on his/her total income, exclusive of income taxable at special rate.

When none of the members receive total income exceeding maximum exception limit, either of the situations may emerge:

  • None of the members have total income exceeding maximum exemption limit, and none of the members are taxable at a rate more than maximum marginal rate-  The AOP in this case will pay income-tax on its total income at the slab rates which are same as applicable to an individual. The AOP will be gaining the benefit of basic exemption of Rs 2,50,000.
  • None of the members receive an income exceeding the maximum exemption limit, but one or more members are liable to tax rate of more than the maximum limit, which is possible only if the foreign company is also a member- On the particular portion of income of AOP which is related to the member, the tax rate applicable shall be rate of income-tax which is applicable to such member, and the balance total income of AOP shall be charged at the marginal rate.

Share of Income and Exemption Rules

  • Where the AOP/BOI pays tax at a higher or marginal rate, the share of profit of AOP/BOI will not be included in the Total Income of the members, and thereby will be exempted.
  • Where the AOP/BOI pays tax at the same rate as applicable to an individual, the resulting share of income shall be included into the Total Income of each of the members.

Post by Sreeram Viswanath

IndiaFilings is India's largest online compliance services platform dedicated to helping people start and grow their business, at an affordable cost. We were started in 2014 with the mission of making it easier for Entrepreneurs to start their business. We have since helped start and operate tens of thousands of businesses by offering a range of business services. Our aim is to help the entrepreneur on the legal and regulatory requirements, and be a partner throughout the business lifecycle, offering support at every stage to ensure the business remains compliant and continually growing.