TAXATION OF AOP & BOI IN INDIA

TAXATION OF AOP/BOI

1. What do you mean by AOP & BOI?

Association of person: The Indian Income Tax Act, 1961, defines AOP (Association of person) as an integration of person for a mutual benefit or a common purpose. They may be individual or artificial person such as LLP or a Company. For example, two companies may join together and form an AOP for the achievement of a common objective.

Body of individual: BOI (Body of Individuals) is similar to an AOP and is also an accumulation of individuals who have come together with an objective of earning some income. For example, two individuals may get together and do something together to earn some income.

2. Difference between AOP & BOI?

An Association of Persons (AOP) and a Body of Individuals (BOI) convey two different arrangements of people. The fact that both of these expressions at time are used interchangeably doesn’t justify the respective interpretation. We need to stop interchanging the usage of these words as they represent two different compositions.

There are certain differences between an Association of Persons and Body of Individuals. A person in AOP could be a company or an individual person. The term person could include any association, body of individuals or company, irrespective of whether it is incorporated or not.

However, in a BOI, only individuals can join with the intention of earning some income. Hence, we can say, BOI only comprises of individuals, whereas an AOP could include legal entities.

3. Tax rates of AOP/ BOI?

The tax rates of AOP/ BOI are as follows:

Example:

KJ Associates is an Association of Person (AOP) consisting of two members, J and K, Shares of the members are: 60%(K) and 40%(J). Income of the AOP for the previous year 2024-25 is Rs. 10 lakhs.

Compute the tax liability of AOP and the members in the following situations, assuming K & J do not opt to pay tax as per Section 115BAC:

1. K & J have their income, other than income from AOP, amounting to Rs. 1 lakh and Rs. 2.7 lakhs.
2. K & J have their income, other than income from AOP, amounting to Rs. 1 lakh and Rs. 1.2 lakhs.

Solution:

Taxability of KJ Associates

1. As J’s income, other than that from AOP, exceeds the basic exemption limit, the AOP shall pay tax at maximum marginal rate of 42.744% (i.e. 30% + 37%(surcharge) + 4% (Health & Education cess)). Thus, the tax payable by AOP = Rs. 10,00,000 * 42.744% = Rs. 4,27,440
2. Since none of the members have income, other than income from AOP, exceeding the basic exemption limit, the AOP would be taxed at rates applicable to an individual. Therefore, the AOP’s tax liability will be = Rs. 1,12,500 + Rs. 4,500= Rs. 1,17,000.

Taxability of K & J

4. Interest & Remuneration to Member by AOP/ BOI?

Interest, salary, bonus, commission paid by AOP/ BOI to its members it shall be disallowed while computing PGBP.

NOTE:

If any interest is received from the member to whom any interest is paid, then only the Net Interest shall be disallowed.

5. Method of computing members share in income of AOP/ BOI?

Member share in AOP/ BOI can be computed as below:

Why we need to compute member share?

AOP/ BOI is already chargeable to tax so members share should be exempt in their individual hands but if AOP/ BOI paid taxes as per slab rates then members share in income of AOP/ BOI shall be included in total income of members & members will claim rebate u/s 86. If AOP/ BOI has paid taxes @ MMR then members share shall not be included in the total income of members.

6. Rebate in respect of Member’s share u/s 86?

Computation of total income & tax of member

7. Treatment of interest to Members?

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