ALL ABOUT ASSOCIATION OF PERSONS (‘AOP’) OR BODY OF INDIVIDUALS (‘BOI’)
A Birds Eye View
Introduction:
Association is Persons (AOP) means a group of people who comes together to achieve a common objective with same mind sets. Members in the AOP can be natural (Human beings) or artificial (Artificial Persons-e.g. company, LLP, etc.)
Body of Individuals (BOI) means a group of INDIVIDUALS (Human Beings) who come together to achieve a common objective.
Hence the only difference between the AOP and BOI is that its members composition. AOP/BOI can be formed by simply entering into a deed which contains objectives, names of members, share of members in profits, date of formation, its rules, byelaws, frequency of meetings of members or managing persons, powers of the management, the amount of capital introduced by the members if any etc., The deed can be registered with the registrar of society by paying the applicable fees.
There is no separate governing body for the both the AOP and BOI, they are self-driven with natural law of justice, customs and cultures that a person usually follows in the society.
Since there is no governing body, Income tax Act 1961 included AOP or BOI under Person definition in section 2(31) for the purpose of taxing such AOP/BOI.
Income tax Implication:
Now that we have the basic understanding of AOP or BOI let us understanding their implication under Income tax 1961
Since AOP/BOI is recognized as person under section 2(31) of the Income Tax Act 1961 it has to be assessed to tax separately hence there need a of Permanent Account Number (PAN) to be applied first for the AOP/BOI. Also, the PAN is required for operating a bank account.
To get PAN the Management of AOP/BOI shall fill Application for PAN i.e. in Form 49A and shall pay the prescribed fee along with application and shall submit such application along with only a Notarized Deed.
Now the management will carry on the business of AOP/BOI or work towards the common objective for which it was formed. AOP/BOI may or may not earn profit/loss as a result of the operations. In case the AOP / BOI is formed with an objective of carrying business and earning profits let us evaluate the taxation of such profit or loss.
Tax rate
Tax rate to be applied on the taxable income to AOP/BOI depends primarily on whether the share of the members in the profits of AOP/BOI is specified in the deed or not.
Please Refer the chart in the next page for rate of tax for AOP/BOI
A: Share of the members in the Profit of AOP/BOI is Specified in the deed.
B: Share of the members in the Profit of AOP/BOI is NOT specified in the deed
Applicability of Alternate Minimum Tax:
Tax payable by AOP/BOI cannot be less than 18.5 per cent (increased by Surcharge and HEC) of “adjusted total income” as per section 115JC. However, provisions related to alternate minimum tax shall not apply to an AOP or BOI whose adjusted total income does not exceed twenty lakh rupees.
Tax Audit Applicability:
Tax audit Provisions applicable in general shall mutatis mutandis apply for AOP/BOI, the Audit report shall be in form 3CB-CD.
Tax Relief for the Members for their share of income from AOP/BOI:
Section 86 of the Income tax Act 1961 provides relief from payment of tax on the share of income received from AOP/BOI if the AOP/BOI pays tax on its income at Maximum Marginal Rate (MMR-30%+SC+Cess)
Implication of Other Acts on AOP/BOI:
The following Acts shall apply to AOP/BOI along with Income tax Act 1961.
1. CENTRAL GOODS AND SERVICE TAX ACT 2017 (CGST ACT), ESPECTIVE SGST ACT 2017
2. PROFESSIONAL TAX ACT OF RESPECTIVE STATE
3. THE EMPLOYEES’ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952
4. THE EMPLOYEES’ STATE INSURANCE ACT, 1948
ANY OTHER ACT/S
Note to readers:
Information in this blog is intended to provide only a general outline of the subjects covered It should not be regarded as comprehensive or sufficient for making decisions, nor should it be used in place of professional advice.
Nitin Jogad & Associates| Chartered Accountants accept no responsibility for loss arising from any action taken or not taken by anyone using this blog.
