Tax Calculation of AOP (Association of Persons). How to Calculate Tax of AOP ? Taxation is such a point where every body needs to take the reference of the same with many other points and then decide the taxability of the person. Association of person is such kind of association where the assessee can be a member and earn income and get it taxed in the hands of AOP. I have explained here how the tax is calculated on AOP, taxation on the part of members and other relevant points.
Tax Calculation of AOP (Association of Persons)
Meaning of Association of Persons:
Association of Person basically means two or more person coming together and forming an association whether the objective or goal is to achieve the same object. Here the word person includes any person it may be company, HUF, individual, etc.
Computation of Income:
The income of the AOP under various heads such as income from house property, profits and gain from business, capital gains, income from other sources. From that various adjustments need to be made. Salary or remuneration or any bonus paid or by whatever name called paid to the members would be disallowed and will be added back to the statement. Interest paid to the members for any loan or capital will also be disallowed.
Tax calculation of AOP:
There can be two situations where the tax can be calculated in two different ways. They are:-
- Where the share of members is determinable.
- Where the shares of members is not determinable.
First we will understand when the share of the members is determinable. Under this situation also there are two possibilities. They are :-
- No member of AOP has income exceeding the basic exemption limit – Where is no member having income chargeable to tax than income of AOP will be taxed as it is taxed in case of individual.
- If any member of AOP has income exceeding the basic exemption limit – In case where any of the member of AOP has income chargeable to tax than the income of AOP will be taxed at maximum marginal rate.
- If any of the members of the AOP have income chargeable at the rate of maximum marginal rate, tax should be calculated as follows:
- Income of such member in the AOP should be calculated by taking such higher rate as the member has &
- The other balancing income of the AOP shall be taxable at the maximum marginal rate.
Secondly where the shares of the members are indeterminable. In these case the total income of the AOP shall be taxed at the maximum marginal rate. In case of any of the members has income chargeable to tax at a higher rate than the maximum marginal rate than income of AOP shall be taxed at such higher rate and not maximum marginal rate.
Must read –
- Income Tax – Sources, Basics & Important Concepts
- TDS on Non residents – Section 195
- E-File Income Tax Return Online 2016-17
- Taxation of NRIs – Complete Details
Taxation of Members of AOP:
There can be three options where the taxation of members of AOP can be calculated:
- Where the member of AOP is falling under the tax at maximum marginal rate or such higher rate than the income of the member shall not be included in the total income.
- Where the member of AOP is falling under the tax at normal tax applicable to individual than the tax would be calculated on such income and included in the total income but the rebate of the same would be available from the total income.
- Where the income of AOP is not chargeable to tax than the income of members would be chargeable to tax and would be liable to pay tax.