Association of Persons (AOP) – Basic Concepts
An association of persons is a group of persons, either natural (human beings) or artificial (company, firm, and LLP etc.), who come together for the achievement of a common object including deriving income, profits, or gains.
Formation of AOP
AOP can be formed by formulating a deed that should mention objectives, date of formation, details of members including share of members in profits, its rules, and bylaws etc.
The value of stamp papers for deeds varies from state to state.
Registration of AOP
AOP registration is not compulsory under any law, but it can be registered with the registrar of society.
Applicable Laws
1. Income Tax Laws
2. Goods and Services Tax Laws
3. PF and ESIC Laws
4. Professional Tax Laws
Income Tax Laws
Introduction
An association of persons (AOP) or a body of individuals (BOI), whether incorporated or not, is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961. Hence, AOP or BOI is treated as a separate entity for the purpose of assessment under the Income-tax Act.
Here it is important to note that an AOP or BOI shall be deemed to be a person, whether or not, they were formed or established or incorporated with the object of deriving income, profits or gains.
Applicable Tax Rate for AOP
A. Normal Income-tax:
Tax liability of AOP/BOI depends on whether or not the share of members of AOP/BOI is known.
1) Where a share of members are known
Where individual shares of members in AOP/BOI are known then tax liability of AOP/BOI shall be determined as under:
a. Where the income of none of the members exceeds the maximum amount which is not chargeable to income-tax (i.e., basic exemption limit)
In this case income of AOP/BOI shall be taxable at a rate applicable to an individual.
But if the total income of any member of AOP/BOI is taxable at a rate higher than the maximum marginal rate then the income of AOP/BOI shall be chargeable to tax as follows:
- Portion of income attributable to such member shall be taxable at such a high rate as applicable to that member.
- Balance portion of income shall be taxable at the maximum marginal rate of tax (i.e., 30% plus surcharge and HEC as applicable).
b. Where the income of any member of AOP/BOI exceeds the maximum amount which is not chargeable to income-tax (i.e., basic exemption limit)
In this case income of AOP/BOI shall be taxable at a maximum marginal rate of tax (i.e., 30% plus surcharge and HEC as applicable).
But if the total income of any member of AOP/BOI is taxable at a rate higher than the maximum marginal rate then the income of AOP/BOI shall be chargeable to tax as follows:
- Portion of income attributable to such member shall be taxable at such a high rate as applicable to that member.
- Balance portion of income shall be taxable at the maximum marginal rate of tax (i.e., 30% plus surcharge and HEC as applicable).
2) Where the share of members are not known
In such a case income of the AOP/BOI shall be taxable at maximum marginal rate (i.e., 30% plus surcharge and HEC as applicable). But if the income of any member of AOP/BOI is taxable at a rate higher than the maximum marginal rate then the total income of AOP/BOI shall be chargeable to tax at such a higher rate of tax.
B. 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.
Surcharge: 15% of income tax, where total income exceeds one crore rupees.
Health and Education Cess: 4% of such income tax and surcharge.
Goods and Services Tax Laws
Threshold Limit: INR 20 Lakhs
Applicable GST Rate: 18%
ESIC Laws
Applicability: 10 (20 in Maharashtra) or more people are employed
PF Laws
Applicability: 20 or more people are employed
Professional Tax Laws
Applicability: Applicable in few states like Maharashtra
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