How to Compute Income Tax Income or Tax Liability of AOP/BOI

  1. Any salary, bonus, commission or remuneration paid by the AOP/BOI to his partners is not deductible by virtue of section 40(ba).
  2. Similarly, AOP/BOI paid any interest to his members (on loan, capital) is not deductible (section 40(ba)).
  3. Total Income of AOP/BOI is taxable at the normal rates applicable to Individual or maximum marginal rates or higher rate than maximum marginal rate.

Computation of taxable income

These are following steps: –

  1. First find out income under the different heads, ignoring exempted income under sections 10 to 13A.
  2. Make adjustments on accounts of brought forward losses / allowances.    
  3. And then make deductions under different sections like 80G, 80GGA, 80GGC, 80-I, 80-IA, 80IB, 80IC and 80JJA.

The total income is taxable income.

Determination of taxable income of members of AOP/BOI

  1. From the total income of the AOP/BOI any salary, bonus, commission or remuneration is to be deducted.
  2. The balance is to be apportioned among the members in the proportions in which they are entitled to share the income of AOP/BOI
  3. Where the amount apportioned above is profit, any interest, salary, bonus, commission or remuneration paid by the AOP/BOI in respect of previous year is to be added and the resultant amount is to be treated as members share.
  4. Where the amount apportioned above is a loss, any interest, salary, bonus, commission or remuneration paid by the AOP/BOI in respect of previous year will be adjusted against such apportioned loss the resultant sum is to be treated as members share.
  5. For the purpose of assessment, the share of a member in the income or loss of the AOP/BOI is to be apportioned under various heads of income

Computation of tax of members

The share of a member in the income or the AOP/BOI is treated in three ways, depending upon whether the AOP/BOI is chargeable to tax at the maximum marginal rates or at the normal rates or is not chargeable to tax. These are:

  1. Where the AOP/BOI is chargeable to tax at the maximum marginal rates or at a rate higher than the maximum marginal rates, the share of the members shall not be included in his total income at all.
  2. Where the AOP/BOI is chargeable to tax at the normal rate the share of a member shall be included in his total income, but a rebate shall be given on the same u/s 86.
  3. Where no income tax is chargeable on the total income of AOP/BOI, the shares of the members shall be fully chargeable to tax as part of his total income and no rebate shall be given thereon. Thus, where an AOP/BOI is chargeable to tax at the normal rate, but has income below taxable limit so that no tax is chargeable on the total income of AOP/BOP, member in such AOP/BOI shall be fully taxable in his own assessment without any tax rebate.

One thought on “How to Compute Income Tax Income or Tax Liability of AOP/BOI

  1. Dear sir/madam i want to get how to calculate the taxable income of AOP/BOI ? The above mentioned details is given by you good but i have lots of problems to understand it now i want to request u please send this information in an easy way and add some example with it to make it so easy to me at my Email.i will wait for ur reply
    Thanks
    with regards
    sudershan malik

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