- Any salary, bonus, commission or remuneration paid by the AOP/BOI to his partners is not deductible by virtue of section 40(ba).
- Similarly, AOP/BOI paid any interest to his members (on loan, capital) is not deductible (section 40(ba)).
- 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: –
- First find out income under the different heads, ignoring exempted income under sections 10 to 13A.
- Make adjustments on accounts of brought forward losses / allowances.
- 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
- From the total income of the AOP/BOI any salary, bonus, commission or remuneration is to be deducted.
- The balance is to be apportioned among the members in the proportions in which they are entitled to share the income of AOP/BOI
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.