ASSESSMENT OF AOP OR BOI (Sec.

86)

The assessment of the members of AOP or BOI depends on whether the AOP or BOI is
chargeable to tax at the maximum marginal rate or at slab rate or is not chargeable to tax at
all.
Tax-treatment in the three cases is discussed below:
(i) Where AOP or BOI is chargeable to tax at a maximum marginal rate or any higher rate,
the share of profit of a member is exempt from tax. Thus, it is not to be included in the total
income of the member [Sec. 86(a)].
(ii) Where AOP or BOI is not taxed at the maximum marginal rate but it is taxed at slab
rates, the share of profit of a member from AOP or BOI is to be included in the total income
of the member only for rate purposes. The member is entitled to a rebate of tax on the entire
share of profit at the average rate of tax applicable to total income. [Sec. 86(b)].
(iii) Where AOP or BOI is not chargeable to tax at all, the share of profit of a member from
AOP or BOI is included in his total income and he will pay tax on it. He is not entitled to any
rebate of tax on such profits [Proviso to Sec. 86(b)].

The rate of 30.9% charged is the maximum marginal rate of tax and if such rate is applied
then the share of profit of the member is exempt from tax

The procedure for assessment of AOP is as given below. The method of assessment depends
on whether the shares of the members are determinate or indeterminate, Details are as given
below:

 Compute the total income under the different heads i.e. income from house
property, profits or gains of business or profession, capital gains, and
income from other sources, ignoring the prescribed incomes exemptions.
Thus, "gross total income" is obtained.
 From the gross total income, prescribed deductions under Section
80A of Chapter VIA are made. The balance amount is the taxable income
 Interest paid by the AOP/BOI to a member is not allowed as deduction
from the income of the AOP/BOI [Section 40(ba) of the Act].
 Any salary, bonus, commission or remuneration (by whatever name
called), paid by the AOP/BOI to a member is not allowed as deduction
from the income of the AOP/BOI.

Where shares of the members are determinate (under Section 67A)

The total income of an AOP/BOI wherein the shares of the members are determinate and
known shall be computed as follows :

 The total income of the AOP/BOI is taxable, either at the rates applicable to an
individual, or at the maximum marginal rate or at a rate higher than maximum
marginal rate. The tax incidence on AOP/BOI depends upon whether or not

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 the individual shares of members in the whole or in any part of the income of
the AOP/BOI are determinate:-
o Any interest, salary, bonus or remuneration paid to any member
of AOP shall be deducted from their total income.

o The balance income (either profit or loss) shall be apportioned

to the members, to which salary, interest, etc. shall be added.
This income shall be treated as member's share in income of
AOP.

o The member's share so ascertained shall be apportioned under

various heads of income in the same manner as it is done for
AOP.

o Any interest paid by member on capital borrowings for

investment purposes in AOP shall be deducted from member's
share while computing his income under the head profits and
gains of business/profession.

The tax is chargeable on the total income of an AOP/BOI at the same rate as is applicable in
the case of an individual.

But, when the total income of any member of the AOP/BOI for the previous year (excluding
his share from the AOP/BOI) exceeds the maximum amount which is not chargeable to tax
in the case of that member under the Finance Act of the relevant year, tax is charged on the
total income of the AOP/BOI at the maximum marginal rate (i.e. the highest slab applicable
to an individual).

And, where, the total income of any member of the AOB/BOI (whether or not it exceeds the
maximum amount not chargeable to tax in the case of an individual) is chargeable to tax at a
rate higher than the maximum marginal rate, tax shall be charged on that portion of the total
income of the AOP/BOI which is relatable to such member at a higher rate and the balance
of the total income of the AOP/BOI shall be taxed at the maximum marginal rate.

Where shares of members are indeterminate(under Section 167B)

The tax is charged on the total income of the AOP/BOI at the maximum marginal rate, which
is the rate of tax (including surcharge, if any) applicable in relation to the highest slab of
income in the case of an individual as specified in the Finance Act of the relevant year.
However when any member is charged at a higher rate than maximum marginal rate, the
income shall be taxed at a higher rate.

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