Income Tax 2025

Appearance

Share of member of association of persons or body of individuals in income of association or body. ​

310(1) ​

Income-tax shall not be payable by an assessee (who is a member of an association of persons or body of individuals) in respect of his share in the income of the association of persons or body of individuals computed in the manner provided in section 309, except in a case referred to in sub-section (2).

310(2) ​

Where no income-tax is chargeable on the total income of the association of persons or body of individuals, the share of a member computed as aforesaid shall be chargeable to tax as part of his total income.

310(3) ​

Where no income-tax is payable by an assessee under sub-section (1),––

  • (a) if the association of persons or body of individuals is chargeable to tax on its total income at the maximum marginal rate or any higher rate under any of the provisions of this Act, the share of a member computed as aforesaid shall not be included in his total income;
  • (b) in any other case, the share of a member computed as aforesaid shall form part of his total income.
Explanation

Section Summary: ​

This section deals with the taxation of a member's share in the income of an Association of Persons (AOP) or Body of Individuals (BOI). It clarifies when the member's share is taxable in their hands and when it is exempt, depending on whether the AOP or BOI itself is taxed.

Key Changes: ​

  1. Clarification of Taxability: The section explicitly states that a member's share in the income of an AOP or BOI is not taxable in their hands if the AOP/BOI is already taxed on its total income. However, if the AOP/BOI is not taxed, the member's share becomes taxable as part of their total income.
  2. Maximum Marginal Rate Exception: If the AOP/BOI is taxed at the maximum marginal rate or a higher rate, the member's share is excluded from their total income, even if the AOP/BOI is taxed.

Practical Implications: ​

  1. For Members of AOP/BOI:
    • If the AOP/BOI is taxed, members do not need to include their share of income in their personal tax returns.
    • If the AOP/BOI is not taxed, members must include their share of income in their total income and pay tax accordingly.
  2. For AOP/BOI:
    • The AOP/BOI must determine whether it is liable to pay tax on its total income. If it is not taxed, the responsibility shifts to the members to report and pay tax on their share.

Critical Concepts: ​

  1. Association of Persons (AOP) and Body of Individuals (BOI): These are entities formed by two or more individuals or entities to carry out a common purpose, such as business or investment.
  2. Maximum Marginal Rate: This is the highest rate of tax prescribed under the Income Tax Act (currently 30% for individuals and 40% for certain entities).
  3. Share of Income: The portion of the AOP/BOI's income allocated to a member, computed as per Section 309.

Compliance Steps: ​

  1. For AOP/BOI:
    • Determine whether the entity is liable to pay tax on its total income.
    • If taxable, pay tax at the applicable rate (including the maximum marginal rate, if applicable).
  2. For Members:
    • If the AOP/BOI is taxed, no action is required regarding the share of income.
    • If the AOP/BOI is not taxed, include the share of income in your total income and pay tax accordingly.

Examples: ​

  1. Scenario 1: An AOP earns ₹10 lakh in a year and is taxed at 30%. Member A's share is ₹2 lakh. Since the AOP is taxed, Member A does not need to include ₹2 lakh in their personal income.
  2. Scenario 2: An AOP earns ₹10 lakh but is not taxed (e.g., due to exemptions). Member B's share is ₹3 lakh. Member B must include ₹3 lakh in their total income and pay tax on it.
  3. Scenario 3: An AOP is taxed at the maximum marginal rate (30%). Member C's share is ₹4 lakh. Even though the AOP is taxed, Member C does not need to include ₹4 lakh in their total income because the AOP is taxed at the maximum marginal rate.