According to the Income Tax Act of 1961, “Association of Persons” (AOP) is defined as any organization consisting of two or more individuals that work together towards a shared goal, with the primary motivation being financial profit. According to the nomenclature of the AOP, “a person” may refer to either a corporation or a collection of individuals, regardless of whether or not they are organized as a corporation. A contract is not necessary to build an AOP. Association of Persons and Body of Individuals are comparable conceptions. But, in order to form a Body of Individuals with the intention of making money, there must first be at least two people involved in the endeavor. Consequently, in contrast to an Association of Individuals, which might include organizations, a Body of Individuals consists entirely of individuals. Scroll down to check the differences between an Association of Persons and Body of Individuals.
Differences between an Association of Persons and Body of Individuals
Check the differences between an Association of Persons and Body of Individuals:
- Two independent groupings of individuals are referred to by the names “Body of Individuals” (BOI) and “Association of Persons” (AOP). It is normal practice to use these terms interchangeably; nonetheless, the restricted meaning is still accurate even when they are used in this manner. Because of the different meanings that each of these expressions has, it is important that we stop using them interchangeably.
- There are many significant distinctions to be made between a group of people and the individuals who comprise that group of people. In AOP, the term “person” may refer either to a company or an individual. A “person” may be any association, collection of individuals, or company, regardless of whether or not they have formally organized themselves as a legal entity.
- Yet, in order to join a BOI, you need to have a genuine interest in profiting from what they provide. This brings us to the realization that a BOI is made up entirely of private individuals, while an AOP may or may not contain corporations or other types of legal entities.
- An organization that may be held legally accountable for its conduct as a single entity is referred to as an AOP, which stands for “association of persons.” When a large number of people are crowded together in a relatively small area, such as on a train or while waiting at a bus stop, the phrase “body of individuals” is often used to refer to the group as a whole. On the other hand, they do not constitute an AOP (association of persons).
- Also, despite the fact that an AOP stands for a collection of individuals, not every group or combination of people meets the criteria to be considered an AOP. These individuals are required to engage in some kind of economic activity in order for them to be considered AOPs.
Taxation of Corporations and Other Entities That Are Treated As Individuals
The following procedures may be used to investigate either an AOP or a BOI:
- Not like AOP or BOI, where it’s unclear what proportion each member really makes up of the whole.
- In contrast to Association of Persons and Body of Individuals, where the individual share of each participant is predetermined or fixed, here there is no such thing.
Individual Members’ Shares Are Unknown:
If the individual shares of the members in the whole or a portion of the AOP or total BOI’s income are unclear or intermediate, then tax must be imposed on the profits of the AOP or total BOI at the greatest marginal rate possible (with the exception of income that is taxable at a special rate). All of the preceding information is still accurate, and the higher tax rate will be applied to the total income of the AOP if the income of any member is subject to a tax rate that is greater than the rate that was anticipated.
Individual Members’ Shares are known:
When a member of AOP/BOI has a total income that is higher than the Max Exemption Limit, that member will be assessed at the highest marginal rate of 30%, plus a surcharge of 10.15 percent, if necessary, in addition to paying a 3% Cess on their total income, excluding income subject to special taxation.
If no member of the family has an income that is higher than the exemption threshold, then none of the following things are likely to occur:
- Both the total combined income of all members does not exceed the exemption amount nor does the marginal tax rate on the total combined income of all members exceed the highest rate that may be applied to that total combined income. In this particular scenario, the AOP will be subject to income tax on its worldwide earnings at the same rates that are applicable to individuals. The baseline exemption of INR 2, 50,000 will be to the advantage of the AOP.
- In the event that no member receives income that is in excess of the maximum exemption limit, but one or more members are subject to a tax rate that is in excess of the maximum limit (which is only possible if the foreign company is also a member), then the tax rate that is applicable to the portion of the AOP’s income that is related to the member shall be the rate of income-tax that is applicable to such member, and the remaining portion of the AOP’s total income shall be charged at the marginal rate.
Income Distribution and Exemption Needs:
Members of Association of Persons and Body of Individuals will not be required to declare the percentage of their earnings that is subject to the higher marginal tax rate due to the tax implications of this change.
If the AOP or BOI pays tax at the same rate as an individual, then each member’s share of the profits will be added to their total income. This is the case even if the AOP or BOI does not pay tax.
An association of persons (whether they be individuals, HUF, organizations, corporations, etc.), who meet together for a shared goal or purposes, is denoted by the acronym AOP (s). Every possible gathering of people cannot be categorized as an “AOP” since it is not possible to do so. They are not considered AOP until such time as they form a coalition with other people in order to engage in economic activities. Although BOI refers to a collection of individuals (individual alone) who join together for a common goal or purposes, regardless of whether or not they make income from their activities, BOI does not include such individuals. For purposes of taxation, an AOP or BOI is considered to be a collection of co-heirs, co-donees, or other individuals who act in concert. In the event that the AOP has income, only the AOP will be subject to taxation, and the members of the AOP will not be subject to individual taxation in relation to the income of the AOP.