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Tax Laws and Practice · Computation of Total Income and Tax Liability of various Entities

Tax Liability of Association of Persons and Body of Individuals

Updated 11 October 2026 · Fact-checked

An association of persons (AOP) or body of individuals (BOI) is taxed under section 202 at the slab rates of the new regime, unless it opts out. Where members' shares are determinate, you deduct member remuneration, split the balance by share ratio, then add the remuneration back (section 309). Short-lived event bodies are taxed up to dissolution (section 318).

Understand Tax Liability of Other Entities

An association of persons (AOP) is a group that joins together with a common purpose to earn income. A body of individuals (BOI) is a group of individuals doing the same. Both are separate taxable persons. Companies, co-operative societies and registered societies are excluded from the AOP/BOI meaning used in section 309.

Under section 202(1), an AOP (other than a co-operative society), a BOI and an artificial juridical person are taxed on total income at the same slab rates as an individual under the new regime. The slabs run from nil up to ₹4,00,000 and then rise in steps of ₹4,00,000 from 5% to 30% on income above ₹24,00,000. These rates apply unless the person exercises the option in section 202(4) to be taxed outside this regime.

Section 202(2) sets the conditions for the new regime. Total income is computed without the listed exemptions and deductions, and house property losses cannot be set off against other heads. Always keep this in mind when you compute income for an AOP or BOI.

Section 309 deals with a member's share where the shares of members are determinate and known. Interest, salary, bonus, commission or remuneration paid to a member is first deducted from the AOP's income. The balance is split in the members' sharing ratio. Each member's remuneration is then added back to their apportioned share, if it is a profit. If the apportioned amount is a loss, the remuneration is adjusted against it. The resulting amount is the member's share in the AOP's income.

Section 318 covers bodies formed for a particular event or purpose that are likely to be dissolved in the same tax year or immediately after. The Assessing Officer can tax the income from the first day of that tax year up to the date of dissolution in that year itself.

Key rules to remember

Rate for AOP, BOI and artificial juridical person (section 202(1))
Up to ₹4,00,000: Nil | ₹4,00,001-₹8,00,000: 5% | ₹8,00,001-₹12,00,000: 10% | ₹12,00,001-₹16,00,000: 15% | ₹16,00,001-₹20,00,000: 20% | ₹20,00,001-₹24,00,000: 25% | Above ₹24,00,000: 30%
Applies unless the option under section 202(4) is exercised. Co-operative societies are excluded from the AOP limb of clause (c).
Balance to be shared (section 309(2)(a))
Balance = Total income of AOP/BOI − interest, salary, bonus, commission, remuneration paid to members
Applies where members' shares are determinate and known. 'Paid' means paid or incurred as per the method of accounting (section 309(5)).
Member's share in income (section 309(2)(b))
Share = Apportioned balance + member's own remuneration (if apportioned amount is a profit); if a loss, remuneration is adjusted against it
The share is then spread across heads of income in the same manner as the AOP's income was determined (section 309(3)).
Member's borrowing cost (section 309(4))
Interest on capital borrowed by member to invest in the AOP is deducted from the member's share under 'Profits and gains of business or profession'
Deduction is against that share, in the member's own computation.
Event-based body (section 318(1))
Income from first day of the tax year to date of dissolution is taxed in that tax year
Applies where the Assessing Officer finds a body formed for a particular event or purpose is likely to be dissolved in that year or immediately after.
Option to opt out (section 202(4))
With business income: exercise by due date under section 263(1); once exercised it continues; can be withdrawn only once. Without business income: exercise along with the return.
After withdrawal the person is never again eligible, unless business income ceases.

How to solve Tax Liability of Other Entities questions

Use this order for any question on the tax liability of an AOP, BOI or similar entity.

  1. 1Identify the entity. Check whether it is an AOP, BOI, artificial juridical person, co-operative society or a company, since companies and co-operative societies are outside section 309's AOP/BOI meaning.
  2. 2Check whether the entity is formed for a particular event or purpose and likely to be dissolved in the same or the next year. If so, section 318 applies to income up to the dissolution date.
  3. 3Compute the total income of the AOP or BOI under the heads of income, applying the new regime conditions in section 202(2) unless the option in section 202(4) was exercised.
  4. 4Check whether members' shares are determinate and known. If they are, apply section 309: deduct member remuneration, interest and similar payments, then apportion the balance.
  5. 5Add back each member's remuneration to the apportioned amount to get the member's share, or adjust it against a loss. Deduct any interest on money the member borrowed to invest, as section 309(4) permits.
  6. 6Apply the section 202(1) slabs to the AOP's total income, or to the relevant income as the question requires.
  7. 7State the conclusion clearly: the provision, your working, and the final tax or share figure.

Quickest way: Share-ratio shortcut for member shares

When to use it: Use when a question gives the AOP's income, member payments and a fixed profit-sharing ratio, and asks for each member's share.

  1. Write the AOP's income, then subtract all member payments in one line.
  2. Multiply the balance by each member's ratio.
  3. Add each member's own payment back to their figure.
  4. Check that the total of all member shares equals the AOP's income before deduction.
  5. Apply slab rates only after confirming which person is being taxed.

Common mistakes in Tax Liability of Other Entities

  • Treating a company or co-operative society as an AOP or BOI for section 309.

    Students see a group of persons and assume it is an AOP.

    Fix: Remember that section 309(1) excludes companies, co-operative societies and registered societies from the AOP/BOI meaning.

  • Splitting the full income by ratio without first deducting member remuneration.

    Students rush to the ratio step.

    Fix: Deduct interest, salary, bonus, commission and remuneration first, share the balance, then add the payments back.

  • Forgetting to add back remuneration to the member's share.

    The deduction step feels like the end of the working.

    Fix: Always finish with the add-back (or adjustment against a loss) to reach the member's share.

  • Applying old regime ideas, such as full deductions, to an AOP under section 202.

    Habit from earlier regimes.

    Fix: Under section 202(2), the listed exemptions and deductions are not allowed unless the person has opted out as per section 202(4).

  • Ignoring section 318 for a body formed for one event.

    Students assume tax is always on the full tax year.

    Fix: Where dissolution is likely in that year or immediately after, income up to the date of dissolution is taxed in that tax year.

  • Stating the slab rates in wrong brackets, for example 5% above ₹3,00,000.

    Mixing up earlier slab tables.

    Fix: Learn the table in section 202(1): nil to ₹4,00,000, then 5% in each next step to 30% above ₹24,00,000.

Worked examples

Example 1

X, Y and Z are members of an AOP sharing profits in the ratio 2:2:1. The AOP's total income for the tax year before any member payment is ₹10,00,000. It paid interest on capital of ₹50,000 to X and salary of ₹1,50,000 to Y (both are for the tax year). Compute each member's share in the income of the AOP under section 309.

Show the solution
  1. Total payments to members = ₹50,000 + ₹1,50,000 = ₹2,00,000.
  2. Balance to be apportioned = ₹10,00,000 − ₹2,00,000 = ₹8,00,000.
  3. Apportionment by ratio 2:2:1 (total 5 parts, ₹1,60,000 per part): X = ₹3,20,000; Y = ₹3,20,000; Z = ₹1,60,000.
  4. The apportioned amount is a profit, so add back payments: X = ₹3,20,000 + ₹50,000 = ₹3,70,000; Y = ₹3,20,000 + ₹1,50,000 = ₹4,70,000; Z = ₹1,60,000.
  5. Check: ₹3,70,000 + ₹4,70,000 + ₹1,60,000 = ₹10,00,000.

Answer: Share of X = ₹3,70,000; Y = ₹4,70,000; Z = ₹1,60,000, as per section 309(2).

Example 2

An AOP, taxed under section 202(1) without exercising the option in section 202(4), has total income of ₹14,00,000 for the tax year. Compute its income-tax before any cess or surcharge.

Show the solution
  1. Section 202(1) applies to an AOP, so the slab table is used.
  2. Up to ₹4,00,000: nil.
  3. Next ₹4,00,000 (₹4,00,001 to ₹8,00,000) at 5% = ₹20,000.
  4. Next ₹4,00,000 (₹8,00,001 to ₹12,00,000) at 10% = ₹40,000.
  5. Remaining ₹2,00,000 (₹12,00,001 to ₹14,00,000) at 15% = ₹30,000.
  6. Total = ₹20,000 + ₹40,000 + ₹30,000 = ₹90,000.

Answer: Income-tax = ₹90,000 (before cess and surcharge).

Exam tips

  • Write the section number with each rule: 202 for rates, 309 for member shares, 318 for event-based bodies.
  • In numerical questions, show the deduction, apportionment and add-back as separate lines. Marks follow the steps.
  • Read the question for the words 'determinate and known'. They signal that section 309 applies.
  • Check whether the question gives the option under section 202(4). If it does, the standard slab table may not apply.
  • Close every theory answer with a one-line conclusion: the provision, the facts, then the result.

Practice questions from Computation of Total Income and Tax Liability of various Entities

Tax Liability of Other Entities: frequently asked questions

What is the tax rate for an AOP or BOI under the Income-tax Act, 2025?

Under section 202(1), an AOP (other than a co-operative society) or BOI is taxed at the slab rates in the table, from nil up to ₹4,00,000 to 30% above ₹24,00,000. This applies unless the person exercises the option under section 202(4).

Is a co-operative society treated as an AOP?

No. Section 202(1)(c) covers an AOP other than a co-operative society, and section 309(1) excludes co-operative societies and registered societies from the AOP/BOI meaning. Check the separate provisions in your study material for how co-operative societies are taxed.

How is a member's share in an AOP computed?

Where shares are determinate and known, deduct payments to members from the AOP's income, share the balance in the agreed ratio, and add back each member's payment. If the apportioned amount is a loss, the payment is adjusted against it, as per section 309(2).

What does section 318 do?

It lets the Assessing Officer tax the income of an AOP, BOI or artificial juridical person formed for a particular event or purpose, from the start of the tax year up to its dissolution, when it is likely to be dissolved in that year or immediately after.