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CS Executive · Tax Laws and Practice · Basic Concept of Income Tax

An association of persons (AOP) has members A, B and C whose individual shares in its income are indeterminate. Member C's total income is chargeable at a rate higher than the maximum marginal rate. Under section 311 of the Income-tax Act, 2025, how is the AOP's total income taxed?

Where the members' shares are indeterminate, the AOP's total income is taxed at the maximum marginal rate, but under section 311(2), if any member's income is chargeable at a higher rate, the AOP's total income is taxed at that higher rate. Hence the higher rate applicable to C applies.

  1. AAt the higher rate applicable to CCorrect
  2. BAt the maximum marginal rate only
  3. CAt slab rates as for an individual
  4. DNot taxed in the AOP, but only in the members' hands

Explanation

Section 311(1) charges the AOP at the maximum marginal rate where shares are indeterminate or unknown, but section 311(2) provides that if any member's total income is chargeable at a higher rate, tax is charged on the AOP's total income at that higher rate. So the maximum marginal rate alone is wrong.

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