Under the Indian Income Tax Act, Association of Persons (AOP) and Body of Individuals (BOI) are important classifications of taxpayers. These terms are used to describe groups of individuals or entities that come together for a common purpose, such as earning income. An AOP may consist of individuals, companies, firms, or other associations, whereas a BOI is formed exclusively by individuals. The key distinction is that BOI arises when two or more individuals voluntarily unite to carry out an activity that results in income, but without forming a formal partnership. These groupings are not considered companies or firms and are taxed separately under the Act.
As per Section 2(31) of the Income Tax Act, 1961, the term “person” includes an individual, a Hindu Undivided Family (HUF), a company, a firm, an AOP or BOI (whether incorporated or not), a local authority, and every artificial juridical person not covered under the earlier categories. The Act imposes tax on the total income of these entities as per the applicable slab rates or flat rates. Under Section 86, in the case of AOP/BOI, if the individual shares of the members are determinate, income is taxed in the hands of the members individually; however, if the shares are indeterminate, the AOP/BOI is taxed at the maximum marginal rate. It’s also important to note that Section 167B lays down the tax rates for AOPs/BOIs depending on the share determination of its members.
To remember the difference between AOP and BOI and their tax implications, use the mnemonic “AIM BOI”:
- A for Association (AOP)
- I for Income from any source
- M for Members may include non-individuals (AOP)
- B for Body (BOI)
- O for Only individuals as members
- I for Indeterminate shares taxed at max rate
