Taxation of AOP and BOI: How Member Shares Are Taxed Under the Income Tax Act 2025

An association of persons (AOP) or body of individuals (BOI) is taxed in one of two ways, depending on whether its members' shares are determinate and known. If the shares are known, section 309 computes each member's share and section 310 usually exempts that share in the member's hands, because the AOP has already paid tax. If the shares are unknown, section 311 taxes the whole income of the AOP at the maximum marginal rate. Section 318 adds a special rule for an AOP formed for a particular event or purpose.

This guide covers sections 309, 310, 311 and 318 of the Income-tax Act, 2025, as amended by the Finance Act, 2026, effective 1 April 2026 (tax year 2026-27). It is general information, not advice on a specific case.

What is an AOP or BOI for these sections?

Section 2(77) includes "an association of persons or a body of individuals, whether incorporated or not" in the definition of a person. Section 309(1) then narrows the term for sections 309, 310 and 311. For those sections an AOP or BOI does not include a company, a co-operative society, or a society registered under the Societies Registration Act, 1860 (or a corresponding law in any part of India).

How is a member's share in the AOP's income computed (section 309)?

Section 309(2) applies where the shares of the members are determinate and known. The steps are:

1. Take the total income of the AOP.
2. Deduct any interest, salary, bonus, commission or remuneration, by whatever name called, paid to members in respect of the tax year (section 309(2)(a)).
3. Apportion the balance among the members in the proportions in which they share the income.
4. Add each member's own interest, salary, bonus, commission or remuneration back to that member's apportioned amount if it is a profit, or adjust it against the amount if it is a loss (section 309(2)(b)). The result is the member's share.

Section 309(3) says the share is then spread across the heads of income in the same way the AOP's income was determined under each head. Section 309(4) allows a member to deduct interest paid on capital borrowed to invest in the AOP from the share chargeable under "Profits and gains of business or profession". Under section 309(5), "paid" means actually paid or incurred, following the method of accounting used to compute business profits.

Worked example 1: profit, tax year 2026-27

Assumptions: an AOP of Ravi and Meena, who share income equally. Its total income, before deducting payments to members, is Rs 10,00,000. It pays Ravi a salary of Rs 1,20,000 and Meena interest of Rs 60,000 in respect of the year.

Step	Ravi (Rs)	Meena (Rs)	Total (Rs)
Total income of AOP			10,00,000
Less: salary and interest paid to members (1,20,000 + 60,000)			1,80,000
Balance to apportion			8,20,000
Apportioned 50:50	4,10,000	4,10,000	8,20,000
Add back own salary or interest	1,20,000	60,000	1,80,000
Share of member	5,30,000	4,70,000	10,00,000

Worked example 2: the AOP has a loss on apportionment

Assumptions: same AOP and payments, but the total income before payments to members is Rs 1,00,000.

Step	Ravi (Rs)	Meena (Rs)	Total (Rs)
Total income of AOP			1,00,000
Less: payments to members			1,80,000
Balance (a loss)			(80,000)
Apportioned 50:50	(40,000)	(40,000)	(80,000)
Adjust own salary or interest against the loss	1,20,000	60,000	1,80,000
Share of member	80,000	20,000	1,00,000

Worked example 3: interest on borrowed capital (section 309(4))

Assumptions: continuing example 1, Meena borrowed Rs 3,00,000 personally to put into the AOP and paid Rs 30,000 interest on it for the year. Her share is chargeable under the head business or profession. Her share chargeable after the deduction is Rs 4,70,000 less Rs 30,000, which is Rs 4,40,000.

Is the member's share taxed again in the member's hands (section 310)?

Usually not. Section 310(1) says a member is not liable to income-tax on the share computed under section 309, except in the case in section 310(2). Two exceptions follow:

• Section 310(2): if no income-tax is chargeable on the total income of the AOP, the member's share is chargeable to tax as part of the member's total income.
• Section 310(3): where the member pays no tax under section 310(1), the share is left out of total income if the AOP is chargeable on its total income at the maximum marginal rate or a higher rate. In any other case, the share forms part of the member's total income.

"Maximum marginal rate" is defined in section 2(70) as the rate of income-tax (including surcharge) applicable to the highest slab for an individual, AOP or BOI, as specified in the Finance Act of the relevant year.

When is the AOP taxed at the maximum marginal rate (section 311)?

Section 311 applies in three situations.

• Shares unknown (section 311(1)): where the individual shares of members in the whole or any part of the income are indeterminate or unknown, tax is charged on the total income of the AOP at the maximum marginal rate.
• A member taxed at a higher rate (section 311(2)): if any member's total income is chargeable at a rate higher than the maximum marginal rate, the AOP's total income is taxed at that higher rate.
• Shares known but a member has other income (section 311(3)): if a member's total income for the tax year, excluding the share from the AOP, exceeds the maximum amount not chargeable to tax, tax is charged on the AOP's total income at the maximum marginal rate. Where a higher rate applies to a member (section 311(3)(b)), that higher rate applies to the portion of income relatable to that member's share, and the balance is taxed at the maximum marginal rate.

Section 311(4) deems shares indeterminate or unknown if they are so on the date of formation of the AOP or at any time afterwards.

Real-life example: a member with a large outside salary

Ravi and Meena run a catering business as an AOP, and the deed names their shares. Meena also earns a large salary from a job, so her income outside the AOP is above the maximum amount not chargeable to tax. Under section 311(3)(a), the AOP's total income is charged at the maximum marginal rate, even though the shares are known. Ravi's share is then dealt with under section 310.

Real-life example: a family arrangement with no written shares

Sunita and two relatives buy a plot together and say they will "split whatever comes". No ratio is written down. Their shares are indeterminate, so section 311(1) taxes the AOP's total income at the maximum marginal rate. Writing down a determinate share later does not undo this: section 311(4) tests the shares on the date of formation and at any time afterwards.

What if the AOP is formed for a single event or purpose (section 318)?

Where it appears to the Assessing Officer that an AOP, BOI or artificial juridical person formed, established or incorporated for a particular event or purpose in a tax year is likely to be dissolved in the same year or immediately after, its total income from the first day of that tax year up to the date of dissolution is chargeable to tax in that tax year (section 318(1), overriding section 4). Section 318(2) applies the procedure in section 317(2) to (6), which covers persons leaving India, so far as may be. That includes separate assessments for each tax year or part, estimation of income, and a notice for a return with at least seven days to file it.

Example: a group of residents forms a committee to run a festival in the tax year and is expected to wind up soon after. The Assessing Officer can assess its income up to the date of dissolution in that same year, without waiting for the normal cycle.

Which return form and due date apply to an AOP or BOI?

An AOP or BOI is a person other than a company or a firm. Under section 263(1)(a)(iii) it must file a return for the tax year if its total income, before the specified exclusions in that clause, exceeds the maximum amount not chargeable to income-tax. It must also file if it has a business or capital loss it wants to carry forward (section 263(1)(a)(viii)). Rule 164(8) prescribes Form ITR-5 for such a person, unless it falls under the ITR-7 category in rule 164(10).

Under the Table in section 263(1)(c), where section 172 does not apply, the due date is the 31st of October if its accounts must be audited under the Act or any other law, the 31st of August if it has business or professional income and no audit is required, and the 31st of July in any other case. Confirm the current dates on the official portal before filing.

Common mistakes

• Apportioning the whole AOP income by ratio without first deducting members' interest, salary or remuneration under section 309(2)(a).
• Forgetting to add each member's own remuneration back after apportionment.
• Treating a family arrangement with no written ratio as a determinate AOP.
• Assuming a share is always exempt: section 310(2) and 310(3)(b) can bring it into total income.
• Forgetting that a member's outside income can trigger the maximum marginal rate on the whole AOP under section 311(3).
• Ignoring section 309(4) when a member borrowed to invest in the AOP.

Quick reference

Situation	Result	Provision
Shares known	Member's share computed after deducting and adding back member payments	309(2)
Member's share, AOP taxed at maximum marginal rate or higher	Share not included in member's total income	310(3)(a)
No tax chargeable on AOP	Share taxed in member's hands	310(2)
Shares unknown or indeterminate	AOP taxed at maximum marginal rate (or higher rate if a member is taxed higher)	311(1), 311(2)
Shares known, a member has other income above the exemption limit	AOP taxed at maximum marginal rate	311(3)(a)
AOP for an event or purpose, likely to dissolve	Income up to dissolution taxed in that tax year	318

Where this is in the Act

• Section 2(70): maximum marginal rate. Section 2(77): "person" includes AOP and BOI.
• Section 309: method of computing a member's share.
• Section 310: share of a member in the income of the AOP or BOI.
• Section 311: charge of tax where shares are unknown, and the other cases above.
• Section 263(1)(a)(iii), (viii) and (1)(c): who files and due dates. Rule 164(8): Form ITR-5.
• Section 317(2) to (6) as applied by section 318(2); section 318: assessment of an AOP or BOI formed for a particular event or purpose.

For other rates under the new Act, see our guides on TDS on rent and the TDS rates chart under section 393.

For a CA firm, the hard part is tracking which AOP clients have known shares, which members have outside income, and which filings are due. Finexo's practice management software tracks client-wise deadlines and tasks. It does not decide the tax treatment for you.