Difference Between AoP and BoI

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Difference Between AoP and BoI

An Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not, is treated as a ‘person’ under section 2(31)​ of the Income-tax Act, 1961. Hence, AoP or BoI is treated as a separate entity for the purpose of assessment under the Income-tax Act.

Here it is important to note that an AoP or BoI must be deemed to be a person, whether or not, they were formed or established or incorporated with the object of deriving income, profits or gains. 

How It is Included in the PAN?

The PAN is a Permanent Account Number and is a ten-digit unique alphanumeric number issued by the Income Tax Department. The ten digits represent the different details of the individuals. However, the fourth character represents the status of the PAN card holder. The AOP is represented by the character ‘A’ and BOI is represented by the character ‘B’ (for example the B is included in the place of the fourth character PKLBHXXXXL).

What is the Association of Persons?

The AoP is a legal entity that is formed by two or more individuals for a common purpose or objective. Hence, it is made under the Indian tax laws and treated as a separate legal entity. 

Let’s understand this with an example: A group of friends likes hiking. To go to a new location, they collect their resources and hire a car for outdoor adventure. The name of their group is “ABC Club”, in legal terms it is an Association of Persons. Here a question arises about how a AOP form, so some of its common traits are as follows:

• Common objective (hiking)
• Composition (all individuals)
• Formation (casual understanding instead of a formal contract)
• Taxation

So, the AOP is a group of people who come together to share a common purpose, without focusing on the profits, and have potential financial implications. 

What is the Body of Individuals?

The Body of Individuals is a group of two or more natural persons who create a group from the perspective of generating income. However, the framework of the BOI depends on the jurisdiction. 

For example, if two friends open a small beauty shop together and call it “XYZ Parlour”, then it is known as the Body of Individuals in legal terms. Some of its features are:

• Composition: Two or more individuals form the BOI.
• Formation: They run the shop under a formal agreement that outlines their roles, investment contribution and profit sharing.
• Purpose: The primary goal is to operate the business and generate revenue.
• Taxation: The entity will be treated as a separate entity for tax purposes and pay the income tax at the BOI rate.

In short, a BOI is a group of members that own and manage a property or asset to generate income and distribute it among themselves. For instance, in a housing society, the members own the land and buildings and the expenses and profits arise from them.

Key Differences Between AOP and BOI

The following are the key aspects of the Association of Persons and Body of Individuals:

Income Tax Return Filing of AOP and BOI

Every AOP/BOI must file the income tax return (including the income of any other person in respect of which he is assessable) without giving effect to the provisions of multiple sections). So, it does not matter whether the AOP/BOI are incorporated, filing a return of income is mandatory.

An AOP/BOI must file a return of income online with or without a digital signature. And, must file the tax under the Electronic Verification Code. However, these entities are liable to get their accounts audited under section 44AB. The due dates for filing of return by an AOP/BOI are as follows:

Due Dates for Filing of Return

Conclusion

The AOP and BOI are groups of individuals who came together for a common purpose but can have distinct characteristics that set them apart. The AOP is a group having low or no obligations and rights. However, it does not include companies, cooperative societies or societies formed under the Societies Registration Act, of 1860. 

On the other hand, the BOI is formed to earn profits. Understanding the difference between these two will help you to decide the right legal and taxation structures. 

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