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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 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.
If you want to know about the difference between AoP and BoI, check out this blog post. Here, we shall discuss AoP vs BoI and all their key differences.
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).
The AoP is an entity that is formed by two or more individuals, companies or other entities for a common purpose or objective. It is made under the Indian tax laws and treated as a separate legal entity for tax purposes.
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 an AOP is formed. 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.
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.
The following are the key aspects of the Association of Persons and Body of Individuals:
|
Features |
AoP |
BoI |
|
Definition |
The group of persons coming together for a common objective. |
The group of individuals joining the company to earn revenue or income. |
|
Composition |
Include both natural and companies. |
Only include natural persons (individuals) |
|
Purpose |
It can have any purpose, not necessarily income generation. |
Its primary purpose is to earn income. |
|
Taxation |
The profits will be taxed at the rate applicable to individual members. |
Income is taxed as an association of persons (usually has a higher rate than individual rates). |
|
Formation |
To form an association of persons, a formal agreement or contract is not required. |
The body of individuals usually requires a formal agreement or contract instead of no contract. |
|
Profit Sharing |
Distribute the profits in any proportion agreed upon by the members. |
Shares income equally in the absence of a specific agreement. |
|
Examples |
Some examples of AOP include sports clubs, social clubs, and religious organisations. |
Partnerships, joint ventures or investment clubs are some of the examples of Body of Individuals. |
In case of BOI or AOP, the individual shares of profits could be either unknown/immediate or known/determinate. In such cases, the AOP/BOI calculation for tax payable is as follows:
|
Where Share of Profits of Members is unknown/intermediate |
Where Share of Profits of Members is known/determinate |
|
In case the share of income of individual members of BOI/AOP are not known either wholly or partly, then the tax would be levied on the total BOI/AOP’s income at the maximum marginal rate, which is 30% plus applicable surcharge and cess. However, if any member is taxable at a rate higher than the max marginal rate, the BOI/AOP’s entire income is assessed at that higher rate. |
In case the member shares are known but any member has income exceeding the basic exemption limit, the AOP/BOI is taxed at the maximum marginal rate, which is 30% plus applicable surcharge and cess. |
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 the ITR are as follows:
|
Particulars |
Due Dates |
|
If the AOP or BOI are required to get its accounts audited under the Income-tax Act or any other law. |
October 31 of the assessment year |
|
In the case of a report in Form No. 3CEB under section 92E |
November 30 of the assessment year |
|
In case of no audit for AOP or BOI |
July 31 of the assessment year |
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.
Q1. What is AOP full form?
A. AOP full form is Association of Persons. It refers to an entity that is formed by two or more individuals, companies or other entities for achieving a common purpose or objective.
Q2. What is BOI full form?
A. BOI full form is Body of Individuals. It refers to a group of two or more natural persons who create a group for the purpose of conducting income generating-activities.
Q3. Is an AOP a separate taxable entity from its members?
A. Yes, an AOP is a separate taxable entity from its members under the IT Act 1961.
Q4. Is BOI a taxable entity?
A. Yes, a BOI is a distinct taxable entity under the IT Act 1961.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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