Taxation of aop
This query is : Resolved
17 October 2012
I am residing in Flat Building and it has been registered as AOP under Income Tax Act. Our CA has file our return(manually)for first time in AY 2011-12 showing income of Aprx. Rs. 27000 to get the Refund of Rs.5500 deducted on account of FD & SB Interest on the members deposit for the Maintenance of Building. Now ITD has raised a demand of Rs.9000 @30% of tax on income. Now what to do please suggest.
17 October 2012
Please check if the all the members of AOP have income below basic exemption.Then the AOP will also get basic exemption. Otherwise highest marginal rate is applicable. Hence AO is right.
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17 October 2012
There are total 12 members residing in Building and some of file return but i dont know whether who has income below basic exemption limit. Sir please suggest the best way to Get the refund
26 July 2025
In your case, the **Apartment Owners’ Association (AOP)** filed a return showing **income of ₹27,000**, mainly from **FD and SB interest**, and the **Income Tax Department (ITD)** has raised a **tax demand of ₹9,000 at 30%**, likely treating the AOP as taxable at the **maximum marginal rate** (MMR).
Let’s break it down and give you a practical course of action:
---
### ✅ **Understanding Taxation of AOPs**
Under the **Income Tax Act**, an **Association of Persons (AOP)** can be taxed in two ways:
#### **1. Tax at Individual Member Rates (Section 167B(1))**
* If **share of each member is *determinate* and known**, and
* **None of the members have income above the basic exemption limit**,
🔹 Then the AOP is **taxed at slab rates** (like an individual).
#### **2. Tax at Maximum Marginal Rate (MMR – 30% + cess) \[Section 167B(2)]**
* If **any member has income above the basic exemption limit**, or
* The **shares of members are indeterminate/unknown**,
🔹 Then the AOP is taxed at **MMR**.
---
### 🔍 Your Situation:
* Income of AOP: ₹27,000
* TDS deducted: ₹5,500
* Demand raised: ₹9,000 (@30% of ₹27,000 = ₹8,100 + cess)
* Purpose of income: Interest on members' deposits for **building maintenance**.
This likely means the ITD taxed the AOP at **30% MMR**, assuming at least one member earns above the exemption limit.
---
### 🛠️ What You Can Do
#### ✅ **Step 1: Clarify Member Income Details**
You **must collect PAN and income details** (ITRs if available) of all 12 members to check:
* Does **anyone** have income above the **basic exemption limit** (₹2.5 lakh for most)?
* If **not**, you can request assessment under **individual slab rates**.
> 📌 If **even one member** has income exceeding the limit, then **MMR is correctly applied** by the AO.
---
#### ✅ **Step 2: File a Rectification or Appeal (if eligible)**
If **all members are below exemption limit**, and **share of interest income is determinate and known**, then:
* You can **file a rectification request under Section 154** with the AO or via the e-filing portal.
* Attach supporting docs:
* Declaration of member shares
* PAN of members
* Proof of no income above exemption limit
---
#### ✅ **Step 3: Consider Option to Treat Interest as Members’ Income**
Since the interest income arises from **members' deposits**, ideally it should be taxed **in the hands of members** (not AOP), provided:
* The funds are identifiable as member-wise
* The association is **only a conduit** (not earning income in its own capacity)
In that case:
* A revised treatment (next year) could include interest in **individual members’ returns**
* AOP return would show **nil income**
---
### 📘 Future Guidance
1. **Avoid unnecessary TDS by submitting Form 15G/H**, if applicable
2. Maintain clear member-wise deposit and income records
3. Try to **keep interest income in members’ names** where possible
4. Consider filing **online returns** going forward — reduces chances of mismatch
---
### ✅ Summary
| Issue | Explanation |
| ------------------ | ----------------------------------------------------------------------------------- |
| Why tax @30%? | Likely because at least one member has taxable income or shares not clearly defined |
| Can you reduce it? | Only **if all members are under exemption limit** and shares are determinate |
| What to do? | Collect PAN/income info → File rectification → Clarify income nature to AO |
---
If you need help **drafting the rectification application** or a **sample declaration format** from members, just let me know.
Let’s break it down and give you a practical course of action:
---
### ✅ **Understanding Taxation of AOPs**
Under the **Income Tax Act**, an **Association of Persons (AOP)** can be taxed in two ways:
#### **1. Tax at Individual Member Rates (Section 167B(1))**
* If **share of each member is *determinate* and known**, and
* **None of the members have income above the basic exemption limit**,
🔹 Then the AOP is **taxed at slab rates** (like an individual).
#### **2. Tax at Maximum Marginal Rate (MMR – 30% + cess) \[Section 167B(2)]**
* If **any member has income above the basic exemption limit**, or
* The **shares of members are indeterminate/unknown**,
🔹 Then the AOP is taxed at **MMR**.
---
### 🔍 Your Situation:
* Income of AOP: ₹27,000
* TDS deducted: ₹5,500
* Demand raised: ₹9,000 (@30% of ₹27,000 = ₹8,100 + cess)
* Purpose of income: Interest on members' deposits for **building maintenance**.
This likely means the ITD taxed the AOP at **30% MMR**, assuming at least one member earns above the exemption limit.
---
### 🛠️ What You Can Do
#### ✅ **Step 1: Clarify Member Income Details**
You **must collect PAN and income details** (ITRs if available) of all 12 members to check:
* Does **anyone** have income above the **basic exemption limit** (₹2.5 lakh for most)?
* If **not**, you can request assessment under **individual slab rates**.
> 📌 If **even one member** has income exceeding the limit, then **MMR is correctly applied** by the AO.
---
#### ✅ **Step 2: File a Rectification or Appeal (if eligible)**
If **all members are below exemption limit**, and **share of interest income is determinate and known**, then:
* You can **file a rectification request under Section 154** with the AO or via the e-filing portal.
* Attach supporting docs:
* Declaration of member shares
* PAN of members
* Proof of no income above exemption limit
---
#### ✅ **Step 3: Consider Option to Treat Interest as Members’ Income**
Since the interest income arises from **members' deposits**, ideally it should be taxed **in the hands of members** (not AOP), provided:
* The funds are identifiable as member-wise
* The association is **only a conduit** (not earning income in its own capacity)
In that case:
* A revised treatment (next year) could include interest in **individual members’ returns**
* AOP return would show **nil income**
---
### 📘 Future Guidance
1. **Avoid unnecessary TDS by submitting Form 15G/H**, if applicable
2. Maintain clear member-wise deposit and income records
3. Try to **keep interest income in members’ names** where possible
4. Consider filing **online returns** going forward — reduces chances of mismatch
---
### ✅ Summary
| Issue | Explanation |
| ------------------ | ----------------------------------------------------------------------------------- |
| Why tax @30%? | Likely because at least one member has taxable income or shares not clearly defined |
| Can you reduce it? | Only **if all members are under exemption limit** and shares are determinate |
| What to do? | Collect PAN/income info → File rectification → Clarify income nature to AO |
---
If you need help **drafting the rectification application** or a **sample declaration format** from members, just let me know.
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