This is a clarification sought on Associations or clubs running for mutual benefits. For example: ABC Apartment Owners Association. Here the owners of flat are the members. They contribute for the monthly maintenance. Apart from this income, they get bank interest out of a deposit held by the said Association.
As per the mutuality principle, the interest from deposits are taxable as the Association is assessed as AOP. In such situation, the following method is proposed by me.
- The monthly maintenance collected is directly credited to the corpus fund shown in the balance sheet.
- The bank deposit interest is taken to Income and expenditure A/c.
- The regular expenses such as salary for watchman, staff, Common electricity charges etc are charged in Income & Expenditure A/c.
- The surplus is shown as excess of income and if deficit arises, then it is shown as excess of expenses over income. If the excess income exceeds the income exemption limit (Rs. 2 lacs for A.Y 2013-14), then it is to be taxed at the rate applicable for AOP (Say Individual Assesse Slab).
Whether the above system is correct or not. Suggestions may kindly be given.
-CA R.K.Varadaraj
9842221156
CAclubindia
