Clarificatin-associations or club running for mutual benefit

Tax queries 592 views 2 replies

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.

  1. The monthly maintenance collected is directly credited to the corpus fund shown in the balance sheet.
  2. The bank deposit interest is taken to Income and expenditure A/c.
  3. The regular expenses such as salary for watchman, staff, Common electricity charges etc are charged in Income & Expenditure A/c.
  4. 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

Replies (2)

Whether an AOP (on Prinicpal of Mutuality) is eligible to claim basic limit as exemption on Interest from Bank. 

1. contribution from members:For a mutual association the excess of monthly contributions after deducting expenses are already exempt even if they are not taken to corpus.(This should be claimed as "other exempt Income")

2. The bank interest is taxable. You cannot deduct regular expenses such as salary for watchman, staff, Common electricity charges etc from bank interest as it is "income from other sources".

3. I my view slab benefits are availble only if the association is registered under societies act.CBDT Circular : No. 320 [F. No. 131(31)/81-TP(Pt.)], dated 11-1-1982

4. If the association is a COOPERATIVE society and had FDs in cooperative bank , then the interest too is fully exempt.

5. Corpus donations for registered (u/s 12A) Trusts only are exempt not for others.

6. I have problems filing IT returns using ITR 5 Java as it does not recognise slab system. It directly calculates 30% tax for unregistered trusts etc.


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