Association of persons
Basic principles for taxation of AOP
Association of persons
“Association of persons” includes a firm, a Hindu undivided family, any artificial juridical person and anybody of persons formed under a foreign law, but does not include a company.
“Firm” means the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Basic principles for taxation of AOP
· 1. An association of persons is considered a separate entity from its members (partners). Accordingly, the AOP is liable to tax separately from the members of the association.
· 2. An AOP is treated as tax resident for a tax year if the control and management of its affairs is situated wholly or partly in Pakistan at any time during that tax year.
· 3.A resident AOP is taxable on its worldwide income.
· 4. If the AOP has paid tax for a tax year, the amount received by a member of the association in the capacity as member out of the income of the association shall be exempt from tax.
· 5.If at least one of the members of an AOP is a company, the share of such company or companies shall be excluded for the purpose of computing the total income of the AOP and the company or companies shall be taxed separately at the rates applicable to the companies, according to their share.
· 6.The AOP is entitled to set off and carry forward its losses as per normal procedure. However, share of loss from AOP is not adjustable against the income of its members.
· 7.Where a change occurs in the constitution of a firm during a tax year, the firm’s income is apportioned amongst the members on a time basis.
· 8. The responsibility for filing the tax return of a firm for any tax year rests with the persons who are members in the firm on the date the firm is required to file its tax return.
· 9.Where a firm dissolves or discontinues carrying on business, any tax payable by the firm is recoverable from any person who was a member in the firm at the time of dissolution or discontinuance of business. Tax payable can also be recovered from legal heirs of the deceased partners.
Individual as a member of AOP
If,
for a tax year, an individual has taxable income besides exempt share of profit
from AOP, then the amount of tax payable on the taxable income of the
individual shall be computed in accordance with the following formula:
(A/B) x C
Where:
1. A is the amount of tax that would be assessed to the individual for the year if the amount or amounts exempt from tax (i.e. share of profit from AOP) were chargeable to tax
2. B is the taxable income of the individual for the year if the amount or amounts exempt from tax under (i.e. share of profit from AOP) were chargeable to tax; and
3. C is the individual‘s actual taxable income for the year
Or
The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:–
(A/B) x C
Where –
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
B is the person’s taxable income for the tax year; and
C is the lesser of –
(a) The total amount of the person’s donations referred to in subsection (1) in the year, including the fair market value of any property given; or
(b) Where the person is –
(i) an individual or association of persons, thirty per cent of the taxable income of the person for the year; or
(ii) a company, fifteen per cent of the taxable income of the person for the year.
Following points should be kept in mind when
preparing an income tax return of AOP
Any profit on debt, brokerage, commission, salary or other remuneration paid by an association of persons to a member of the association is not allowed as an expense; hence it should be added back to the taxable income of AOP.
Share of loss
from AOP is not adjustable against income of its members
0 Comments