Taxpublishers.in - Monday Corner Answer to the Quiz for the week (08 Apr 2024)

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Quiz for the week (08 Apr 2024): Nice & Co is an AOP (Association of Persons) consisting of 4 equal members being Mr. Manish; Ms. Nisha; Mr. Oli and Mr. Prasad. The total income of the AOP was Rs.4,40,000 for the ended 31st March, 2024. All the individual members of AOP are always assessed to income-tax with total income exceeding Rs. 15 lakhs. Compute the income-tax payable by the AOP for the assessment year 2024-25 both as per regular provisions and as per section 115BAC. Best Answer : Section 167B deals with charge of tax where shares of members in AOP or BOI are unknown. Sub-section (1) says that where the individual shares of the members of AOP or BOI is not known the tax on the total income of the AOP or BOI shall be at the maximum marginal rate. The proviso to section 167B(1) says that where the total income of any member of AOP or BOI is taxable at a rate which is higher than the maximum marginal rate the tax shall be charged on the total income of AOP or BOI at such higher rate. Section 167B(2) is more relevant to the query which is applicable in cases where sub-section (1) would not apply. In other words, it is applicable where the shares of members are determinate. Clause (i) says that where the total income of any member of AOP or BOI for the previous year (excluding his share from such AOP or BOI) exceeds the maximum amount which is not chargeable to tax, the total income of AOP or BOI shall be charged to tax at the maximum marginal rate. Clause (ii) says that where any member is taxable at a rate higher than maximum marginal rate, tax shall be charged on that portion of the total income of AOP or BOI relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of AOP or BOI shall be taxed at the maximum marginal rate. Perusal of the query would show that section 167B(2)(i) is applicable which means no member of AOP is taxed at a rate higher than maximum marginal rate. Therefore, the income of AOP or BOI shall be taxed at maximum marginal rate since all the members of AOP have income exceeding Rs.15 lakhs. Section 2(29C) defines the term ‘maximum marginal rate’. It means “the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year”. The Finance Act, 2023 w.e.f. 01.04.2024 has extended the benefit of section 115BAC in respect of AOP (other than co-operative society) or BOI besides individuals and HUFs. A look at the Finance Act, 2023 would show that in the case of individual or HUF or AOP, Paragraph A of Part I of the First Schedule of the Finance Act, 2023 would apply, which says that the maximum rate of surcharge applicable for AOP or BOI (not consisting only companies as its members) @ 37% when opted under section 115BAC. Therefore, the maximum marginal rate would be 30% + SC 37% thereon which means 41.1% on which 4% HEC when added would lead to effective tax rate @ 42.744%. Assuming the assessee is governed by regular provision, the maximum rate of surcharge would be 25%. This would mean the effective rate 30% plus SC 25% thereon and 4% HEC. The applicable tax rate hence would be 39%. Nice & Co has to pay tax of Rs.1,88,070 under section 115BAC or pay Rs.1,71,600 as per normal provisions. R Parthasarathy Chennai

Quiz for the week (08 Apr 2024):

Nice & Co is an AOP (Association of Persons) consisting of 4 equal members being Mr. Manish; Ms. Nisha; Mr. Oli and Mr. Prasad. The total income of the AOP was Rs.4,40,000 for the ended 31st March, 2024. All the individual members of AOP are always assessed to income-tax with total income exceeding Rs. 15 lakhs.

Compute the income-tax payable by the AOP for the assessment year 2024-25 both as per regular provisions and as per section 115BAC.

Best Answer :

Section 167B deals with charge of tax where shares of members in AOP or BOI are unknown. Sub-section (1) says that where the individual shares of the members of AOP or BOI is not known the tax on the total income of the AOP or BOI shall be at the maximum marginal rate. The proviso to section 167B(1) says that where the total income of any member of AOP or BOI is taxable at a rate which is higher than the maximum marginal rate the tax shall be charged on the total income of AOP or BOI at such higher rate.

Section 167B(2) is more relevant to the query which is applicable in cases where sub-section (1) would not apply. In other words, it is applicable where the shares of members are determinate. Clause (i) says that where the total income of any member of AOP or BOI for the previous year (excluding his share from such AOP or BOI) exceeds the maximum amount which is not chargeable to tax, the total income of AOP or BOI shall be charged to tax at the maximum marginal rate. Clause (ii) says that where any member is taxable at a rate higher than maximum marginal rate, tax shall be charged on that portion of the total income of AOP or BOI relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of AOP or BOI shall be taxed at the maximum marginal rate.

Perusal of the query would show that section 167B(2)(i) is applicable which means no member of AOP is taxed at a rate higher than maximum marginal rate. Therefore, the income of AOP or BOI shall be taxed at maximum marginal rate since all the members of AOP have income exceeding Rs.15 lakhs.

Section 2(29C) defines the term ‘maximum marginal rate’. It means “the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year”.

The Finance Act, 2023 w.e.f. 01.04.2024 has extended the benefit of section 115BAC in respect of AOP (other than co-operative society) or BOI besides individuals and HUFs.

A look at the Finance Act, 2023 would show that in the case of individual or HUF or AOP, Paragraph A of Part I of the First Schedule of the Finance Act, 2023 would apply, which says that the maximum rate of surcharge applicable for AOP or BOI (not consisting only companies as its members) @ 37% when opted under section 115BAC. Therefore, the maximum marginal rate would be 30% + SC 37% thereon which means 41.1% on which 4% HEC when added would lead to effective tax rate @ 42.744%.

Assuming the assessee is governed by regular provision, the maximum rate of surcharge would be 25%. This would mean the effective rate 30% plus SC 25% thereon and 4% HEC. The applicable tax rate hence would be 39%.

Nice & Co has to pay tax of Rs.1,88,070 under section 115BAC or pay Rs.1,71,600 as per normal provisions.

R Parthasarathy
Chennai