What is AOP in Income Tax?

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what is AOP in income tax

? An Association of Persons (AOP) in income tax refers to a group of individuals who come together with a common purpose, typically to earn income. This entity is not legally distinct from its members but is treated as a single taxable unit under income tax laws. An AOP can include any combination of individuals, companies, or firms.

What is the Association of Persons in Income Tax?

The concept of AOP is crucial in determining how income is assessed and taxed. When individuals or entities form an AOP, the income generated by the association is aggregated and taxed as a single entity. The tax rates applied to an AOP are generally the same as those for individual taxpayers, but certain deductions and exemptions may vary.

• An AOP is formed when two or more persons collaborate for a specific project or business venture. Unlike a partnership, which is a formal legal entity, an AOP can be more informal and may not have a registered agreement.

• The key factor is the intent to jointly undertake an activity that generates income.

• Taxation of an AOP involves aggregating all the income earned by the association and then applying the relevant tax rates. The income is first assessed at the entity level, and the tax liability is determined.

• Subsequently, the remaining income, after paying taxes, can be distributed among the members as per their agreed share.

The tax treatment of AOPs aims to prevent tax avoidance by ensuring that income generated collectively is not split among members to benefit from lower individual tax rates. This approach ensures that the collective income is taxed appropriately, maintaining fairness in the tax system.

This is all about what is association of person in income tax.

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