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TMI BlogAnalyzing the Tax Treatment of Collective Entities under Clause 310 of Income Tax Bill, 2025 Vs. Section 86 of Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... are central to the determination of tax liability in cases where individuals pool resources and carry on activities collectively, a common structure in India's business and investment landscape. The legislative intent behind these provisions is to prevent double taxation and to ensure that income arising from collective entities is taxed appropriately, either at the entity level or at the member level, depending on the circumstances. The 2025 Bill seeks to update and potentially streamline these provisions, reflecting evolving policy considerations and perhaps addressing ambiguities or inefficiencies in the existing law. Objective and Purpose Both Clause 310 and Section 86 aim to allocate tax liability in respect of income arising f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed rules, maintaining consistency and fairness. Taxability When AOP/BOI Not Taxable Clause 310(2) carves out an exception: where no income-tax is chargeable on the total income of the AOP/BOI, the member's share (as computed) shall be chargeable to tax as part of his total income. This provision ensures that income does not escape taxation altogether. If, for any reason, the AOP/BOI is not liable to tax (for example, due to exemption or lack of taxable income), the member's share is brought to tax in the hands of the member, plugging a potential loophole. Specific Treatment Based on Tax Rate of AOP/BOI Clause 310(3) distinguishes between two situations: * (a) If the AOP/BOI is chargeable to tax at the maximum marginal ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be payable by the assessee in respect of his share in the income of the association or body computed as per section 67A. Proviso (a): Exclusion from Total Income if AOP/BOI Taxed at Maximum Marginal Rate Where the AOP/BOI is chargeable to tax at the maximum marginal rate or higher, the member's share is not to be included in his total income. This mirrors the policy in Clause 310(3)(a) and is designed to prevent double taxation. Proviso (b): Inclusion in Total Income in Other Cases In any other case, the member's share is included in his total income. This ensures that where the AOP/BOI is taxed at a concessional or lower rate, the member is not unjustly enriched by the lower entity-level tax and is taxed at personal rates. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered societies from its scope. Clause 310 does not repeat this exclusion in the text provided, but this may be addressed in other clauses of the Bill or in definitions. * Reference to Computation: Section 86 refers to computation u/s 67A, while Clause 310 refers to section 309, indicating a renumbering or reorganization in the new Bill. * Taxation at Maximum Marginal Rate: Both provisions ensure that where the AOP/BOI is taxed at the highest rate, the member's share is not taxed again, upholding the principle of single taxation. * Taxation When AOP/BOI Not Taxable: Both provide that if the AOP/BOI is not taxed, the member's share is taxed in his hands, preventing revenue loss. * Sequencing and Clarity: Clause 310 arguably pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returns of AOPs/BOIs and their members imposes an administrative burden. The clarity and sequencing in Clause 310 may assist in reducing disputes and facilitating compliance. Compliance and Procedural Aspects Members must obtain information about the computation of their share and the tax status of the entity. They may need certificates or statements from the AOP/BOI. Failure to correctly report the share may lead to disputes and penalties. Conclusion Clause 310 of the Income Tax Bill, 2025 represents a continuity and rationalization of the principles enshrined in Section 86 of the Income-tax Act, 1961. Both provisions are designed to allocate tax liability in respect of income from AOPs/BOIs in a manner that is fair, equitable, and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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