(1) Where AOP/BOI has paid tax at maximum marginal rate or at higher rate [Proviso (a) to section 86]:
Where the AOP/BOI has paid tax at maximum marginal rate or at the higher rate, as the case may be, the share of profit from the AOP/BOI will not be included in the Total Income of the members and will be exempt. Hence, in this case, member’s shares in the income of AOP/BOI shall not be computed under section 67A.
(2) Where the AOP/BOI has paid tax at the same rates as applicable to an individual:
Where the AOP/BOI has paid tax on its income at the same rates as applicable to individual (as none of the member had income exceeding maximum exemption limit and none of the members is taxable at a rate more than the maximum rate of tax), the respective share of income of the member in AOP/BOI shall be computed as per section 67A and the same will be included in the Total Income of each member as per section 66 read with section 86 although no income tax is payable on such income.
In this case as per section 110, the assessee shall be entitled to a deduction from the amount of income tax with which he is chargeable on his total income tax of an amount equal to the income-tax calculated at the average rate of income-tax on the amount on which no income tax is payable.
However, if the Total Income of AOP/BOI happens to be less than the Maximum Exemption Limit i.e. Rs. 2,50,000, the share of profit will be included in the Total Income of each member and taxed. No rebate in this case will be allowed. This is possible only when neither any member has income exceeding the maximum exemption limit nor any member is taxable at the rate exceeding the maximum marginal rate.
A company shall also be entitled to benefit of exemption under section 86 read with section 67A and section 110 as member of AOP can be a company. The exclusion provided under section 86 that other than company or the co-operative society or a society registered under the Societies Registration Act, would be made applicable only to AOP or BOI and not to the member.