A group of people affiliated to work toward a similar goal is an association of people. Both artificial and natural persons may be a part of the association of persons. A body of people is a collection of people (natural persons) who work together to generate wealth.
An “association of persons” is defined by the Income Tax Act of 1961 as two or more people working together for a common objective, usually to produce money. In the language of the association of individuals, a firm or a collection of people, whether or not they are corporations, can be called persons. An association of people can be formed without a written agreement.
The concepts of a body of people and an association of people are comparable. However, only two or more people can join a group of people to make money. As a result, an association of humans may also contain corporations instead of a body of individuals, which solely consists of people.
Indian law’s notion of a body of people and an association of people
In India, income tax is levied according to Section 4 of the Income Tax Act, 1961, which states that “where any central act enacts that income tax shall be charged for any assessment year at any rate or rates, income tax at those rates or those rates shall be charged for that year under and subject to the provisions of the Income Tax Act in respect of the total income of the previous year of every person.”
Currently, the term “person” as defined by Section 2(31) of the Income Tax Act of 1961 includes the following:
- An individual
- A Hindu undivided family
- A company
- A firm
- An association of persons or a body of individuals, whether incorporated or not
- A local authority
- Every artificial juridical person not falling within the above categories
Differences between a group of people and an association of people
“Body of individuals” and “association of persons” refer to two different configurations of humans. The restrictive interpretation is still true even though both statements are occasionally used interchangeably. We must stop using these words interchangeably because they refer to two different compositions.
A few key distinctions exist between an association of individuals and a body of people. A person among a group of people could be a company or a unique individual. Whether or not it is incorporated, any association, collection of individuals, or business may be called a “person.”
However, the only people permitted to do so are those who want to join a group of people and earn some money. This leads us to the conclusion that whereas a body of individuals consists completely of humans, an association of persons may also include legal organizations.
In a word, an association of people is an entity with legal obligations and rights. A group of people, or more literally, a “body of individuals,” could refer to a collection of individuals when they are, for instance, travelling by rail or waiting at a bus stop. However, legally speaking, they are not a group of people.
Additionally, even if an association of people designates a group, not all groups or combinations meet the requirements to be considered associations of people. These individuals can only be classified as an association of people if they engage in any form of revenue-generating activity.
Taxation—Association of persons and bodies of individuals
The methods listed below can be used to assess a group or association of people:
- This is opposed to an association of people or a group of people, where it is unclear what role each member plays individually.
- As opposed to an association of people or a group of people, where the individual shares of each member are known or fixed.
Individual shares of members—Unknown
When the individual shares of the members in the entirety or part of its income are uncertain or intermediate, the tax must be levied at the highest marginal rate on the association of persons’ or total body of individuals’ profits (exclusive of income taxable at a special rate).
Those above will apply, meaning that the higher percentage will be applied to the association of persons’ entire income if any member of the association of persons’ income is subject to a higher tax rate than the anticipated rate.
Individual shares of members—Known
The highest marginal rate of 30%, plus a surcharge of 10.15%, if necessary, in addition to paying a 3% cess, will be applied to a member of an association of people or body of people whose total income exceeds the maximum exemption limit. This assessment does not include income subject to special taxation.
If no member’s aggregate income exceeds the maximum exemption level, neither of the following circumstances may exist:
- No member is subject to taxation at a rate higher than the maximum marginal rate, nor is any member’s total income larger than the maximum exemption amount. In this case, the people will pay income tax at the same slab rates in effect for individuals on their combined income. The association of persons will benefit from the basic exemption of Rs. 2,50,000.
- No member receives an income that exceeds the maximum exemption limit. Still, one or more members are subject to tax rates higher than the maximum limit, which is only possible if the foreign company is also a member.
- The tax rate that applies to the portion of the association’s total income related to a member is the rate of income tax that applies to that member. The remaining portion of the association’s total income shall be taxed at the balance-free rate.
Share of income and exemption rules
- The amount of the association’s or body’s profit that is subject to a higher or marginal tax rate will not be included in the combined income of its members and will thus be exempt.
- If the group of people pays tax at the precise rate payable to an individual, the resulting share of earnings will be counted toward each member’s total income.
Legal provisions governing the taxation of bodies of people and associations of people
The term “income” in the Income Tax Act refers to a periodic fiscal return that “comes in” from specific sources with some degree of uniformity or anticipated regularity. The Income Tax Act’s Section 2(24) definition of income is inclusive. Income comprises earnings or gains from a business or profession and any advantage, perk, or amenity acquired from such a business or profession.
Income from a wage includes any additional or substitute benefits, allowances, perks, or perquisites. Contributions are made voluntarily to a charity, a research organization, a sports promotion organization, or a religious trust.
The revenue from each source is added up to determine a person’s gross total income. The provisions of the Income Tax Act, as they were on the first day of April of any assessment year, are used to compute the total income from all of the types mentioned earlier.
After reducing allowable deductions, the amount of income tax that must be paid is determined using the established rates. Suppose a person’s income comes from many sources. In that case, the person has the right to claim the deductions allowed under each source, whether or not the computation under each resource produces taxable income.
Since the term “person” also refers to a group of people or an association of people, they would be subject to taxation similarly, with certain differences. After determining the association of persons’ revenue source, the next stage is to determine the residence status of the association of persons and the body of individuals. The ability to pay income taxes depends on a person’s residency status. A group of people may be residents or nonresidents.
Conclusion
In summary, it may be said that the word “association of persons” has legal significance and refers to a group that exercises rights and obligations. They should not be understood factually.
For instance, a group or a body of people may be used in the literal sense to refer to six people riding in a bus or waiting at a bus stop. However, they are not a group of people in a legal sense. They may be an association of persons. Still, they are not an association of persons in the legal sense when a group of helpers gathers at the scene of a disaster or an attack and associates with or cooperates to aid victims rather than acting in their interests.
