Section 167B of Income-tax Act, 1961: Tax on AOP or BOI Where Members' Shares Are Unknown
Section 167B governs the rate of tax on an association of persons (AOP) or body of individuals (BOI) when members' shares are indeterminate, and prescribes special rates in certain cases even where their shares are known.
What is an AOP or BOI?
An association of persons is generally a group of persons joined in a common enterprise or activity with a common purpose of earning income, as understood in tax law. A body of individuals refers to a grouping of individuals assessed together where the legal conditions are met. Whether a particular arrangement constitutes an AOP or BOI depends on its facts, documents and applicable judicial principles; merely holding property together does not automatically settle the classification.
The statutory term maximum marginal rate (MMR) generally refers to the rate of income-tax, including applicable surcharge, relating to the highest slab of income in the case of an individual, AOP or BOI, as defined in the applicable legislation. It should not be assumed to be a flat 30% inclusive of all additions: surcharge and cess must be considered under the applicable tax-year rules.
Section 167B(1): Shares indeterminate or unknown
Where the individual shares of members in the whole or any part of the income of an AOP or BOI are indeterminate or unknown, tax is charged on its total income at the maximum marginal rate. If the total income of any member is chargeable at a rate higher than MMR, the higher rate applies to the total income of the association or body.
The text of Section 167B(1) expressly excludes a company, co-operative society and a society registered under the Societies Registration Act, 1860, or a corresponding law, from this particular rule. Their tax treatment must be examined under the provisions governing the relevant entity.
Section 167B(2): Shares known or determinate
Even when members' shares are known, the law specifies the following special outcomes:
- Member has income above the basic exemption limit: If any member's total income for the previous year, excluding the member's share from the AOP or BOI, exceeds the maximum amount not chargeable to tax for that member, the AOP or BOI is taxed at MMR.
- Member is subject to a rate higher than MMR: The portion of AOP or BOI income attributable to that member's share is charged at the higher rate; the balance is taxed at MMR, as provided by Section 167B(2)(ii).
Where the statutory conditions for these special rates are not met, the applicable ordinary rates and other relevant provisions must be considered rather than automatically applying MMR.
Explanation to Section 167B: When shares are treated as unknown
The Explanation deems the members' shares in the whole or any part of the AOP or BOI income to be indeterminate or unknown if they are indeterminate or unknown on the date of formation or at any time thereafter. Consequently, documenting each member's share clearly at formation and throughout the arrangement is important.
Tax treatment at a glance
| Situation | General statutory consequence |
|---|---|
| Member shares unknown or indeterminate | MMR on total AOP or BOI income, subject to a higher applicable member rate. |
| Member shares known; any member's other income exceeds their basic exemption limit | MMR on AOP or BOI income. |
| Member chargeable at a rate above MMR | Higher rate applies as specified to all income or the attributable portion, depending on the subsection. |
| Known shares and no special-rate condition triggered | Examine normal AOP or BOI rates and other applicable provisions. |
Illustrative example
Assume an AOP has taxable income of Rs. 10,00,000 and the agreement does not identify the individual members' shares. Section 167B(1) generally requires taxation at MMR, rather than applying ordinary individual slab rates simply because the members are individuals. The actual amount payable depends on the applicable MMR, surcharge, cess, other provisions and tax year.
Corresponding law: Section 311 of the Income-tax Act, 2025
Section 311 reorganises these rules into four subsections:
- Section 311(1): MMR where shares are unknown or indeterminate.
- Section 311(2): Higher rate where a member is chargeable above MMR.
- Section 311(3): Rules for determinate shares, including other income above the exemption threshold and higher-rate cases.
- Section 311(4): Deeming rule for shares that are unknown at formation or later.
The revised section should be read in its own terms, including any amendments applicable to the tax year. The wording of the 2025 provision is not identical in every respect to Section 167B of the 1961 Act.
Practical compliance points
- Maintain the deed, agreement or other instrument showing each member's entitlement and changes to it.
- Verify the income of each member, excluding their AOP or BOI share, when applying the known-share rules.
- Check whether any member is chargeable at a higher rate and how the relevant income is attributable.
- Apply the correct tax-year rates and examine return-filing, TDS, surcharge, cess and other requirements separately.
Official legal references
- Income Tax Department: Section 167B, Income-tax Act, 1961.
- Income Tax Department: Section 311, Income-tax Act, 2025.
- Income-tax Act, 2025 - official consolidated PDF.
- Income Tax Department: AOP, BOI, trust and other non-company tax guidance.
This article provides general statutory information. Rates and exemptions must be checked for the relevant tax year and the taxpayer's specific facts.