Section 86 Income Tax Act: AOP and BOI Member Share Tax Treatment
Section 86 of the Income-tax Act, 1961 governs whether a member of an association of persons (AOP) or body of individuals (BOI) must pay income tax on the member's share of the association's or body's income. The result depends on how the AOP or BOI is taxed. The member's share is calculated under Section 67A.
1. What Section 86 covers
Section 86 addresses the share of a member in the income of an AOP or BOI, other than a company, co-operative society, or society registered under the Societies Registration Act, 1860 or a corresponding law. It is a rule to prevent or regulate double taxation of the same AOP/BOI income; it is not a blanket exemption for every payment a member receives.
An association of persons is generally a group of persons assessed collectively as an AOP under income-tax law. A body of individuals is a grouping of individuals assessed as a BOI. Their legal classification depends on facts and the applicable law. A member's share must be distinguished from separate remuneration, interest or other income, which may be governed by different provisions.
2. Three outcomes under Section 86
| Tax position of AOP or BOI | Tax treatment of member's share |
|---|---|
| AOP/BOI is chargeable at the maximum marginal rate or a higher rate | Share calculated under Section 67A is excluded from the member's total income under the first proviso, clause (a). |
| AOP/BOI is chargeable to income tax, but not at the maximum marginal rate or higher rate | Share forms part of the member's total income, but no income tax is payable by the member in respect of that share under the main provision, read with the first proviso, clause (b). Its inclusion can affect the rate applicable to other taxable income. |
| No income tax is chargeable on the AOP/BOI's total income | The second proviso applies: the member's share is taxable as part of the member's total income; the relief in Section 86 does not apply. |
Maximum marginal rate is a defined tax-law expression generally referring to the highest rate of income tax, including applicable surcharge, for the relevant category under the law. Whether an AOP/BOI is chargeable at that rate requires examining the applicable Income-tax Act, including Section 167B of the 1961 Act and the relevant year's rates.
3. How a member's share is computed: Section 67A
Section 67A prescribes the method for computing a member's share of income in an AOP or BOI in which the members' shares are determinate and known, subject to the exclusions specified in that section. Broadly, the calculation begins with the AOP/BOI's income, adjusts for interest, salary, commission or other remuneration paid to members as prescribed, and apportions the balance according to members' shares. The member's own remuneration and interest are then considered as directed by Section 67A.
The calculation must follow the actual statutory provisions and the AOP/BOI's assessment; a simple cash distribution is not necessarily the same as the share computed under Section 67A.
4. Practical examples
Example A - maximum marginal rate: An AOP is chargeable at the maximum marginal rate and a member's Section 67A share is Rs. 2,00,000. That share is excluded from the member's total income under Section 86, subject to the applicable statutory conditions.
Example B - other taxable AOP: An AOP is chargeable at a rate below the maximum marginal rate and a member's computed share is Rs. 1,50,000. The share is included in the member's total income, but tax is not payable on that share itself under Section 86; it may affect the rate of tax on the member's remaining income.
Example C - AOP not chargeable to tax: Where no income tax is chargeable on the AOP's total income, the member's share is taxable in the member's hands under the second proviso. The member's personal tax position and other provisions remain relevant.
5. Exclusions and important qualifications
- Section 86 expressly excludes companies, co-operative societies and registered societies described in its opening words.
- Tax treatment depends on whether income tax is chargeable on the AOP/BOI's total income, not merely whether tax was actually paid.
- Where shares are indeterminate or unknown, special AOP/BOI tax rules may apply; Section 67A should not be applied without checking its scope.
- Amounts received independently by a member should not automatically be characterised as the member's Section 67A share.
- For assessments under the 1961 Act, read Section 86 with Sections 67A and 167B and the applicable Finance Act.
6. Legislative background and the Income-tax Act, 2025
The version of Section 86 reproduced in the original law was substituted by the Finance Act, 1992 (Act 18 of 1992), section 49, with effect from 1 April 1993. Its two provisos create the different treatments described above.
The Income Tax Department's legislation portal and the India Code statutory database should be consulted for the authoritative text, commencement provisions and corresponding treatment under the Income-tax Act, 2025. Do not assume that a provision numbered Section 86 in the 2025 Act has the same subject as Section 86 in the 1961 Act.
7. Frequently asked questions
Is an AOP member's share always exempt?
No. Under Section 86, the answer depends on whether the AOP/BOI is chargeable at the maximum marginal rate, at another rate, or not chargeable to tax at all.
Does a member pay tax twice on the same AOP income?
Section 86 provides different mechanisms to address double taxation when the AOP/BOI is chargeable to tax. The member's share may be excluded from total income or included without tax payable on that share, depending on the case.
Is Section 86 the same as Section 87A?
No. Section 86 concerns a member's share in AOP/BOI income. Section 87A concerns a rebate of income tax for eligible individuals and is a separate provision.
8. Statutory references
- Income Tax Department - Income-tax Act and statutory materials
- India Code - Central Acts, including the Income-tax Act, 1961 and Income-tax Act, 2025
- Income Tax e-Filing portal - returns and guidance
This article is a general legal explanation. The applicable tax year, AOP/BOI assessment and member's individual circumstances determine the correct treatment.