Karachi, September 24, 2024 – The Federal Board of Revenue (FBR) has introduced revised tax guidelines for Associations of Persons (AOPs) for the tax year 2024-25, aimed at clarifying the principles of taxation under Section 92 of the Income Tax Ordinance, 2001.
The updated guidelines focus on how AOPs will be taxed separately from their members and provide important details regarding exemptions and company-specific rules.
According to the FBR, Section 92 outlines that an AOP will be liable to tax independently from its members. If the AOP pays tax, the income received by its members from the AOP will be exempt from further taxation. However, this exemption comes with several important conditions and exclusions.
One significant provision is that if any member of the AOP is a company, the company’s share in the AOP’s income will not be included in the total income of the AOP for tax purposes. Instead, the company will be taxed separately according to the corporate tax rate applicable to its share of income. This ensures that companies participating in AOPs are taxed fairly and according to corporate tax structures, while other AOP members can still benefit from the tax exemptions.
Another key update in the guidelines addresses AOPs with large turnovers. Specifically, if an AOP has a turnover of 300 million rupees or more during the current tax year or any of the preceding tax years, the income received by the members will not be exempt unless the AOP submits audited financial statements. These financial statements must be filed by a firm of Chartered Accountants or Cost and Management Accountants, as defined under their respective ordinances.
The FBR further clarified that if the AOP’s income is fully exempt from tax under other provisions of the Income Tax Ordinance, the share received by the members in their capacity as AOP members will also remain exempt, reinforcing the principle of no double taxation on the same income.
These revised guidelines for AOPs seek to streamline the tax filing process and ensure greater transparency, especially for large-scale AOPs and those involving corporate entities. The FBR has emphasized the importance of timely submission of financial statements to avoid any loss of exemptions and to remain compliant with the new regulations.
By issuing these updated tax rules, the FBR aims to foster a more structured approach to AOP taxation while maintaining fairness and clarity in the taxation of both individuals and corporate members involved in such associations.
