Section 92 of the Income Tax Ordinance, 2001, outlines the fundamental principles governing the taxation of Associations of Persons (AOPs) in Pakistan.
This section, as updated up to June 30, 2021, provides the framework for the taxation of AOPs and addresses the treatment of income received by individual members.
The text of Section 92 is as follows:
92. Principles of taxation of associations of persons.—
(1) An association of persons shall be liable to tax separately from the members of the association, and where the association of persons has paid tax, the amount received by a member of the association in the capacity as a member out of the income of the association shall be exempt from tax:
Provided that if at least one member of the association of persons is a company, the share of such company or companies shall be excluded for the purpose of computing the total income of the association of persons. The company or companies shall be taxed separately, at the rate applicable to companies, according to their share.
The central idea behind this section is to establish the distinct tax liability of an association of persons, treating it as a separate entity from its individual members. The section also introduces a provision related to companies within the association.
Key Points from Section 92:
1. Separate Taxation for AOPs:
• An AOP is considered a separate taxable entity independent of its individual members.
• The association of persons is liable to pay tax on its income separately.
2. Exemption for Members:
• When the AOP has paid taxes on its income, any amount received by a member of the association is exempt from further taxation.
• Members are not taxed again on the income received from the AOP if the association has fulfilled its tax obligation.
3. Treatment of Companies within AOP:
• If the association includes at least one member that is a company, the share of such company or companies is excluded when calculating the total income of the AOP.
• Companies within the AOP are subject to separate taxation based on their share, applying the corporate tax rate.
4. Proviso for Applicability:
• The proviso introduces conditions for the exclusion of company shares and separate taxation.
• It specifies that companies within the AOP will be taxed separately, and their share is excluded when computing the total income of the AOP.
Disclaimer:
The text of Section 92 is provided for informational purposes, and it reflects the version of the Income Tax Ordinance, 2001, updated up to June 30, 2021. While efforts are made to provide accurate information, the team at PkRevenue.com is not liable for any errors or omissions in the text.
Section 92 plays a crucial role in establishing the tax framework for Associations of Persons, contributing to the clarity and fairness of the income taxation system in Pakistan.