Section 309 of the Income-tax Act, 2025 — Computing a Member's Share in AOP / BOI Income

In plain language

What Section 309 actually deals with

Important scope note: Although this page was tagged under "trusts & charitable", Section 309 of the Income-tax Act, 2025 does NOT deal with charitable trusts. Section 309 lays down the method of computing a member's share in the income of an Association of Persons (AOP) or a Body of Individuals (BOI). It is the re-enactment of the old Section 67A of the Income-tax Act, 1961. (Charitable trusts / Registered Non-Profit Organisations are governed by Sections 332 to 355 in Part B of Chapter XVII.)

In plain words, when two or more persons come together as an AOP or BOI, the group earns income as one unit. Section 309 tells you how to slice that income back out to each member so it can be correctly reflected in each member's own return. It is a "mechanics" section — it does not itself charge tax; charging happens under Section 308 (on the AOP/BOI) and Section 310 (deciding whether the member's slice is again taxed in the member's hands).

Who it applies to

• Applies to: Members of an AOP or BOI where the shares of members are determinate and known (i.e. the deed/agreement clearly fixes each member's share).
• Does NOT apply where shares are indeterminate/unknown — in that case Section 307 kicks in and the whole income is taxed at the Maximum Marginal Rate (MMR) in the AOP/BOI's own hands.
• Excludes a company, a co-operative society, and a society registered under the Societies Registration Act, 1860 (or a corresponding State law). These are not treated as an AOP/BOI for this purpose.

The computation method — step by step

1. Start with the total income of the AOP/BOI as computed under the Act.
2. Deduct any interest, salary, bonus, commission or remuneration paid by the AOP/BOI to any member for the tax year. (Note: at the entity level such payments to members are generally disallowed as a deduction — the equivalent of the old Section 40(ba) rule — so this deduction under Section 309 is only for the apportionment exercise, to avoid double counting.)
3. Apportion the balance among the members in the proportion in which they share the income of the AOP/BOI.
4. Add back to each member's apportioned figure the interest/salary/bonus/commission/remuneration that member received. This gives the member's share.
5. Loss case: if the balance after step 2 is a loss, that loss is apportioned among members and then adjusted against the remuneration/interest the member received.

Key features you should know

• Character/head is preserved. The member's share retains the same head of income as it had in the AOP/BOI's computation — so a member's slice of business income stays "Profits and gains of business or profession", a slice of capital gains stays capital gains, and so on.
• Interest on money borrowed to invest: if a member borrows capital to put into the AOP/BOI, the interest paid on that borrowing is deductible from the member's share, chargeable under "Profits and gains of business or profession".
• "Paid" means paid or incurred, depending on whether the AOP/BOI follows cash or mercantile accounting.

How it interacts with related sections

• Section 308 charges the AOP/BOI to tax on its income.
• Section 307 forces MMR taxation where member shares are indeterminate/unknown — Section 309 only operates when shares ARE determinate.
• Section 310 is the anti-double-taxation companion: after Section 309 computes the member's share, Section 310 decides whether that share is again included and taxed in the member's total income (broadly, it is excluded from tax in the member's hands where the AOP/BOI has already been taxed at normal or MMR rates, and included where the AOP/BOI paid no tax).

Practical implications

• Draft a clear deed. To stay out of the punitive MMR regime under Section 307, the AOP/BOI agreement must fix each member's share precisely.
• Report the share even if it is exempt. Members often must show their AOP/BOI share in their return for rate purposes (aggregation), even when Section 310 keeps it out of the taxed amount.
• Keep records of member payments and borrowings — salary, interest, and the loan taken to invest — because these drive both the deduction at step 2 and the add-back at step 4.