Chapter XIV
Assessment of unincorporated body
Treatment of unincorporated bodies
14.1 Under the Code, partnership firms, association of persons and body of individuals will be collectively referred to as "unincorporated body" and their members as "participants".
14.2 The salient features of the scheme of taxation of unincorporated bodies are as under :
(a) An unincorporated body will be taxed as a separate entity.
(b) Any salary, bonus, commission or remuneration (by whatever name called), paid/payable to a working participant will be allowed as a deduction.
(c) Any interest paid to any participant will be allowed as a deduction.
(d) The total income of the unincorporated body after allowing deduction for payments referred to in (b) and (c) above will be subject to tax at the maximum marginal rate applicable to individuals. There will be no threshold exemption limit. However, the share of the participant in the profits of the unincorporated body will be exempt in his hands.
(e) The amount of salary, bonus, commission, remuneration and interest paid to a participant will be taxable in his hands.
(f) The unincorporated body will be entitled to carry forward and set off losses.
(g) In the case of change in the constitution of an unincorporated body on account of death/retirement of a participant, the body will not be entitled to carry forward so much of the loss as is attributable to the deceased/retiring participant.
Treatment of financial intermediaries
14.3 Under the Code, financial intermediaries like the mutual fund, venture capital fund, pension funds, superannuation funds, provident funds and life insurance companies will be treated as pass-thru entities. As a result, they would receive to the extent possible, income without any incidence of tax. They would also not be liable to pay any tax on income received by them for, or on behalf of, their investors. The investors will be liable to tax on any income which accrues to them from investment with any of the pass-thru entities. Further, this benefit will be available to all pass-thru entities irrespective of the sector in which they invest.
14.4 Based on the principle of pass-thru, the Code provides for rationalisation of the tax treatment of life insurance. Under the new scheme, contributions by the insured will be liable to EET method of taxation of savings. As a result, life insurance companies will not be required to pay any tax on the actuarial surplus in the policyholders’ account.
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