M/s PR Associates is an Association of Persons (AOP) has two members namely Mr. P and Mr. R. Mr. P aged 46 years has 65% share and Mr. R aged 44…

Since Mr. P and Mr. R's income, other than income from the AOP, does not exceed the basic exemption limit, the AOP would be taxed as per the default tax regime or old regime (as per normal provisions of the Act) applicable to an individual. In the present case, AOP is paying tax as per default tax regime. Its tax liability would be follows: Computation of tax liability of PR associates, AOP, as per the default tax regime Particulars Amount (₹) Tax on 11,80,000 3,00,000 - 7,00,000 @5% 20,000 7,00,000 - 10,00,000 @10% 30,000 10,00,000 - 11,80,000 @15% 27,000 77,000 Add: HEC @4% 3,080 Tax Liability 80,080 Computation of tax liability of Mr. R [As per Default Tax Regime] Particulars Mr. R Share of profit from AOP (65:35) 4,13,000 Other income 2,97,000 Total Income (A) 7,10,000 Tax 21,000 Add: HEC @4% 840 Total Tax (B) 21,840 Average rate of tax [B/A x 100] 3.076% Total Tax 21,840 Less: Rebate under section 86 read with section 110 in respect of share of profit from AOP (share in AOP x Average rate of tax) 12,704 Tax Liability 9,136 Tax Liability (Rounded off) 9,140 Note (Alternate Answer) – Section 87A provides a rebate in case where total income of a resident individual is chargeable to tax under section 115BAC does not exceed 7lakhs. However, rebate is also provided if total income exceeds 7lakhs and income-tax on such total income exceeds the amount by which the total income is in excess of 7lakhs. Section 86 read with section 110 provides a deduction from the amount of income-tax chargeable to tax of an amount equal to the income-tax calculated at the average rate of income-tax on the amount on which no tax is payable. There is no clarity in the provisions as to which rebate is to be provided first. In the main solution, rebate under section 86 is provided first in which case rebate under section 87A would not be applicable as the tax liability of 9,140 of Mr. R does not exceed - 10,000, being the difference between total income and 7lakhs. However, an alternative is possible that rebate under section 87A is provided before rebate under section 86. In such case, tax liability of Mr. R would be as follows: Computation of tax liability of Mr. R [As per Default Tax Regime] Particulars ₹ Share of profit from AOP (65:35) 4,13,000 Other income 2,97,000 Total Income (A) 7,10,000 Tax 21,000 Less: Rebate under section 87A 11,000 10,000 Add: HEC @4% 400 Total Tax (B) 10,400 Average rate of tax [B/A x 100] 1.465% Total Tax 10,400 Less: Rebate under section 86 read with section 110 in respect of share of profit from AOP (share in AOP x Average rate of tax) 6,050 Tax Liability 4,350