Chapter XVII - Special Provisions Relating to Certain Persons
Section 309
Section 309: computing a member's share in an AOP or BOI's income
Section 309 gives the mechanics for working out how much of an association of persons' (AOP) or body of individuals' (BOI) income belongs to each member, when the members' shares are determinate and known. It matters for the tax treatment set out in the following sections, 310 and 311.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) For the purposes of this section, sections 310 and 311, an association of persons or body of individuals shall not include a company or a co-operative society or a society registered under the Societies Registration Act, 1860, or under any law corresponding to that Act in force in any part of India.
(2) In computing the total income of an assessee who is a member of an association of persons or a body of individuals wherein the shares of the members are determinate and known, the share of a member in the income or loss of such association or body shall be computed in the following manner,––
(a) any interest, salary, bonus, commission or remuneration, by whatever name called, paid to any member in respect of the tax year shall be deducted from the total income of the association or body and the balance ascertained and apportioned among the members in the proportions in which they are entitled to share in the income of the association or body;
(b) the interest, salary, bonus, commission or remuneration referred to in clause (a), shall be,—
(i) added to the apportioned amount referred to in clause (a), if such apportioned amount is a profit; or
(ii) adjusted against the apportioned amount referred to in clause (a), if such apportioned amount is a loss, and the resultant amount shall be treated as the share of the member in the income of such association or body.
(3) The share of a member in the income or loss of the association or body, as computed under sub-section (2), shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the association or body has been determined under each head of income.
(4) Any interest paid by a member on capital borrowed by him for the purposes of investment in the association or body shall, in computing his share chargeable under the head “Profits and gains of business or profession” in respect of his share in the income of the association or body, be deducted from his share.
(5) For the purposes of this section, “paid” means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head “Profits and gains of business or profession”.
Introduction
Section 309 explains how to compute a member’s share of an association of persons or body of individuals where shares are known.
The computation adjusts member payments such as interest and remuneration, then preserves the underlying heads of income for the member’s share.
Key takeaways
Compute the member’s share
For an AOP or BOI with known shares, start from its income after the prescribed adjustment for amounts paid to members.
Member payments are adjusted
Interest, salary, bonus, commission or remuneration paid to the member is included or adjusted as the section directs.
Preserve income heads
The computed share is apportioned among the same heads under which the association or body earned its income.
What counts as an AOP/BOI for this purpose
For the purposes of Section 309 and sections 310 and 311, "association of persons or body of individuals" does not include a company, a co-operative society, or a society registered under the Societies Registration Act, 1860, or an equivalent law in any part of India.
Step 1: deduct interest, salary, bonus, commission or remuneration paid to members
In computing the total income of an assessee who is a member of an AOP/BOI where the members' shares are determinate and known, the member's share is worked out as follows: any interest, salary, bonus, commission or remuneration (by whatever name called) paid to any member for the tax year is deducted from the AOP/BOI's total income, and the balance is apportioned among the members in their income-sharing proportions.
Step 2: add back or adjust the member's own interest/salary/etc.
The interest, salary, bonus, commission or remuneration paid to that particular member is then added to his apportioned share (if the apportioned amount is a profit), or adjusted against it (if the apportioned amount is a loss) - the resulting figure is the member's share in the AOP/BOI's income.
Apportioning the share across heads of income
A member's share as computed above is, for assessment purposes, apportioned across the various heads of income in the same manner the AOP/BOI's own income or loss was determined under each head.
Interest on capital borrowed to invest in the AOP/BOI
Any interest paid by a member on capital he borrowed to invest in the AOP/BOI is deducted from his share chargeable under the head "Profits and gains of business or profession", in respect of his share of the AOP/BOI's income.
Meaning of "paid"
"Paid" means actually paid, or incurred according to the method of accounting on which the profits or gains are computed under the head "Profits and gains of business or profession".
Step-by-step flow for computing a member's share under Section 309
- 1
Is the entity an association of persons or body of individuals for this section?
Under Section 309(1), a company, a co-operative society and a society registered under the Societies Registration Act, 1860 (or a corresponding law) are excluded.
- No, it is an excluded entity: Sections 309 to 311 do not apply.
- Yes: Go to the next step.
- 2
Are the members' shares determinate and known?
Section 309(2) applies where they are. Where they are not, see Section 311.
- 3
Deduct payments to members and apportion the balance
Under Section 309(2)(a), interest, salary, bonus, commission or remuneration paid to any member for the tax year is deducted from the total income of the association or body, and the balance is shared in the profit-sharing ratio. "Paid" means actually paid or incurred under the method of accounting used (Section 309(5)).
- 4
Add back or adjust each member's own payments
Under Section 309(2)(b), the member's payment is added to a profit share or adjusted against a loss share. The result is the member's share.
- 5
Split the share by head and deduct borrowing interest
Under Section 309(3), the share is apportioned across heads of income in the same way as the association's income. Under Section 309(4), interest paid by the member on capital borrowed to invest in it is deducted from his share under "Profits and gains of business or profession".
Practical checklist
Do
- Confirm that the entity qualifies as an AOP/BOI for this rule and that member shares are known.
- Reconcile remuneration and interest paid to each member before allocating the residual income.
Avoid
- Treat a member’s distributed cash as necessarily equal to their statutory share of income.
Illustrative example
Worked example: two members sharing 60:40
Hypothetical facts (illustration only, not a real taxpayer): An association of persons with members X and Y sharing 60:40 has total income of ₹15,00,000 (assumed), all under "Profits and gains of business or profession", before deducting payments to members. It pays X a salary of ₹3,00,000 and Y interest of ₹1,00,000. Y paid interest of ₹50,000 on money borrowed to invest in the association. All figures are assumed.
Balance to share
₹15,00,000 − (₹3,00,000 + ₹1,00,000) = ₹11,00,000.
Apportion
X: 60% × ₹11,00,000 = ₹6,60,000. Y: 40% × ₹11,00,000 = ₹4,40,000.
Add back own payments
X: ₹6,60,000 + ₹3,00,000 = ₹9,60,000. Y: ₹4,40,000 + ₹1,00,000 = ₹5,40,000. Check: ₹9,60,000 + ₹5,40,000 = ₹15,00,000.
Head and borrowing interest
Both shares are business income, as the association's income is. Y deducts ₹50,000 under Section 309(4): ₹5,40,000 − ₹50,000 = ₹4,90,000.
Outcome
- X's share is ₹9,60,000 and Y's chargeable business share is ₹4,90,000.
- Whether those shares are taxed in the members' hands is decided under Section 310.
Frequently asked questions
Which entities are excluded from being treated as an AOP or BOI under Section 309?
A company, a co-operative society, and a society registered under the Societies Registration Act, 1860 (or equivalent state law) are all excluded from the definition of AOP/BOI for the purposes of sections 309, 310 and 311.
Can a member deduct interest on money borrowed to invest in the AOP or BOI?
Yes - Section 309(4) allows a member to deduct interest paid on capital borrowed for investing in the association or body from his share of business/profession income from that AOP/BOI.
Need help applying this provision to your situation?
Get help with AOP/BOI income computationLast updated 9 October 2026