Associations of Persons (AOPs) are one of the most widely used business structures in Pakistan, especially for partnerships, family businesses, contractors, real estate ventures, and service providers. Because they involve multiple members, their taxation is handled differently from individuals and companies.
Section 92 of the Income Tax Ordinance, 2001 governs how income, profit, and tax liability of an AOP is calculated, allocated, and taxed among its members.
This guide provides a complete, simplified, and professional explanation, written specifically for business owners, tax filers, and finance managers.
1. What is an AOP According to Tax Law?
An Association of Persons (AOP) includes:
Partnerships (registered or unregistered)
Joint ventures
Consortia
Family-run businesses
Collaborative business arrangements
An AOP is treated as a separate taxable entity and must file its own income tax return and wealth statement.
2. Section 92 – The Core Principle of AOP Taxation
Section 92 explains:
AOP is taxed as a separate entity, AND its members are taxed separately on their share of profit.
Meaning:
The AOP calculates its taxable income.
The AOP pays tax on that income.
The remaining profit is allocated to its members.
Members must declare this share in their returns, but they do not pay tax again (because AOP has already paid tax on total income).
This prevents double taxation.
3. How AOP Income Is Calculated
The AOP calculates income under different heads:
Business income
Property income (if any)
Capital gains
Other income
After allowable adjustments and deductions, tax liability is calculated under normal slab rates for AOPs.
4. AOP Tax Rates
AOPs follow the non-salaried individual slab system (updated annually in the Finance Act).
Rates typically range from 0% to 35% depending on income level.
Minimum tax, withholding adjustments, and advance tax rules apply.
5. Distribution of Profit Among Members
Once the AOP pays its tax:
Net profit is divided as per partnership deed or agreed profit-sharing ratio.
Each member’s share is added to their taxable income, but NOT taxed again.
Example
Total AOP net profit after tax = 2,000,000
Member A share (40%) = 800,000
Member B share (60%) = 1,200,000
Members declare this in their personal returns under:
➡️ Share from AOP (Section 92) – Exempt from further tax
6. When Members Are Taxed Separately
Members of an AOP pay tax separately on:
Salary received from AOP
Commission
Drawings treated as remuneration
Interest on capital
Separate business or salary income
This income is not part of Section 92 exemption.
7. Final Tax vs Adjustable Tax for AOP
Most AOP income is adjustable tax, meaning creditable against final liability.
However, where AOP is engaged in:
Commercial imports
Contracts
Brokerage/commission
Supplies
Certain taxes (like 153, 148) may become minimum tax.
8. Compliance Requirements for AOPs
Every AOP must:
✔ Register for NTN
✔ File income tax return
✔ File wealth statement
✔ File members’ capital statements
✔ Deduct withholding tax where applicable
✔ Maintain books of accounts under Section 174
✔ Issue payment voucher statements (monthly/annual)
Non-compliance results in:
Penalties
Notices under Sections 111, 114, 122(5A)
Freezing of bank accounts
9. Common Problems Faced by AOPs
Not maintaining proper books
Unclear profit-sharing ratio
Incomplete partnership deeds
Cash deposits without evidence
Undeclared partner withdrawals
Improper CGT calculation
Mismatched withholding tax
Wrong member allocation
These lead to frequent FBR notices.
10. Why Hire a Tax Consultant for AOP Filing?
AOP taxation requires:
Expertise in Section 92
Adjustment of withholding taxes
Profit allocation
Partners’ taxation
Wealth reconciliation
Tanweer Habib & Co., known among the top tax consultants in Karachi, assists hundreds of AOP clients with:
✔ Return filing
✔ Partner income allocation
✔ Documentation
✔ Audit representation
✔ Compliance with withholding laws
FAQs — Taxation of AOPs (Section 92)
What is an AOP under Pakistan tax law?
A partnership or joint venture treated as a separate taxable entity.Does an AOP file a tax return separately?
Yes, an AOP files its own tax return and wealth statement.What is Section 92?
A section governing how profit of an AOP is allocated and taxed.Are AOP members taxed separately?
Members declare their share but do not pay tax again.Is AOP income taxed at individual slab rates?
Yes, using the non-salaried slab structure.Do AOPs pay minimum tax?
Yes, in certain cases like contracts and supplies.What is taxed in the hands of members?
Salary, commission, drawings, and separate income.Do partners need to declare capital accounts?
Yes, it is essential for wealth reconciliation.How is profit-sharing determined?
Through the partnership deed.Can a partner receive salary from AOP?
Yes, and it is separately taxable.Does CGT apply to AOP properties?
Yes, under general CGT rules.Is withholding tax applicable to AOPs?
AOPs must deduct tax on payments under Sections 153, 149, 155, etc.Can an AOP claim tax credits?
Yes, if eligible under various sections like 62, 64D, etc.What if partners disagree on profit allocation?
The partnership deed prevails legally.What if an AOP is not registered?
FBR still treats it as an AOP if business is conducted jointly.Do AOPs need audited accounts?
Depending on turnover thresholds.Can an AOP opt for final tax regime?
Only where applicable, such as certain contracts.What happens if AOP does not file tax return?
FBR imposes penalties and may freeze bank accounts.Can AOP partners be non-residents?
Yes, subject to separate tax rules.Who is the best consultant for AOP taxation?
Tanweer Habib & Co., offering specialized AOP and partnership taxation services.
