Taxes in case of employees union
This query is : Resolved
08 November 2017
Hello, my client have formed an employees union where the members contribute each month, they are registered as AOP and have around 500members and various expenses and also have interest income from FD. How the income tax would be calculated?Will the members contribution is treated as income?
08 November 2017
Members contribution will not be treated as income. Income tax payable on interest earned on fd.
09 November 2017
Thanks a lot sir for the reply. Could you please mention a section which deals with exemption of members contribution?
12 November 2017
Message not available
26 July 2025
You're welcome! Here's a detailed answer to your query about **taxation in case of an employees' union registered as an AOP**:
---
### ✅ **1. Taxability of Members' Contributions**
* **Members' contributions are generally *not* treated as income** of the union due to the **principle of mutuality**.
* This means: *"No one can make a profit out of himself."*
* Since the union and its members are considered the same for the purposes of these specific contributions (used for common benefit), the contributions are **not taxable**.
---
### 📜 **Legal Basis – Principle of Mutuality**
There is **no specific section in the Income Tax Act** exempting members' contributions in an employees' union. However, exemption arises from:
* **Judicial precedents** based on the **"Doctrine of Mutuality"**.
* Key Case Law:
* **Chelmsford Club v. CIT (2000) 243 ITR 89 (SC)**
Held: Income from members cannot be taxed due to mutuality.
* **CIT v. Royal Western India Turf Club Ltd. (1954) 26 ITR 551 (SC)**
---
### ✅ **2. Interest Income on FD**
* Interest earned on Fixed Deposits is **taxable** under the head **"Income from Other Sources"**.
* Principle of mutuality does **not apply** to such income, since the income is received **from a third party (bank)**.
---
### ✅ **3. Tax Calculation (Summary)**
| Source of Income | Taxability | Remarks |
| -------------------- | ------------- | ----------------------------------- |
| Member contributions | ❌ Not Taxable | Exempt under principle of mutuality |
| Interest on FD | ✅ Taxable | Taxable under "Other Sources" |
---
### ✅ **4. ITR Filing & Other Notes**
* Since the entity is an **AOP**, use **ITR-5** for filing.
* If **gross receipts exceed ₹2.5 lakh**, basic exemption benefit is **not available** if any member's income is taxable above the slab.
* Otherwise, the slab rates applicable to **individuals** may be allowed if AOP has no member whose income exceeds the basic exemption.
---
### 📌 Summary
* **No section** specifically exempts members' contributions — they are excluded from income under **judicial doctrine of mutuality**.
* **Only interest income is taxable**, not the contributions.
* File ITR-5 and report only the **taxable portion (FD interest)**.
Let me know if you'd like help drafting notes for tax computation or ITR filing.
---
### ✅ **1. Taxability of Members' Contributions**
* **Members' contributions are generally *not* treated as income** of the union due to the **principle of mutuality**.
* This means: *"No one can make a profit out of himself."*
* Since the union and its members are considered the same for the purposes of these specific contributions (used for common benefit), the contributions are **not taxable**.
---
### 📜 **Legal Basis – Principle of Mutuality**
There is **no specific section in the Income Tax Act** exempting members' contributions in an employees' union. However, exemption arises from:
* **Judicial precedents** based on the **"Doctrine of Mutuality"**.
* Key Case Law:
* **Chelmsford Club v. CIT (2000) 243 ITR 89 (SC)**
Held: Income from members cannot be taxed due to mutuality.
* **CIT v. Royal Western India Turf Club Ltd. (1954) 26 ITR 551 (SC)**
---
### ✅ **2. Interest Income on FD**
* Interest earned on Fixed Deposits is **taxable** under the head **"Income from Other Sources"**.
* Principle of mutuality does **not apply** to such income, since the income is received **from a third party (bank)**.
---
### ✅ **3. Tax Calculation (Summary)**
| Source of Income | Taxability | Remarks |
| -------------------- | ------------- | ----------------------------------- |
| Member contributions | ❌ Not Taxable | Exempt under principle of mutuality |
| Interest on FD | ✅ Taxable | Taxable under "Other Sources" |
---
### ✅ **4. ITR Filing & Other Notes**
* Since the entity is an **AOP**, use **ITR-5** for filing.
* If **gross receipts exceed ₹2.5 lakh**, basic exemption benefit is **not available** if any member's income is taxable above the slab.
* Otherwise, the slab rates applicable to **individuals** may be allowed if AOP has no member whose income exceeds the basic exemption.
---
### 📌 Summary
* **No section** specifically exempts members' contributions — they are excluded from income under **judicial doctrine of mutuality**.
* **Only interest income is taxable**, not the contributions.
* File ITR-5 and report only the **taxable portion (FD interest)**.
Let me know if you'd like help drafting notes for tax computation or ITR filing.
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