What counts as an association of persons: a firm, a family business, an unregistered partnership?

For income tax, an association of persons (AOP) is a group of persons treated as one taxpayer, separate from its members. Section 80 of the Income Tax Ordinance, 2001 lists what it includes: a firm, a Hindu undivided family, any artificial juridical person, a limited liability partnership and any body of persons formed under a foreign law. A company is excluded.

What does the law say?

Section 80(1)(b) treats as a “person” a company or association of persons “incorporated, formed, organised or established in Pakistan or elsewhere”. Section 80(2)(a) then says an association of persons includes:

• a firm;
• a Hindu undivided family;
• any artificial juridical person;
• a limited liability partnership (added by the Finance Act, 2026); and
• any body of persons formed under a foreign law.

It “does not include a company”. A company is defined separately in section 80(2)(b).

Section 80(2)(c) defines a firm as “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”. Section 2(32) says a “member”, in relation to an AOP, includes a partner in a firm.

Section 92(1) is what gives the definition its weight. It makes an AOP liable to tax separately from its members, and exempts the amount a member receives as member out of the AOP’s income, where the AOP has paid tax.

Does a partnership have to be registered to be an AOP?

The Ordinance’s definition of a firm has three elements: persons, an agreement to share profits, and a business carried on by all or any of them acting for all. Registration with the Registrar of Firms is not one of those elements. Nothing in section 80 makes AOP status depend on a registered deed.

Registration of firms is dealt with under partnership law, which is not part of this corpus. This page does not cover what registration does or does not do under that law.

What about a family business?

A family business is not an AOP just because relatives work in it. The question under section 80(2)(c) is whether the family members have agreed to share the profits of a business carried on by all or any of them acting for all. If one person owns the business and pays relatives a wage, the elements of a firm are not described by that arrangement. If siblings have agreed to split the profits of a shop they run together, the words of the definition fit.

A Hindu undivided family is named separately in section 80(2)(a). The Ordinance does not define it in section 80.

Worked example (illustrative figures)

Three situations in Multan:

Situation	Agreement to share business profits?	Result under the Ordinance
Ayesha and Bilal run a catering business and split profits 50:50 under an oral understanding. No deed, no registration.	Yes	Matches the section 80(2)(c) definition of a firm, so an AOP
Tariq owns a mobile repair shop. His nephew works there on a monthly wage of Rs. 45,000.	No	Not a firm on the definition’s terms. Tariq’s business is his own
Sana and Hina jointly own a flat, 60:40, and let it out for Rs. 100,000 a month.	Property income, not a business	Section 66 applies. Each includes her share: Sana Rs. 60,000 a month, Hina Rs. 40,000

Step by step for the flat: Rs. 100,000 × 60% = Rs. 60,000 for Sana, and Rs. 100,000 × 40% = Rs. 40,000 for Hina. Over twelve months, that is Rs. 720,000 and Rs. 480,000, totalling Rs. 1,200,000, which matches Rs. 100,000 × 12.

What if …?

What if co-owners run a business from the jointly owned property? Section 66(2) says the joint-owner rule does not apply in computing income chargeable under the head Income from Business. Business income is outside section 66, so the section 80 definitions decide.

What if the co-owners’ shares are not fixed? Section 66(1) applies only where shares are “definite and ascertainable”. The section does not say what happens otherwise.

What if one of the partners is a company? The body is still an AOP, since the company is a member rather than the AOP itself. The first proviso to section 92(1) excludes the company’s share from the AOP’s income and taxes it at company rates.

Common mistakes

• Treating the lack of a deed or registration as decisive. The section 80 definition does not refer to either.
• Assuming all joint income is AOP income. Section 66 keeps joint owners of property with definite shares out of AOP assessment for that property.
• Treating employees as partners. A wage is not an agreement to share profits.
• Calling a company an AOP. Section 80(2)(a) excludes companies from the definition.

What to check in the official text

Read section 80 in full, including the definition of company in section 80(2)(b), which covers bodies such as modarabas, co-operative societies and trusts established under law. Read section 2(32) for “member” and section 66 for joint owners. How a firm is registered under partnership law, and any Board guidance on documents needed for an AOP’s registration, are outside this page.