Partnership firm

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  1. Bhavisha186

    Bhavisha186 New Member

    Partnership firm having profit rs. 79000/- after deduction of partner capital interest and remuneration , my query is for taxable profit shall we add partners capital interest & remuneration of pertner in above profit and then deducted allowable remuneration . on this figure we have to charge the tax @ 30%
    Pl. Ans. If any one getting this point ,
    Interest on partner is rs. 89300/- and remuneration is rs. 40000/-
    Partnership deed says remuneration payable to each partner shall be work out like - first 300000 - 9% to 1st part & 81% to 2nd part but if book profit of firm below 150000/- then 10% to 1st part, & 90% to 2nd part
  2. ZED

    ZED Well-Known Member

    Ma'am your query is not clear, please ask again. If possible , can you please provide the scanned copy or the pic of the relevant extract of the partnership deed determining the remuneration payable?
  3. Bhavisha186

    Bhavisha186 New Member

    As you required the photocopy of deed , here I m attached remunation distribution extract from the deed , also kindly guide tax liability of firm

    Attached Files:

  4. ZED

    ZED Well-Known Member

    Partnership firm profit after deduction of partner capital interest and remuneration = 79,000

    Add back
    Remuneration =40,000
    Interest on capital =89,300

    Less Interest on capital allowed as per I.T Act 89,300 [Since its 12%p.a] 89,300

    Less remuneration allowable (see computation below)

    Book profits = 79,000+40,000 = 1,19,000
    Remuneration allowable
    On 1st 300,000 ; 1.5 Lacs or 90% of the book profit whichever is HIGHER

    Therefore allowable remuneration is 1,50,000 Lacs in this case, as against actual remuneration of 40,000.

    Book profits are 1,19,000 , therefore remuneration as per the deed should have been
    To 1st partner 10% of 1,19,000 = 11,190
    To 2nd partner 90% of 1,19,000 = 1,07,100
    Total = 1,19,000

    Now, I am wondering how 40,000 was computed.

    Remuneration allowable as per Income tax (S.40(b)) = 150,000
    Last edited: Jul 30, 2016
  5. Bhavisha186

    Bhavisha186 New Member

    thanks sir,
    partner wish to take rs. 40000 as remuneration, we have already suggest them ,
    ZED likes this.
  6. Bhavisha186

    Bhavisha186 New Member

    now , shall we distribute all the profit as remuneration to partners , & partner's will pay the tax on it, is it viable ? as per the deed , second (b) condition if book profit below 1.5 lac.
  7. ZED

    ZED Well-Known Member

    [Wait a sec, do you mean to distribute all the book profit as remuneration as per the partnership deed? Yes, its viable. (re-check the previous post, it was edited)

    The share of profit of the firm is exempt u/s 10(2A)

    S.10(2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm.

    Explanation.—For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits ;

    But, I do not understand the purpose of doing so (Paying only 40,000 as remuneration)

    1. Remuneration is not being paid as per the partnership deed. I am wondering if AO can object to it.

    2. Tax payable by the firm is flat 30%, whereas to the partners, the share of profit is exempt u/s 10(2A) . Remuneration etc allowed as per S.40(b) are taxable in the hands of partner.

    Partners personal liability may decrease but the firms liability may increase.

    Why are we doing this?
  8. Bhavisha186

    Bhavisha186 New Member

    Thank you sir
    ZED likes this.
  9. Bhavisha186

    Bhavisha186 New Member

    If huf having a saving account on the name of karta , shall they do the business on the name of karta or they should adopt another name?
  10. ZED

    ZED Well-Known Member

    HUF should open a current account in its own name.
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