What is Partnership Firm
A partnership firm for the purpose of income-tax means a partnership firm as defined under the Indian Partnership Act, 1932 and includes a limited liability partnership firm as defined under the limited liability partnership ACT, 2008.
Taxation of Partnership Firms
There is not distinction as registered and unregistered firms. The partnership firms is taxed as a separate entity. For calculation of total income of the firm, any salary, bonus, commission or remuneration; to a partner, shall be deductible to certain restrictions.
Share Income of Firm
The partner income as a share of profit in the income of the firm will be fully exempt from income tax u/s 10(2A). Loss also cannot be set off against partner’s other income.
Interest to Partners
The firm can get deduction of interest paid to at the maximum rate of 12% p.a. or as per the partnership deed, but maximum interest allowed 12% in any conditions. Excess interest will be disallowed and add back to partnership firm.
Partner’s Salary/Remuneration
Any payment of salary, bonus, commission or remuneration to any partner will be allowed as deduction from the income of partnership firms subject to the following conditions:
- The salary should be paid to a working partner u/s 40(b)(i). You must have the proof to show, who is working partner, if dispute arises.
- The amount of salary has been specified in the partnership firm’.
How to calculate book profit and allowable partner salary
The amount of salary to all the partners for the previous year cannot exceed the limits given below.
For A.Y. 2010-11 (as Finance (No.2) Act, 2009 w.e.f. 1/4/2010)
| (a) On the first Rs. 3,00,000 of book profit or in case of a loss | @ 90% of the book profit or Rs. 1,50,000, whichever is more |
| On the balance of book-profit | @60% of the book profit. |
Rate of Tax
Firms are taxable at a rate of 30% flat. But if having long-term and short term capital gains then 20% and STT @15% respectively. No Surcharge will be levied for A.Y. 2010-11, but Education Cess @2% will be applicable.
We will discuss the assessment of firms, some example of taxation of partnership firms, income tax return filing process of firms and partners in our next articles.
Related posts:
- Taxation of Limited Liability Partnership (LLP)
- How is Limited Liability Partnership (LLP) is Taxed?
- Calculation of Remuneration to Partners in a Firm
- Partnership Deed | Dissolution Deed | Other Partnership Agreements and Forms
- Corporate Tax Rates : Income Tax Rates of Partnership Firms & Companies
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Very useful Thanku
Thanks all of the team for sending updated tax information.
please send the information regarding the Capital gains — equity shares — which was pledged with 3 rd party on behalf of 2nd party without intimation to the 1st party , the third party has sold through broker after seing the demat account the 1st party came to know and accordingly we pass the entry but whether any tax liability on LTCG. Please clarify the same.
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