Partnership Firm

 PARTNERSHIP FIRM

 Income Tax Rates on Partnership Firm for A.Y. 2016-17

• Flat Rate of 30%
• Long – term capital gains shall be taxable @20%
• Short -term capital gains from shares/securities, subjected to Securities Transaction Tax @15%
• Surcharge is payable @12% in case of firms having total income above Rs.1 crore (10% for A.Y.2015-16 as given below). Besides, Education Cess @2% and Secondary & Higher Education Cess @1% of income-tax and surcharge shall be leviable.

Income Tax Rates on Partnership Firm for A.Y. 2015-16

Income Tax Rate	Surcharge	Education Cess
30% on whole of the income	10% surcharge will be applicable where total taxalbe income is over Rs.1 Crore.	3% (2% of income tax and Additional Secondary & Higher Education Cess @ 1% is also levied on all assessees.

Income Tax Rates on Partnership Firm for A.Y. 2014-15

Income Tax Rate	Surcharge	Education Cess
30%	10% surcharge will be applicable where total taxalbe income is over Rs.1 Crore.	3%

A partnership firm for the purpose of income tax means a partnership firm includes a limited liability partnership firm.

Partnership Taxation

Partnership firm is treated as a separate entity. It is immaterial that partnership is registered or not registered. So partnership firm is taxes under the income tax slab for partnership firm and partners are taxes under the income tax slab for individuals.

Partnership Income Tax Slab/ Income Tax Rates on Partnership Firm for A.Y. 2013-14 

Partnership Firm are taxed at a flat rate irrespective of income for the A.Y.2013-14 or F.Y.2012-13 as follows 

Rate of tax :-Flat rate of 30% on the total income after deduction of interest and remuneration to partners/Designated Partners at the specified rates + Surcharge of 10% if Total Income exceeds 1 Crore and will be further increased by education cess secondary and higher education cess @ 3% on Income-tax.

Interest to Partners:- (Simple interest) Not exceeding 12% p.a. from 1-6-2002 (18% p.a. up to 31-5-2002).

Remuneration to Partners/Designated Partners

1. Payment of Remuneration to a non-working partner will not be allowed as a deduction
2. A ‘working partner’ is an individual who is actively engaged in conducting the affairs of the business or profession of the firm.
3. Quantum of allowance is to be determined with reference to ‘book profit’ which is defined to mean an amount computed in accordance with the provisions of sections 28 to 44D of the Income-tax Act, as increased by the amount of remuneration to partners if deducted in determining book profit.
4. Maximum permissible deduction for payment of remuneration to working partners. Upto A.Y. 2009-10, the maximum permissible deduction was as under :

Professional firms		Business firms
Book Profit/Loss	% or amount of deduction	Book Profit/Loss	% or amount of deduction
i. Loss	Rs. 50,000	i. Loss	Rs. 50,000
ii. Profit Rs. 50,000		ii. Profit
up to Rs. 50,000	Rs. 50,000	up to Rs. 50,000	Rs. 50,000
up to Rs. 1,00,000*	90%	up to Rs. 75,000*	90%
next Rs. 1,00,000	60%	next Rs. 75,000	60%
Balance profit	40%	Balance profit	40%
*(higher of Rs. 50,000 or prescribed percentage)
From A.Y. 2010-11, deduction for payment of remuneration to working partners for both Business as well as professional firms  has changed as under:
Book Profit/Loss	% of amount of deduction
(i) loss or profit upto Rs. 3,00,000	Rs. 1,50,000/- or 90% of Book Profit whichever is more
(ii) on the balance	60% of book profit

Conditions for allowance of remuneration and interest to partners

1. Remuneration should be to a working partner.

2. Payment of remuneration and interest should be authorised by and should be in accordance with the terms of the partnership deed and should relate to any period falling after the date of such partnership deed.

3. No deduction u/s. 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration — Circular No. 739 dt. 25-3-1996.

Conditions for assessment as a firm

1. The partnership should be evidenced by an instrument in writing specifying individual shares of the partners.

2. A certified copy of the instrument signed by all the partners (not being minors) shall accompany the return of the firm for the first assessment as a ‘firm’.

3. In case of any change in the constitution of the firm or shares of the partners in any previous year, the firm shall furnish a certified copy of the revised instrument of partnership signed by all the partners (not minors) along with the return of income for that A.Y.

4. If any default is made in compliance with the above provisions, the firm will be assessed as a firm without deducting interest and salary to partners from A.Y. 2004-05 onwards and as an AOP up to A.Y. 2003-04.

5. If any failure is made as mentioned in S. 144 (ex parte assessment) the firm  shall be assessed as a firm  from A.Y. 2004-05 without deducting interest and salary to partners and as an AOP up to A.Y. 2003-04.

Partners’ assessments

1. Once tax is paid by firm , no tax will be payable by the partners on share of income from the firm .

2. Amount of Interest and/or remuneration etc. received by a partner will be taxed in his hands as ‘Business or Professional Income’, excluding the amount disallowed in the hands of the firm  being in excess of limits laid down in S. 40(b) and from A.Y. 2004-05 amount disallowed in the event of any failure as mentioned in S. 144 or non compliance of S. 184.

Losses of the firm

Unabsorbed loss including depreciation in respect of A.Y. 1993-94 onwards of the firm  will not be apportioned amongst the partners and will be carried forward by the firm  only.

Allowability of remuneration and interest vis-a-vis presumptive taxation

Remuneration and interest will be allowed as deduction from the presumptive income computed at prescribed rate u/ss. 44AD, 44AE & 44AF.

Due dates for filing return of firm

a. 30th September, where accounts of the partnership firm  are required to be audited under Income- tax Act or under any other law for the time being in force.

b. 31st July in any other cases.

Due dates for filing of returns of partners

a. 30th September in case of a  working partner of a firm  (whether or not he is entitled to remuneration) where due date for filing return of firm  is 30th September.

b. 31st July for other partners

- See more at: http://taxguru.in/income-tax/all-about-taxation-of-partnership-firms.html#sthash.sxWgzFEc.dpuf

Rate of tax :-Flat rate of 30% on the total income after deduction of interest and remuneration to partners/Designated Partners at the specified rates + Surcharge of 10% if Total Income exceeds 1 Crore and will be further increased by education cess secondary and higher education cess @ 3% on Income-tax.

Interest to Partners:- (Simple interest) Not exceeding 12% p.a. from 1-6-2002 (18% p.a. up to 31-5-2002).

Remuneration to Partners/Designated Partners

1. Payment of Remuneration to a non-working partner will not be allowed as a deduction
2. A ‘working partner’ is an individual who is actively engaged in conducting the affairs of the business or profession of the firm.
3. Quantum of allowance is to be determined with reference to ‘book profit’ which is defined to mean an amount computed in accordance with the provisions of sections 28 to 44D of the Income-tax Act, as increased by the amount of remuneration to partners if deducted in determining book profit.
4. Maximum permissible deduction for payment of remuneration to working partners. Upto A.Y. 2009-10, the maximum permissible deduction was as under :

Professional firms		Business firms
Book Profit/Loss	% or amount of deduction	Book Profit/Loss	% or amount of deduction
i. Loss	Rs. 50,000	i. Loss	Rs. 50,000
ii. Profit Rs. 50,000		ii. Profit
up to Rs. 50,000	Rs. 50,000	up to Rs. 50,000	Rs. 50,000
up to Rs. 1,00,000*	90%	up to Rs. 75,000*	90%
next Rs. 1,00,000	60%	next Rs. 75,000	60%
Balance profit	40%	Balance profit	40%
*(higher of Rs. 50,000 or prescribed percentage)
From A.Y. 2010-11, deduction for payment of remuneration to working partners for both Business as well as professional firms  has changed as under:
Book Profit/Loss	% of amount of deduction
(i) loss or profit upto Rs. 3,00,000	Rs. 1,50,000/- or 90% of Book Profit whichever is more
(ii) on the balance	60% of book profit

Conditions for allowance of remuneration and interest to partners

1. Remuneration should be to a working partner.

2. Payment of remuneration and interest should be authorised by and should be in accordance with the terms of the partnership deed and should relate to any period falling after the date of such partnership deed.

3. No deduction u/s. 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration — Circular No. 739 dt. 25-3-1996.

Conditions for assessment as a firm

1. The partnership should be evidenced by an instrument in writing specifying individual shares of the partners.

2. A certified copy of the instrument signed by all the partners (not being minors) shall accompany the return of the firm for the first assessment as a ‘firm’.

3. In case of any change in the constitution of the firm or shares of the partners in any previous year, the firm shall furnish a certified copy of the revised instrument of partnership signed by all the partners (not minors) along with the return of income for that A.Y.

4. If any default is made in compliance with the above provisions, the firm will be assessed as a firm without deducting interest and salary to partners from A.Y. 2004-05 onwards and as an AOP up to A.Y. 2003-04.

5. If any failure is made as mentioned in S. 144 (ex parte assessment) the firm  shall be assessed as a firm  from A.Y. 2004-05 without deducting interest and salary to partners and as an AOP up to A.Y. 2003-04.

Partners’ assessments

1. Once tax is paid by firm , no tax will be payable by the partners on share of income from the firm .

2. Amount of Interest and/or remuneration etc. received by a partner will be taxed in his hands as ‘Business or Professional Income’, excluding the amount disallowed in the hands of the firm  being in excess of limits laid down in S. 40(b) and from A.Y. 2004-05 amount disallowed in the event of any failure as mentioned in S. 144 or non compliance of S. 184.

Losses of the firm

Unabsorbed loss including depreciation in respect of A.Y. 1993-94 onwards of the firm  will not be apportioned amongst the partners and will be carried forward by the firm  only.

Allowability of remuneration and interest vis-a-vis presumptive taxation

Remuneration and interest will be allowed as deduction from the presumptive income computed at prescribed rate u/ss. 44AD, 44AE & 44AF.

Due dates for filing return of firm

a. 30th September, where accounts of the partnership firm  are required to be audited under Income- tax Act or under any other law for the time being in force.

b. 31st July in any other cases.

Due dates for filing of returns of partners

a. 30th September in case of a  working partner of a firm  (whether or not he is entitled to remuneration) where due date for filing return of firm  is 30th September.

b. 31st July for other partners

- See more at: http://taxguru.in/income-tax/all-about-taxation-of-partnership-firms.html#sthash.sxWgzFEc.dpuf

Rate of tax :-Flat rate of 30% on the total income after deduction of interest and remuneration to partners/Designated Partners at the specified rates + Surcharge of 10% if Total Income exceeds 1 Crore and will be further increased by education cess secondary and higher education cess @ 3% on Income-tax.

Interest to Partners:- (Simple interest) Not exceeding 12% p.a. from 1-6-2002 (18% p.a. up to 31-5-2002).

Remuneration to Partners/Designated Partners

1. Payment of Remuneration to a non-working partner will not be allowed as a deduction
2. A ‘working partner’ is an individual who is actively engaged in conducting the affairs of the business or profession of the firm.
3. Quantum of allowance is to be determined with reference to ‘book profit’ which is defined to mean an amount computed in accordance with the provisions of sections 28 to 44D of the Income-tax Act, as increased by the amount of remuneration to partners if deducted in determining book profit.
4. Maximum permissible deduction for payment of remuneration to working partners. Upto A.Y. 2009-10, the maximum permissible deduction was as under :

Professional firms		Business firms
Book Profit/Loss	% or amount of deduction	Book Profit/Loss	% or amount of deduction
i. Loss	Rs. 50,000	i. Loss	Rs. 50,000
ii. Profit Rs. 50,000		ii. Profit
up to Rs. 50,000	Rs. 50,000	up to Rs. 50,000	Rs. 50,000
up to Rs. 1,00,000*	90%	up to Rs. 75,000*	90%
next Rs. 1,00,000	60%	next Rs. 75,000	60%
Balance profit	40%	Balance profit	40%
*(higher of Rs. 50,000 or prescribed percentage)
From A.Y. 2010-11, deduction for payment of remuneration to working partners for both Business as well as professional firms  has changed as under:
Book Profit/Loss	% of amount of deduction
(i) loss or profit upto Rs. 3,00,000	Rs. 1,50,000/- or 90% of Book Profit whichever is more
(ii) on the balance	60% of book profit

Conditions for allowance of remuneration and interest to partners

1. Remuneration should be to a working partner.

2. Payment of remuneration and interest should be authorised by and should be in accordance with the terms of the partnership deed and should relate to any period falling after the date of such partnership deed.

3. No deduction u/s. 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration — Circular No. 739 dt. 25-3-1996.

Conditions for assessment as a firm

1. The partnership should be evidenced by an instrument in writing specifying individual shares of the partners.

2. A certified copy of the instrument signed by all the partners (not being minors) shall accompany the return of the firm for the first assessment as a ‘firm’.

3. In case of any change in the constitution of the firm or shares of the partners in any previous year, the firm shall furnish a certified copy of the revised instrument of partnership signed by all the partners (not minors) along with the return of income for that A.Y.

4. If any default is made in compliance with the above provisions, the firm will be assessed as a firm without deducting interest and salary to partners from A.Y. 2004-05 onwards and as an AOP up to A.Y. 2003-04.

5. If any failure is made as mentioned in S. 144 (ex parte assessment) the firm  shall be assessed as a firm  from A.Y. 2004-05 without deducting interest and salary to partners and as an AOP up to A.Y. 2003-04.

Partners’ assessments

1. Once tax is paid by firm , no tax will be payable by the partners on share of income from the firm .

2. Amount of Interest and/or remuneration etc. received by a partner will be taxed in his hands as ‘Business or Professional Income’, excluding the amount disallowed in the hands of the firm  being in excess of limits laid down in S. 40(b) and from A.Y. 2004-05 amount disallowed in the event of any failure as mentioned in S. 144 or non compliance of S. 184.

Losses of the firm

Unabsorbed loss including depreciation in respect of A.Y. 1993-94 onwards of the firm  will not be apportioned amongst the partners and will be carried forward by the firm  only.

Allowability of remuneration and interest vis-a-vis presumptive taxation

Remuneration and interest will be allowed as deduction from the presumptive income computed at prescribed rate u/ss. 44AD, 44AE & 44AF.

Due dates for filing return of firm

a. 30th September, where accounts of the partnership firm  are required to be audited under Income- tax Act or under any other law for the time being in force.

b. 31st July in any other cases.

Due dates for filing of returns of partners

a. 30th September in case of a  working partner of a firm  (whether or not he is entitled to remuneration) where due date for filing return of firm  is 30th September.

b. 31st July for other partners

- See more at: http://taxguru.in/income-tax/all-about-taxation-of-partnership-firms.html#sthash.sxWgzFEc.dpuf