INCOME TAX CALCULATION OF PARTNERSHIP FIRMS & LLPs FOR F. Y. 2018-19
No change has been proposed in the Union Budget, 2018 in respect of the Rate of Income Tax for the Partnership Firms & LLP’s. We are discussing below the Rate of Income Tax and method of Calculation of the Profits of a Partnership Firm:-
A) Rate of Income Tax : 30 % of Total Income
B) Rate of Surcharge :
If Total Income upto 1 Crore – NIL
If Total Income > 1 Crore – 12%
C) Health & Education Cess : 4% of the Income Tax & Surcharge (replaced 3% Cess in preceding year)
D) Expenses that can be claimed only if mentioned in the Partnership Deed of the Firm:-
(i) Remuneration to Partners – Subject to Limits prescribed below:-
|Book Profit (BP) of the Firm||Allowable Remuneration|
|In case of Loss||Rs. 150000/-|
|Book Profit (BP) <= Rs. 3 Lakhs||Higher of Rs. 1,50,000/- or @ 90 % of Book Profits|
|Book Profit (BP) > Rs. 3 Lakhs||2,70,000/- + (BP – 3,00,000) * 60%|
(ii) Interest on Partners Capital – Maximum upto 12 % p.a.
E) PRESUMPTIVE COMPUTATION OF PROFIT
Also applicable on Business Income of Individuals & HUF
(I) FOR SMALL BUSINESSES OTHER THAN LLP (Section 44 AD)
[Not applicable on LLPs, profession u/s 44AA (1), Commission/ Brokerage Income & Agency Business]
Turnover upto Rs. 200 Lakhs
Deemed Profit –
i) 6% of Gross Receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.
ii) 8% of Gross Receipts other than those covered in para (a) above.
(II) FOR SMALL PROFESSIONAL (Section 44 ADA)
Gross Receipt upto Rs. 50 Lakhs
Deemed Profit – 50% of Gross Receipt
ISSUES RELATED TO PRESUMPTIVE PROFITS THAT NEED ATTENTION
i) An Eligible Assessee is allowed to declare profits in excess of the Deemed Profit;
ii) If an Eligible Person wants to declare profit, lower than the Deemed Profit prescribed u/s 44AD or 44ADA, then he is required to get his accounts audited in accordance with Income Tax Act, 1961.
iii) For Partnership Firms declaring their presumptive profit u/s 44AD or 44ADA, the Partners Remuneration and Interest are not allowed to be deducted from the ‘Deemed Profit’ derived under the aforesaid sections. They are presumed to be part of the expenses.
BENEFITS OF PRESUMPTIVE COMPUTATION OF PROFITS
i) Exemption from the compliance burden of maintaining books of accounts.
ii) Exempted from advance tax and allowed to pay their entire tax liability before the due date of filling the return or actual date of filing their return whichever is earlier.