tax beneficial scheme
Diana
(Querist) 27 July 2009
This query is : Resolved
I want to change a partnership firm into a private ltd. company. While doing so i want to know what are the tax beneficial provisions under Income tax act 1961 for such change?
A V Vishal
(Expert) 27 July 2009
Diana
The benefit of tax in both cases are almost identical, both the entities are taxed at 30.9% if the net income of the entities are below Rs1.00 Crore but the moment it crosses the 1.00 Crore mark, they are required to additionally bear 10% as surcharge on income tax. Further, in case of a partnership the remuneration can be decided on basis of the partnership deed, but it happens that the firm's income does not qualify this limit so the excess of remuneration is taxed, however in case of a company, the remuneration of the directors can be fixed by the company. The partners can claim interest on their capital @ 12% and not more, however a company may declare 100% dividend on its shares and at the same time pay the Dividend Distribution Tax @ 15.45%.
Hence, lot of factors have to be considered not only from taxation point of view but also the nature of business, the financial condition of the partners and also the laws applicable to each type of entity discussed as above and it all depends on case to case basis, advise can only be given after knowing clearly what's in the the clients mind.
Manish Singh
(Expert) 03 August 2009
repeated query:
Dear Ms Diana,
yes, you must look into and remember some facts and provisions while converting a partnership firm into a company not to get entrapped into the ambit of capital gains tax. you go through the provisions under Sec 47(xiii) of the Income Tax Act and i hope that would satisfy you.
