MSC1 (Director) 26 October 2010

How to calculate Income Tax

Friends can anyone help me to solve the below query

Company Type : Partnership

No of Partners : 2

Profit Sharing : 50%

A.Y. : 2010-11

Net Profit from Business/Profession : 21,42,823.00

Add Interest on capital u/s 40(b) : 0.00

Add Remuneration to partner’s u/s 40(b) : 500000.00

Total Income : 2642823.00

Less Remuneration to partners allow u/s40(b) :

On first Rs. 300000.00 (60%) : 270000.00

Balance Profit 2342823.00

Actual Salary paid to partners as below :

1- Salary Paid to partner A-430000.00

2- Salary Paid to partner B-930000.00

============================

Total Salary to partner=1360000.00

============================

Question-1- What would be tax liabilities for the firm

Question-2- What would be the individual Tax liabilities for both partners

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2 Replies

R.Ramachandran (Advocate) 26 October 2010

As far as the Partnership Firm is concerned, it has to pay the tax on the Net Profit.

After payment of the tax what remains is (net profit minus tax paid) has to be shared between the partners in the agreed ratio. Such shared income is not taxable again at the hands of the partners.

However, if the partner had earned any income by way of salary from the partnership, then that salary income etc., is taxable at applicable rates. (This is because such salary payment being expenses of the Firm stands deducted from the partnership income and only net income of the partnership was taxed.) Such salary income being income of the partner concerned has therefore to be taxed at his hands.

Jagadeesh Birkodikar (Proprietor) 31 October 2010

Hello Dear friend I have calculated the tax liability of firm and its partners as per the info available. Where you were not specific I have calculated as per my assumptions. If you need more information feel free to contact me on my email birkodikar@hotmail.com

COMPUTATION FOR PARTNERSHIP FIRM
1. INCOME FROM BUSINESS

Nett profit of partners [50% Share of each]
● Partner - "A"	1,071,412.00
● Partner - "B"	1,071,412.00
		2,142,824.00
Add: Remunaration/salary paid to partners
● Partner - "A"	680,000.00
● Partner - "B"	1,180,000.00
		1,860,000.00
Add: Interest paid to partners
● Partner - "A"	-
● Partner - "B"	-
		-
		4,002,824.00
Less: Interest paid on partner's capital		-
		4,002,824.00
Less: Remuneration as per 40(b)		1,860,000.00
			2,142,824.00
	Rounded off to		2,142,820.00
	Tax on income		642,846.00
	Education cess payable		12,857.00
	Total tax payble		655,703.00
	Tax paid		-
	Payable		655,703.00

Notes:
● Salary treated to be paid by the firm where they are partners
● I have assumed that remuneration paid to each parter is Rs.250,000/-
● Further I have assumed that salary paid to partners is exclusive of remuneration
● If remuneration that you have mentioned is inclusive of salary then tax effect will be different
● As the info submitted by you raises some confusions, I have assumed the above things for computation
● If salary and remuneration total would have been Rs.13,75,700/- then firms tax liability would have been reduced considerably


COMPUTATION OF INCOME [ FOR PARTNER "A"]
		Amount Rs.
1. INCOME FROM BUSINESS
Remunarationreceived from firm		680,000.00
	Rounded off to	680,000.00
	Tax on income	108,000.00
	Education cess payable	3,240.00
	Total tax payble	111,240.00
	Tax paid/Deducted	0
	Payable	111,240.00



COMPUTATION OF INCOME [ FOR PARTNER "B"]
		Amount Rs.
1. INCOME FROM BUSINESS
Remunaration received from firm		1,180,000.00
	Rounded off to	1,180,000.00
	Tax on income	258,000.00
	Education cess payable	7,740.00
	Total tax payble	265,740.00
	Tax paid/Deducted	-
	Payable	265,740.00


Notes:
· Nett profit of partnership firm not to be included for the purpose of taxation in the hands of partners
· However clauses which are incorporated in Partnership deed play a vital role in computation of tax liability
· Hence consider/read clauses of partnership deed carefully before filing return of income · For the purposof computation remuneration/salary either debited in accounts or as per computation whichever is higher among this shall be taken in to computation of partners income. · In this case I have taken as debited in books of accounts ( I presumed on info available)

How to calculate Income Tax

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