My client is having a partnership firm engaged in repairing services which is not maintaining any books of accounts and paying tax @ 8% of taxable turnover under section 44 AD of I.T. Act, 1961.
We now want to dissolve this partnership firm and sale all the fixed assets.
My query is : what will be effect of surplus / Deficit on sale of assets in my Income Tax Return ?
Also, If I dissolve this firm on 31.05.2016, whether I am required to file I.T. Return for A.Y. 2017-18 (F.Y. 2016-17) even though I am not having any receipts of income in this fiscal year ?
21 July 2024
When dissolving a partnership firm that is taxed under Section 44AD of the Income Tax Act, 1961, which deals with presumptive taxation for certain businesses including repairing services, there are specific considerations regarding the treatment of surplus or deficit on sale of assets and filing of income tax returns. Here’s a detailed response to your queries:
### Effect of Surplus/Deficit on Sale of Assets:
1. **Surplus (Profit) on Sale of Assets:** - If you sell fixed assets of the partnership firm at a price higher than their book value (purchase cost less depreciation), it will result in a profit. - Under Section 44AD, such profits are included in the taxable turnover of the firm for the year in which the assets are sold. - The profit from sale of assets will be taxed at the presumptive tax rate of 8% of the total turnover of the firm for that financial year.
2. **Deficit (Loss) on Sale of Assets:** - If the sale of fixed assets results in a loss (where the sale price is less than the book value), it will create a deficit. - In the context of Section 44AD, if there is a loss on sale of assets, this loss cannot be set off against the presumptive income of the firm. - The loss can potentially be carried forward to be set off against future business income if the firm opts out of presumptive taxation and maintains regular books of accounts.
### Filing Income Tax Return after Dissolution:
- **Financial Year 2016-17 (Assessment Year 2017-18):** - Even though the partnership firm may not have any receipts of income in the financial year 2016-17 (from 1st April 2016 to 31st March 2017), you are required to file an income tax return for the Assessment Year 2017-18 (AY 2017-18). - The return will reflect the income and tax details up to the date of dissolution (31st May 2016). - It is crucial to report the income from the sale of assets and pay tax on any profits under Section 44AD.
### Procedure for Filing Income Tax Return:
- **Form ITR-4:** Use Form ITR-4 (Presumptive Income from Business & Profession) to file the income tax return for the AY 2017-18. - **Report Sale of Assets:** Report the sale of fixed assets and calculate the profit or loss on such sale. - **Tax Payment:** Pay tax on the profit from the sale of assets at the presumptive tax rate of 8%. - **File by Due Date:** Ensure the income tax return is filed within the due date specified by the Income Tax Department.
### Conclusion:
Dissolving a partnership firm taxed under Section 44AD requires careful consideration of tax implications related to the sale of assets and filing of income tax returns. It’s advisable to consult with a tax professional or a chartered accountant to ensure compliance with all legal requirements and to accurately calculate and report the income from the sale of assets in the income tax return.
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