Filing share of income from firms only for presumptive cases

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This discussion clarifies how a partner should file their Income Tax Return (ITR) when their income is solely from remuneration and interest received from a firm. Previously, the partner used presumptive taxation under Section 44AD for their own business, which is now closed. The core question is whether they can file using ITR 3, declaring this firm income as business income, without triggering a tax audit under Section 44AB, given that remuneration and interest are not typically considered 'turnover' or 'gross receipts' for presumptive tax purposes.

k chakraborty

k chakraborty (Querist)
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12 July 2024 A newly joined partner of the firm used to file ITR under 44AD for his proprietary business, which is no longer operating. Now, he has income (remuneration and interest) under BP only from firm. Can he file ITR 3 under share of income from firm only, or he has to file under presumptive basis if he wants to avoid audit.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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12 July 2024 SECTION 44AD - NOT ELIGIBLE ON INTEREST/REMUNERATION INCOME OF PARTNER FROM PARTNERSHIP FIRM.

k chakraborty

k chakraborty (Querist)
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12 July 2024 yes i know sir, but as he previously opted for 44AD to disclose his income under business and profession, i am confused whether he can now disclose income under BP (remuneration and interest only) in itr3 without audit under 44AB.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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12 July 2024 Tax audit not required.
See the link.
https://acrobat.adobe.com/id/urn:aaid:sc:AP:5b671b8f-d119-415f-a8f3-eb1e6a5626e3

k chakraborty

k chakraborty (Querist)
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12 July 2024 sir, i read your link. my situation is slightly different. Here partner wants to disclose income under business and profession which comprise of only interest and remuneration. However, previous year he had disclosed income under this head for his proprietary business under 44AD. Now my concern is whether 44AB (e) would apply to him or not. my reading is, it would not, as 44ab(e) says " carrying on business...." and as per this article of yours remuneration can't be termed as business..hence simply the person has not filed under 44ad because he no longer carrying on the business and techincally 44ad (4) is not applicable to him. am i correct?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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12 July 2024 Remuneration and interest received from the firm will be considered as business income.
How much interest and remuneration received.

k chakraborty

k chakraborty (Querist)
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12 July 2024 total rs 350000. however i like to draw your attention to this para from your link:
The ratio of Madras HC in an earlier ruling4 rendered in the context of section 44AD of the ITA (relating to computation of profits and gains of business on presumptive basis) could be applied to the case under consideration. In the said case, the Madras HC had upheld the disallowance made by the Revenue on the following grounds: ─ The taxpayer was an individual and a partner in some partnership firms; ─ The taxpayer while filing his return of income had applied presumptive rate of tax @ 8% (on the income from remuneration and interest received from the partnership firm) under section 44AD of the ITA; ─ Section 44AD of the ITA was available only for an eligible taxpayer engaged in an eligible business (which should have a total turnover or a gross receipt); ─ The taxpayer was not carrying on business, and the remuneration and interest received by the taxpayer from the partnership firm could not be termed as its turnover; and ─ The remuneration and interest received from the partnership firm could not be treated as gross receipt of the taxpayer. In view of the above, the Bombay HC in the case under consideration held that remuneration received by the taxpayer from the partnership firm could not be treated as gross receipts in profession and accordingly, the taxpayer was not required to get the accounts audited under section 44AB of the ITA.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 July 2024 Tax audit not required.
Disclose both interest and remuneration as business income.

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