Partnership Firm & 44AD

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This discussion clarifies whether a newly formed partnership firm can declare income under Section 44AD for the financial year 2023-24. It's confirmed that while a firm can opt for 44AD, deductions for salary and interest paid to partners are not permissible from this presumptive income. However, if the firm opts for a normal assessment (not presumptive), these expenses can be deducted, even if a tax audit isn't mandatory.

Mahabir Prasad Agarwal

Mahabir Prasad Agarwal (Querist)

10 September 2024 Can we declare income u/s.44AD of a newly formed partnership firm for FY 2023-24 ? And can we also further deduct Salary and Interest on capital paid to partners in a non-audit case ?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

10 September 2024 1. Yes,
2. Not from the presumptive income.

Mahabir Prasad Agarwal

Mahabir Prasad Agarwal (Querist)

10 September 2024 Thanks sir. If I conduct audit of the said firm, then whether Interest and salary to partners will be allowed as deduction or not ?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

10 September 2024 Audit is not the criteria. If you declare income under normal assessment (tax audit may or may not be applicable), in that case you can deduct the salary & interest paid to partners as expenditures of the firm.

Mahabir Prasad Agarwal

Mahabir Prasad Agarwal (Querist)

10 September 2024 Thanks for your quick reply sir. But I could not understand "normal assessment". If I prepare detailed profit and loss a/c and B/sheet, without audit, may I show the salary and interest to partners as expenses ?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

10 September 2024 Yes.
Normal assessment in a way means 'not opting for sec. 44AD IT act (or presumptive assessment)'.

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