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

Mahabir Prasad Agarwal

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

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