Presumptive taxation for partnership firm
This query is : Resolved
25 December 2018
Respected sir
As you know that as per provisions of section 44AD of the Income Tax Act, 1961, we have to show minimum 8% net income of the total gross receipts. In case of a partnership firm, Whether it is Book profit or Net profit ?
My question is that – In case of a partnership firm, whether this 8% net income should be treated after deduction remuneration to partners or prior to this deduction.
Suppose, in above query after deduction of remuneration, total income comes less than 8%, then whether the firm is needed for audit or not ?
As you know that as per provisions of section 44AD of the Income Tax Act, 1961, we have to show minimum 8% net income of the total gross receipts. In case of a partnership firm, Whether it is Book profit or Net profit ?
My question is that – In case of a partnership firm, whether this 8% net income should be treated after deduction remuneration to partners or prior to this deduction.
Suppose, in above query after deduction of remuneration, total income comes less than 8%, then whether the firm is needed for audit or not ?
25 December 2018
From the AY 2018-19, the law has been amended and the prescribed rate of 8% is applicable for the net profit and not for the book profit hence if profit after remuneration is below 8% of the turnover, then books of accounts should be audited as per proviso to section 44AD.
26 December 2018
Entirely agree with Mr. Mohit Bansal's view, only to add is that the audit is required only in case your turn over is more than Rs. 1 Crore even if your profit is less than 8% of your turn over.
So to summarize:
Turnover is Less than Rs. 1 Crore: You may opt for 44AD and show 8% or 6% profit and file ITR 4 or You may show less than 8% profit in such case you have to file your balance sheet and profit and loss account in ITR 3. NO audit is required.
Turnover is more than Rs. 1 Crore but upto Rs. 2 Crore: You may opt for 44AD and show 8% or 6% profit and file ITR 4 No Audit is required. If you want to show less profit, Audit is compulsory.
Turnover is more than Rs. 2 Crore: Must maintain books and get them audited.
So to summarize:
Turnover is Less than Rs. 1 Crore: You may opt for 44AD and show 8% or 6% profit and file ITR 4 or You may show less than 8% profit in such case you have to file your balance sheet and profit and loss account in ITR 3. NO audit is required.
Turnover is more than Rs. 1 Crore but upto Rs. 2 Crore: You may opt for 44AD and show 8% or 6% profit and file ITR 4 No Audit is required. If you want to show less profit, Audit is compulsory.
Turnover is more than Rs. 2 Crore: Must maintain books and get them audited.
26 December 2018
Sir , while calculating Tax on Total Income in case of partnership firm does we need to add back partners salary and remuneration in 8 % of profit declared as it is disallowed since the proviso to sec 44AD got deleted.
26 December 2018
Yes if you are opting for presumptive taxation Scheme u/s 44 AD you are not allowed the remuneration and interest deduction additionally as it was allowed earlier. Now, if your turnover is 80 Lakhs and if you are opting for presumptive taxation you must show a profit of 640000 or 540000 (In case you are receiving money in the bank using clearing method). No additional Remuneration and Interest to Partners is allowed as deduction.
26 December 2018
Thank you very much sir...
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