Utility of firm as tax saving vehicle

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This query is : Resolved

Jignesh Desai (Querist)

16 July 2012 What exactly is the utility of having a Partnership or Proprietorship Firm from the point-of -view of Tax-saving ?

Say , for e.g. , a person is a Real Estate broker as well as Share sub-broker & earns Brokerage Income every year (Income fluctuates from year to year ) . Every year , he also incurs expenses some of which are incidental to his work & some are not. Every year , he fills up ITR 4 & shows this income under "Profits & Gains from Business or Profession " .

He also has 2 Proprietorshipship Firms of whom he is the Sole Proprietor . He shows some of his income & expenditure as Income/Expenditure of these firms .Every year Books are maintained seperately for these firms as well but at the time of filing returns , a Consolidated Profit & Loss Statement is prepared (from the Proprietor's Individual Books of Accounts as well as from the Books of the 2 firms) & from this his Return (ITR 4) is prepared . He can easily just operate under his own name & from this point of view , the 2 Firms are of no utility to him .

He also trades in Shares & every year he also earns some income in the from of Capital Gains (both Long as well as short) .

Now , my question is , how can he use these Firms as a Tax-Saving Vehicle (if this is possible in any way)? In case , he simply transfers all the assets & liabilities from the books of the 2 firms into his own Books & then simply dissolves the 2 Firms , would he still be able to claim all the expenditure (& in the same magnitude) as he has been claiming all these years under "Profits & Gains from Business or Profession " ?

Amol S Joglekar

Amol S Joglekar (Expert)

16 July 2012 No there is no way where you can use these as TAX SAVING. After all there is only one ENTITY under INCOME TAX. (The separate status may help him / her, in some other areas; but not under TAX SAVINGS.

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