44AD_Partnership firm

In case of a partnership firm covered by presumptive taxation u/s 44AD of the Income tax Act, will the allowable remuneration  be calculated having regard to the actual book profits or as per the presumptive profit of 8%??

Prima facie it should be as per the actual book profits since the proviso to 44AD(2) specifies the limit laid down in section 40(b), but in that case the firm would be actually required to maintain the books of accounts for this limited purpose although the same is not warranted as per the provision.

Please let me know your thoughts.

Replies (1)

Ms.Alpana

The intention of the legislature is to facilitate small assessee to make compliance to tax obligations.  With this intention new section 44AD has been introduced with effect from 1-4-2011.

If the eligible assessee is a partnership firm.  The profits computed under subsection (1) of sectiono 44AD shall be the book profits.  The partnership firm can claim interest on capital of the partners and remuneration to working partners from the books profits as comuted under subsection (1) of section 44AD.  For such claim no books of account need be maintained.

As you said if books of account are to be maintained the intention of the legislature will be redundnat.

Best Wishes

Sathikonda

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