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Profit of partnership firm

Tax queries 4047 views 4 replies

If the pasrtsnership firm has not paid any advance tax and there is little TDS, and if we are transfering the the profits from P & L account to the partners' capital account, then the amount so transferred is without charging tax, so is this right?

 

Generally the profit to be transferred to capital account of partner should be post tax so that in their hand it is tax free but in my case it is tax free when going to caiptal account of partners.  Also we can not deduct provision for IT in P & L account because of section 40. 

 

If wrong then what should be entry and how it is to be done???

Replies (4)
As per Section 10(2A), explains that the profit recd from the partnership firm is non-taxable, as the taxability is on the firm and not on the partners. Hence, the tax shall be born by the firm and not by the partners. In your case, the tax liability shall only be born by the firm, hence the share of profit can not be taxed. One more logical angle is of the different tax slab rates, as, if were taxable in the hands of the individuals, then the same would be lower than that of for the firm. Hence, in my opinion, the tax has to be born by the firm and the same shall be exempt in the hands of the partners.

Dear Expert,

which return will be filed for partner if he receive only remuneration from firm?

Remuneration received by the partner of the firm from such firm shall be taxable as business income of the partner. Such remuneration will not be treated as salary of the partner. 

Section 28(v) provides that the any interest, salary, bonus, commission or remuneration due to or received by a partner of a firm from such firm shall be taxable as a business income in the hand of parter. 


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