Section 44ad

Tax planning 647 views 5 replies

idris

article

177 Points Joined January 2009

A Partnership Firm having Turnover Rs. 5000000/- And actual Net profit of Rs.1250000/- @ 25%;

Declares Net profit as Rs.400000/- @ 8% tacking advantage of Section 44AD

Now, remuneration allowed shall be Rs.330000/- and Net profit taxable shall be Rs.70000/- Where as Remuneration according to the actual profit would have been Rs.840000/- and Net profit Rs.410000/-

Now, Please explain the effect of same on personal income tax of partners i.e. say if there are 2 partners, then how to compute their personal income tax. What shall be the taxable remuneration in hands of partners And as the share of net profit is exempted from tax, which amount shall be taken as share of Net profit.

Please explain the effect of same in books of accounts.

An Expert has advised on this topic saying that: If books of account are maintained it shall be open for the AO to scrutinize the same and tax at higher rate.

So now, what is the better way to deal with this case.

Replies (5)

Sanket Gada

Sr. ERP Consultant & Tax Consultant

241 Points Joined October 2009

First of all if you are declaring income u/s. 44AD you dont need require to prepare accounts so you cancertianly say no to accounts (in case of AO)

CA VIRAL SANGHVI

Finance head

681 Points Joined December 2012

hiiii,

The remuneration given to partner is taxable in the hands of partenr i.e.3,30,000/- in their profit sharing Ratio if Remuneration Ratio is not Metioned in Partnership deed.

and remaining 70,000/- is taxable @ 30.90% in the hands of Firm and this is exempt for partners.

idris

article

177 Points Joined January 2009

I know that u/s 44AD books of accounts are not required....

But, my question is... that the firm is maintaining books of accounts and its actual net profit is higher than 8%

but, as the turnover of the firm is less that 1 crore, the firm is taking advantage of sec 44AD and is paying tax on 8% of turnover.

now in this case how would the actual profit be capitalized...

CA VIRAL SANGHVI

Finance head

681 Points Joined December 2012

look when you are taking the advantage of section 44 AD than you can not capitalize the whole profit

Rather you have to capitalize the profit as per section 44 AD.

And if you want to capitalize whole profit than show profit @ 25 % (Actual) in the IT Return 4S.

if you capitalize whole profit without showing actual profit in return than it will attract section 68 unexplained cash credit and your firm is liable to pay tax on it.