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Section 44ada .... worst section for small partnership firm...

SURANA (PROPRIETOR) (515 Points)

20 February 2017

There will be a huge set back to Small Partnership Firms in Professional Field due to Section 44ADA (introduced in Budget 2016, Application from AY 2017-2018)

First they will be Taxed on 50% of the Total Receipt and then again the Interest and Remuneration of the Partners will be taxed in the hand of Individual partner...

For Example it there total Receipt of Partnership Firm is only 10 Lacs then the firm need to pay tax on min 5 Lacs under 44ADA.. irrespective of what is the actual Net Profit....(After Interest & Remuneration to Partners)
So the total Tax would be 154500/- on Total Receipt of 10 Lacs...
And there is no news since the Budget 2016 on this Provision...So it means no changes yet.

... Even Corporate are not taxed that much.

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6 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160551 Points)
Replied 20 February 2017

Generally, professional firms would go for normal assessment with books of account maintained, and if requied get it audited.

SURANA (PROPRIETOR) (515 Points)
Replied 20 February 2017

"normal assessment with books of account maintained"

is it not either 44ADA or 44AB ?

Can a professional who maintains books of account opt not to go for 44ADA and 44AB ?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160551 Points)
Replied 20 February 2017

To opt for assessment u/s 44ADA is not mandatory, but section 44AB may/ may not apply, depending upon different conditions.

SURANA (PROPRIETOR) (515 Points)
Replied 20 February 2017

But if the Firm dont opt for 44ADA then they will have to go for 44AB...

so where a Partnership firm whose total receipt is 10 lacs will have to either go for 44ADA and pay tax on min Rs.5 lacs or get his books of account audited.

is there any other option too?

(Guest)

44ADA.(1) Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent. of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.

(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.

(3) The written down value of any asset used for the purposes of profession shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

(4) Notwithstanding anything contained in the foregoing provisions of this section, an assessee who claims that his profits and gains from the profession are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.’.

From this section, it seems that minimum 50% is mandatory or else audit is needed for professional partnership firms. (Unless they suffer a loss which is unlikely)

Nayana Padawe (2 Points)
Replied 27 July 2023

But at first place partnership firm is not opting for 44ADA even though they are eligible then also tax audit is compulsory since their income is less than 50%?