Direct Taxation ASSESSMENT OF FIRMS for B.Com

Assessment of firm

1. Unit-3
Assessment of Partnership
Firms
Presentation By
MUNIRAJU.G
Assistant Professor of Commerce, GCW KOLAR
Mobile : [phone]

2. Meaning of Partnership
Section4ofthePartnershipAct,1932
definesPartnershipas“relationship
betweenpersonswhohaveagreedto
sharetheprofitsofbusinesscarriedon
byalloranyofthemactingforall.”

3. The partnership is an association of two or more persons
There must be an agreement entered into by all partners.
The agreement between the persons can be oral or written.
The liability of the partners is unlimited.
The business can be carried on by all the partners or by any one
of them acting for all.
Features of Partnership

4. Thepersonswhohaveagreedtodobusiness
togetherarepersonallycalled“Partners”and
collectivelycalleda“Firm”
Meaning of Partner and Firm

5. Kinds of Parntership
1. Eligible firms or Partnership Firms Assessed as Such (PFAS)
2. Other firms or Partnership Firms Assessed as an Association of
Person (PFAOP)

6. EligibleFirms
Afirmisconsideredasa“EligibleFirm”whenitfulfillsallthefollowingconditions
prescribedundersection184:
1.ThePartnershipisevidencedbyanInstrument.Thatis,theremustbea
partnershipdeedinwritingwhichshouldbecertifiedbyallpartners(notbeing
minors).
2.Theinstrument(i.e.,thepartnershipdeed)mustspecifytheshareofprofit(or
loss)ofeachindividualpartner.
3.Thecertifiedcopyoftheinstrument(i.e.,partnershipdeed)mustbesubmitted
alongwithreturnofincomefortheassessmentyearinwhichthefirmisassessed
forthefirsttime.
‘EligibleFirm’includesLimitedLiabilityPartnershipFirms.‘LimitedLiability
Partnership’meansapartnershipformedandregisteredundertheLimitedLiability
PartnershipAct,2008.

7. Other Firms
A firm is considered as a “Other Firms’ in the
following cases-
1.When all or any of the conditions under section
184 are not fulfilled, or
2.Whenthefirmcommitsanydefault
leadingto‘Best Judgment Assessment’
under section 144.

8. RESIDENTIAL STATUS
Afirmissaidtobe‘resident’whenthecontrolandmanagementof
theaffairsofthefirmissituatedwhollyorpartlyinIndia.
Afirmissaidtobe‘Non-resident’whenthecontrolandmanagementof
theaffairsofthefirmissituatedwhollyoutsideIndia.

9. CLASSIFICATION OF THETAXABLEINCOMESUNDER VARIOUS
‘HEADSOFINCOME’
1.IncomefromHouseProperty
2.Incomefrom Business
3.Capital Gains
4.IncomefromOtherSources

10. Unit-3
Assessment of Partnership
Firms
Presentation By
MUNIRAJU.G
Assistant Professor of Commerce, GCW KOLAR
Mobile : [phone]
Class-2

11. COMPUTATION OF TAXABLE INCOME UNDER EACH HEAD
Computing ‘Income from Business’ for a Firm
A.In Case of ‘Eligible Firms’
1.Computation of ‘Book Profits’.
2.Calculation of ‘Admissible Remuneration’ to Partners.
3.CalculationofTaxableIncomefromBusinessor
Profession.

12. STEP-1 COMPUTATION OF BOOK PROFITS
Particulars Rs. Rs.
Net Profits as per Profit and Loss Account
Add:
Inadmissible Expenses debited to P & L A/c
Business incomes not credited to P & L A/c
Over-valuation of opening stock and under-valuation of
closing stock
Less:
Admissible expenses not debited to P & L A/c
Non-business and non-taxable incomes credited to P & L A/c
Under-valuation of opening stock and over-valuation of
closing stock
Book Profits
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX

13. Wherealltheaboveconditionsarefulfilled,remunerationtopartners
isadmissibletothefollowingextent:
ActualRemunerationpaidorpayable
Or
MaximumLimitWhicheverisLess.
STEP-2 CALCULATIONOF‘ADMISSIBLEREMUNERATION

14. ADDITIONAL PROVISIONS IN COMPUTING ‘BOOK
PROFITS’ FOR PARTNERSHIP FIRMS
1.Anyremunerationtopartners(likesalary,bonus,commissionetc.,)must
bedisallowed(i.e.,takenasinadmissible).Thesamewillbeconsidered
fordeductionlaterasperprovisionsandconditionsundersection40(b).
2.Anyinterestpayabletoapartnermustbeallowedasdeductionifthe
paymentofinterestisauthorizedbypartnershipdeed.Theamountof
interestdeductibleisleastofthefollowing:
a)AmountofInterestauthorizedbytheDeed,or
b)Interest@12%simpleinterestperannum(ontheopeningcapitalbalance)

15. CALCULATIONOF‘ADMISSIBLEREMUNERATION’
Incaseofindividualassesses,anyremuneration paidorpayable
iscompletelyinadmissible.However,incaseofan‘EligibleFirm’,
remunerationtopartnersisadmissibleonfulfillmentofthefollowing
conditionsasspecifiedundersection40(b):
1.Theremunerationispaidtoworkingpartner.
2.Paymentofremunerationtoworkingpartnerisauthorizedbyandisin
accordancewiththePartnershipDeed.
3.Thepaymentmadedoesnotrelatetoaperiodpriortothedatefrom
whichthePartnershipDeedisineffect.

16. Situation Maximum Limit
IncasetheBookProfitis
‘Negative’
Rs. 1,50,000
Incaseof‘Positive’Book
Profits
OnFirstRs.3,00,000ofBook Profits
On the Balance of Book Profits
Rs.1,50,000or90%of
‘Book Profits’, whichever is higher
60% of Book profits
MAXIMUM LIMIT

17. COMPUATION OF TAXABLE BUSINESS INCOME
PARTICULARS Rs.
Book Profits
Less:Admissible Remuneration
Taxable Income from Business or Profession
XXXX
XXXX
XXXX

18. STEP3:COMPUTATIONOFTAXABLEINCOME
Particulars Rs. Rs.
Income from House Property
Income from Business and Profession
Income from capitalgains(otherthanshort-termcapital gains
liable for security transaction tax)
Income from other sources
Gross Total Income
Less: Deductions under sections 80G to 80JJAA
Total Taxable Income
XXX
XXX
XXX
XXX
XXX
XXX
XXX

19. TAXONTOTALTAXABLEINCOME
Particulars
Rs.
Tax on Casual income @ 30%
Tax on Long-term capital gain @ 20%
Tax on Short-term capital gain liable for STT @ 15%
Tax on Long-term capital gain on transactions liable for STT (in excess of Rs. 1,00,000) @
10%
Tax on Other-taxable income @ 30%
Add: Surcharge (if applicable –at rates given below)
Add: Health and Education Cess@ 4%
Tax on Total Taxable Income
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Surcharge
If Total Taxable Income does not exceed Rs. 1 crore -Nil
If Total Taxable Income exceeds Rs. 1 crore –12%