Income Tax Assessment of Partnership Firms

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Income Tax Assessment of Partnership Firms
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• Income Tax Assessment of Partnership Firms in
  Assessment Year 2022-2023, Assessment Year
  2023-2024 and in the Assessment Year 2024-2025.
  1.Sec 2(23) Definition of firm. Firm shall have
  the meaning assigned to it in the Indian
  Partnership Act 1932 (9 of 1932) and shall
  include a limited liability partnership as
  defined in the Limited Liability Partnership
  Act,2008 ( 6 of 2009). 2.Sec 184. (1) A firm
  shall be assessed as a firm for the purposes of
  this (i) the partnership is evidenced by an
  instrument and (ii) the individual shares of the
  partners are specified in that instrument .2) A
  certified copy of the instrument of partnership
  referred to in sub-section (1) shall accompany
  the return of income of the firm of the previous
  year relevant to the assessment year commencing
  on or after the 1st day of April, 1993 in respect
  of which assessment as a firm is first sought.
• (3) Where a firm is assessed as such for any
  assessment year, it shall be assessed in the same
  capacity for every subsequent year if there is no
  change in the constitution of the firm or the
  shares of the partners as evidenced by the
  instrument of partnership on the basis of which
  the assessment as a firm was first sought.
• (4) Where any such change had taken place in the
  previous year, the firm shall furnish a certified
  copy of the revised instrument of partnership
  along with the return of income for the
  assessment year relevant to such previous year
  and all the provisions of this section shall
  apply accordingly.

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• (5) Notwithstanding anything contained in any
  other provision of this Act, where, in respect of
  any assessment year, there is on the part of a
  firm any such failure as is mentioned in section
  144, the firm shall be so assessed that no
  deduction by way of any payment of interest,
  salary, bonus, commission or remuneration, by
  whatever name called, made by such firm to any
  partner of such firm shall be allowed in
  computing the income chargeable under the head
  Profits and gains of business or profession and
  such interest, salary, bonus, commission or
  remuneration shall not be chargeable to
  income-tax under clause (v) of section 28. 3. Sec
  185. Assessment when section 184 not complied
  with. Notwithstanding anything contained in any
  other provision of this Act, where a firm does
  not comply with the provisions of section 184 for
  any assessment year, the firm shall be so
  assessed that no deduction by way of any payment
  of interest, salary, bonus, commission or
  remuneration, by whatever name called, made by
  such firm to any partner of such firm shall be
  allowed in computing the income chargeable under
  the head Profits and gains of business or
  profession and such interest, salary, bonus,
  commission or remuneration shall not be
  chargeable to income-tax under clause (v) of
  section 28.. 4. Computation of Total Income of
  the Firm I. Income from House Property II.
  Profits and Gains of Business or Profession of
  the Firm

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• Book Profit of the Firm Less Remuneration paid
  to working partners Least of the following two
  a. Actual Remuneration b. Statutory Limit u/s
  40(b) In Case book profit is positive On first 3
  Lakh of book profit   150,000 or 90 of book
  profit whichever is more On the balance of book
  profit     60 of book profit If the book Profit
  is negative       Rs.150,000. III. Income from
  Capital Gains IV. Income from Other Sources V.
  Gross Total Income VI. Less Deductions u/s 80 C
  to 80 U a. Sec 80 G b. Sec 80 GGA c. Sec 80 IA d.
  Sec Sec 80 GGC e. Sec 80 IAB f. Sec 80IAC g. Sec
  80 IB h. Sec 80 IBA i. Sec 80IC j. Sec 80 IE k.
  Sec 80 JJA l.Sec 80 JJAA VII. Total Income Less
  Tax payable by the firm Distributable income to
  be distributed among the partners according to
  their profit sharing ratio.

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• Income Tax Rates are as follows Short-term
  capital gains u/s 111A-15 Long-term capital
  gains 10/20 -(Sec 112) Long-term capital gains
  u/s 112 A-10 Winnings from lotteries, card
  games, crossword puzzles, horse race etc-30
  Other Income-30. Surcharge-12 if total income
  exceeds Rs 1 crore (Subject to Marginal Relief)
  Health and Education Cess_at_4 Alternate Minimum
  Tax is applicable to partnership firms.
  Calculation of Book Profit Net Profit as Per
  Profit and Loss A/C Add (i) Inadmissible items
  (not covered u/ss 28 to 44 DB) (ii) Remuneration
  to partners, if debited to P/K A/C (iii)
  Disallowance of interest in excess of 12 p.a
  Less (iv) Admissible items which are disallowed
  in (i) above (v) Income from all other sources
  credited to P/L A/C
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