27 July 2012
Dear expert, In case of a partnership firm total sale amount is Rs. 4400000/- and if firm opt section 44AD then its net profit comes to Rs. 352000/-. Interest on capital @ 12% comes to Rs. 293000/-, and after deducting interest out of net profit remaining profit comes to Rs. 59000/- which can be distributed to partners as salary amount and firm’s tax liability comes to nil. Here I want to know that whether the firm can distribute interest first and salary after that from remaining net profit Or Firm has to distribute salary first and interest after that. If said firm does so, then its profit goes negative, as computed below – On the first 3 lac @ 90% – 270000/- On the remaining 52000/- @ 60% -31200/- Total salary comes to Rs. 301200/- and remaining net profit Rs. 50800/- is not sufficient to pay interest on capital. And I am not willing to file return with negative profit. Please advise me.