Is the profit from partnership firm is taxable ?

This query is : Resolved

Kamlesh Yadav (Querist)
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13 July 2017 We are two friends, we have a firm “ABC” and we both have equal share of 50% each in the firm. We opend a medical shop on the name of firm “ABC”. At the end of financial year our firm’s profit is INR 1,00,000. As per the taxation of firms we paid 3 lakh(supoose 30% is the only tax we have to pay).
So 100000–300000= 7 lakh is the profit.
we both distributed or shared the profit among us.
I took 350000 and my friend took 350000.
Now is this 350000 is taxable and do we need to pay tax on this 350000

Since we(firm) have already paid tax on that particular income, do we need to pay again.

Ashiwini Ballodia

Ashiwini Ballodia (Expert)
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13 July 2017 Share of profit from firm is exempt in the hands of partner

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 In a partnership firm, the taxation of profits and the distribution to partners work as follows:

### Taxation of Partnership Firm Profits

1. **Tax on Firm's Profit**:
- The partnership firm itself is taxed on its profits. The firm pays tax on its total income, which is calculated after accounting for all allowable expenses and deductions.
- In your case, the firm’s profit is INR 1,00,000, and assuming a tax rate of 30% (excluding any other deductions or tax benefits), the tax payable by the firm would be INR 30,000.

2. **Profit Distribution**:
- After paying tax on the firm’s profit, the remaining profit is distributed among the partners according to their share in the firm.
- In your case, the remaining profit after tax is INR 70,000, which is shared equally between you and your friend. Each of you receives INR 35,000.

### Taxation of Profit Distribution to Partners

- **No Additional Tax on Distribution**:
- The amount distributed to the partners (INR 35,000 each in your case) is not subject to additional tax at the individual partner level. The partnership firm has already paid tax on the total profit, so there is no need for the partners to pay tax again on the distributed amount.
- This is because the tax on partnership profits is a final tax for the firm, and the partners’ share of the profit is not taxed again.

- **Individual Tax Return**:
- Each partner should include their share of the profit (INR 35,000 in your case) in their individual tax return under the head of "Income from Partnership Firm."
- This amount is already included in the firm's profit and has been taxed at the firm level. So, there is no additional tax payable on this income separately at the individual level.

### Summary:

- The profit of INR 1,00,000 is taxed at the firm level. The firm pays INR 30,000 as tax.
- After tax, INR 70,000 is distributed equally between you and your friend.
- The distributed amount (INR 35,000 each) is not subject to additional tax at the individual level because the firm has already paid tax on the entire profit.

### Important Points to Note:

- Ensure that the firm’s tax return accurately reflects the profits, tax paid, and distribution of profits.
- Each partner should report their share of the profit in their individual income tax return, but no additional tax is due on this amount.

If you have further queries or specific concerns related to tax filings or calculations, consulting with a tax professional or accountant is always a good practice.

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