Information given below. i. Organization : Partnership Firm ii. Nature of business: Garment Exports iii. Four Partner iv. Son of One of the Partner gone Canada for study v. Education Fees & Living Expenses paid from partnership firm.
Qst. 1. As per Income Tax Act we can't claim as expenses in firm book. But Can we make payment from firm bank account? Is there any violation of Income Tax Rule? 2. Is there any violation as per FEMA/RBI Act?
11 October 2012
As long as firm is not showing it as expense and paying the income tax on the entire book profit including this expense then no problem. However, Partners capital (his share of profit + existing capital in case inadequate gets reduced). The partner should not get into negative capital.
FEMA / RBI are not a problem as long as the remittance for the student itself is under permissible limits and the student is elegible to remit. In that case parent is also eligible to remit on behalf of the students. Only instead of using his own bank account he used the bank of his firm and maybe out of his own funds lying with the firm.
Only be carefull you should also debit the partners account for the bank charges on remittance and service tax on those charges also. If you book it as the expense of the firm during course of scrutiny you will be charged 60% tax for the disallowance + all the interests + a show cause notice why penalty upto 300% should not be levied on you for tax sought to be evaded.
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