Sec 10(2a) & boa & individual

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CA Lokesh Pokharna (Querist)
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15 December 2012 Hello,

Suppose Income of p'ship firm is different in income tax & books of account for a year..boa 5 lac, as per i. tax loss 2 lac
(due to difference in dep. rates )

now question is that what would be treatment of partners share in firms accounting profit as per income tax act u/s 10(2a)?????assuming 50 % share of one partner then, 2.5 lac will be free from tax or not, on the ground that firms income tax income is negative.....
thanks & regards - CA Lokesh Pokharna

CA Hiren Thakkar

CA Hiren Thakkar (Expert)
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15 December 2012 Hi,

U/s 10(2a), Partner share in firms profit is exempt from Income Tax. This is irrespective of Profit of Firm. The reason behind such exemption is that since profit of firm once taxed in the firms hand can not be taxed again in the hands of partners.

The reason behind profit difference is depreciation which is temporary one. So in future you will have higher tax profit than the Book Profit. At that time partners share in firms profit will be lower than Total tax Profit.

So i believe, Partners share will be totally exempt.

However, you must keep in mind provision of Alternate Minimum Tax (AMT) if it is applicalbe to the your firm.