Tax audit

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Querist : Anonymous

Querist : Anonymous (Querist)

11 September 2013 when partnership firm is having sales more than 50 lakh and their net profit is around 35000-37000.around 7% of total sales.
my question is whether the partnership firm is liable for tax audit or not?
if yes then how to deal with that case..

CA Pallav Singhania

CA Pallav Singhania (Expert)
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11 September 2013 As your income is less than 8 percent and the threshold limit is under 1 crore,

No, Tax Audit I guess...

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Querist : Anonymous

Querist : Anonymous (Querist)

11 September 2013 sir u misunderstood my problem i was asking that whether that partnership firm is liable for tax audit or no according to me the firm is liable as there profit is less than 8% including partners remuneration.i am not sure about this provision of law.

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CA Pallav Singhania

CA Pallav Singhania (Expert)
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11 September 2013 Following changes has been proposed in Budget 2012 in Section 44AD presumptive Income Scheme :

1.Threshold limit for presumptive taxation being increased from R60 Lakh to R1 Crore.

2.Under the existing provision of Section 44AD,presumptive taxation is applicable in the case of a small business having turnover not exceeding R60 lakh ,

3.whereby 8% of turnover is deemed to be the income of the eligible business.

4.The assessee is not required to maintain any books of account nor

5.The Finance Bill, 2012 proposes to raise the threshold limit from R60 lakh to Rs1 crore In tax Audit.

6.Accordingly in the case of an assessee having turnover upto R 1 crore, 8% of the turnover shall be deemed to be the income with no hassle of accounts and audit.

However, you should file your return..

Querist : Anonymous

Querist : Anonymous (Querist)

11 September 2013 SIR I STRONGLY BELIEVE THAT FIRM IS LIABLE FOR TAX AUDIT.

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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11 September 2013 Please let me know you said not profit is after deduction of Partner's remuneration or not.

If remuneration paid to the partners then how much amount you paid.

Because of for your case is liable for tax audit or not depended on the remuneration to the partners also.

OM SAI SRI SAI JAI SAI

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CA Pallav Singhania

CA Pallav Singhania (Expert)
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11 September 2013 Agree with the expert,

Audit u/s 44AD is applicable when:-

> turnover less than 1 crore.
> profit shown less than 8% of turnover..

there is two choices:

1. Show 8 percent Net profit file ITR 4S.
2. Get books of Accounts Audited, file ITR 4.

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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11 September 2013 According to the section 44AD those who are statutorily not liable for tax audit u/s 44AB(i.e means gross turnover doesn't exceeded Rs. 1 crore) are required to offer their income from business accordingly u/s 44AD.

As per section 44AD minimum of 8% profit on gross turnover shall be offer to tax purpose.

But for partnership firms there is a small benefit to the above section 44AD. According to this such minimum of 8% shall be the before to the deduction of partners remuneration if any paid. means from the profit u/s 44AD i.e 8% profit on gross turnover remuneration to the partners shall be allowed for deduction for tax purpose. Those who fails to offer such minimum income are required to make tax audit u/s 44AB.

For your clear and better under standing the following example is for you.

ABC is a partnership firm whose gross turnover is Rs. 50 lacs for A.Y 2013-14. Its profit as per P&L account is Rs.300000 which is after debiting of partner's remuneration of Rs. 150000 to the p&l means profit before remunaration is Rs.450000/-

As per Section 44AD for partnership firms this Rs.450000 should be equal or more than the 8% of gross turnover. if such Rs.450000 is less than the 8% on Gross turnover, then required to make tax audit u/s 44AB.

For the above example Net profit for the purpose of section 44AD is Rs.450000 as per books and minimum required profit as per section 44AD is Rs.400000. So they offering more than 8% profits so not required to make tax audit.

In case in the above example the remuneration paid is Rs.50000 except this all other things of the above example are same. Then net profit for the purpose of section 44AD is Rs.350000 as per books but minimum required profit as per section 44AD is Rs.400000. so they offering lower than 8% profits and required to make tax audit.

If they don't want to make tax audit then has to offer minimum of Rs.400000 and from this deduct Rs.50000 as remuneration i.e net taxable profit is Rs.3,50,000 even though net profit as per books is Rs.3,00,000 after deduction of Remuneration.

Is you required any further clarification or have any doubt you can post your query.

OM SAI SRI SAI JAI JAI SAI

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