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Partnership firm taxation for a.y 2018-19

02 July 2018

suppose a partnership firm is having turnover of 15 lakhs .if it pays tax as per presumptive taxation .will result in paying 30% tax on 8% profit ,i.e.36000.
now if it adopts to file normally and declare profit say 15% and then claims partner's remuneration and interest on capital @ 12%.will firm require to audit books of account as it is declaring below 8% after remuneration and interest on capital.though turnover limit for audit is not applicable.
please advise.

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14 Replies

Ruchika Somani (Coaching and Practice in Tax Audit Law.) (4429 Points)
Replied 02 July 2018

Partnership firms involved in profession with gross receipts of more than Rs.50 lakhs must complete a tax audit. Partnership firm involved in doing business must complete tax audit, if sales turnover exceeds Rs.1 crores.

Partnership firms involved in carrying on a specified profession would be required to maintain book of accounts as per Income Tax Act, if gross receipts is more than Rs.1.5 lakhs in all three previous years.

In case a partnership firm is receiving income profession (other than specified profession), book of accounts must be mandatorily maintained if income exceeds Rs.2.5 lakhs in any one of the three years previous year.

In case a partnership is involved in business, then maintenance of books of account is mandatory if total sales turnover or gross receipts exceed Rs.25 lakhs in any one of the three preceding years.

If you claiming u/s 44 AD then audit isnt compulsory however salary/ remuneration and interest paid to partners is not allowed as deduction

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Gaurav Gulati (56 Points)
Replied 02 July 2018

yes audit is compulsory u/s 44AD(4) if in previous FY partnership declared presumptive income u/s 44AD.

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Gaurav Raut (9 Points)
Replied 02 July 2018

firm didn't declare presumptive income in previous FY.

Ruchika Somani (Coaching and Practice in Tax Audit Law.) (4429 Points)
Replied 02 July 2018

Originally posted by : Gaurav Gulati
	yes audit is compulsory u/s 44AD(4) if in previous FY partnership declared presumptive income u/s 44AD.

Its not compulsory Gaurav

Gaurav Gulati (56 Points)
Replied 02 July 2018

If it did not declare presumptive income in any of the last 5 preceding PY then no need to get accounts audited but do check if books are required to maintain as per sec 44AA or not based on turnover and profit of firm.

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Ruchika Somani (Coaching and Practice in Tax Audit Law.) (4429 Points)
Replied 02 July 2018

Originally posted by : Gaurav Gulati
	If it did not declare presumptive income in any of the last 5 preceding PY then no need to get accounts audited but do check if books are required to maintain as per sec 44AA or not based on turnover and profit of firm.

Guess you have misunderstood the 5 years criteria.

It says if a person claims 44AD in one year say 2011-12 and then opts normal book keeping and audit in subsequent year 2012-13 he wont be able to from that subsequent year till 5 years (2012-13 to 2016-17 )be able to claim 44AD.

Gaurav Raut (9 Points)
Replied 02 July 2018

in my example do I need to get accounts audited if I do not opt for presumptive taxation us 44AD? if it is showing profit below 8% after remuneration &capital??

Ruchika Somani (Coaching and Practice in Tax Audit Law.) (4429 Points)
Replied 02 July 2018

Originally posted by : Gaurav Raut
	in my example do I need to get accounts audited if I do not opt for presumptive taxation us 44AD? if it is showing profit below 8% after remuneration &capital??

If monetary limit of turnover crosses then Yes and if not then No even if your profit is less than 8%

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Sunil Suni (94 Points)
Replied 02 July 2018

As per my knowledge if the income declared is less than 8% of turnover , then audit is compulsory u/s 44AB(d) , however in case of slab based assessees audit is compulsory only if such profit exceeds basic exemption limit.

Since in case of firm there is no exemption limit , even if turnover is less than threshold limit if profit declared is less than 8%(business case)/50%(in case of profession) then audit is compulsory.

Gaurav Gulati (56 Points)
Replied 02 July 2018

the above view by sunil is true but 44AD has been amended by FA 2017 & hence audit is required under this clause if the assessee used to declare presumptive profit @ 8% in any of preceding 5 FY.