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Partnershipfirm vs indivisual

deepak (accountant) (58 Points)

15 May 2014

In a partnership firm Income tax calculated on profit and deposited into government.

Suppose, Two partners A, B started a partnership firm. Agreed on 50:50 profit ratio. after ending year on profit of 5,00,000, income tax 20,000 deposited into government. then profit 50-50 means 2,50,000-250,000 added in a and b capital respectively.

when partner A or B filled his indivisual ITR he shows his income from business 2,50,000 my question is that

Q.1. Is A and B again liable to pay income tax on 2,50,000 that is earned from partnership firm on which incometax payment already made by firm.

Q.2. Is Tds deducted of partnership firm shown in Indivisual ITR of A and B 50:50? How treate with Tds that is deducted in firm.

too much confusion please provide help..

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5 Replies

pyush rastogi (Chartered Accountnats) (14 Points)
Replied 15 May 2014

Answer to Q. No. 1

No Tax liability on partners on their profit earned from firm i.e.

Answer to Q No. 2

The Income Tax paid Rs. 20000/- by the firm may be debited in capital account of Partners in their profit sharing ratios

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Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 15 May 2014

1. share of profit from the firm is exempt in the hands of partern u/s 10 (2A)

with following example your query will be sorted out

COMPUTATION OF FIRM

	Amount

Net profit of firm	500000

Tax @ 30% on 5 Lac	150000
Add: Cess 3% on 150000	4500

Total tax liabilty '	154500

Less: Tax Paid
Tax already deposited	-20000
TDS in hands of firm (Assum)	-100000

Net Tax Payable by firm	34500

Now amount of profit goes to capital account of A and B

	A's Capital A/c	B's Capital A/c
Net profit of firm	250000	250000
Less: Tax liability of firm	-77250	-77250

Net profit receipt in hands of partner is exempt from tax u/s 10 (2A)	172750	172750

but there may be more tax planning can be possible with respect to salary and interest on capital of partners.

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deepak (accountant) (58 Points)
Replied 15 May 2014

thank you tax pandit ji..... you'r mean that in indivisual ITR of A or B will be filled in ITR 3 in which EI tab that is containg information of

Schedule EI			Details of Exempt Income (Income not to be included in Total Income)
EXEMPT INCOME	1	Interest income		1	0
	2	Dividend income		2	0
	3	Long-term capital gains on which Securities Transaction Tax is paid		3	0
	4	Net Agricultural income (other than income to be excluded under rule 7A, 7B or 8 of I.T. Rules)		4	0
	5	Share in the profit of firm/AOP/BOI etc.		5	172750
	6	Others, (including exempt income of minor child)		6	0
	7	Total (1+2+3+4+5+6)		7	172750