Originally posted by :k chakraborty territorial io |
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Do i need to show Remuneration paid to partner by firm as expense in the profit and loss statement? We show remumeration as an appropriation in the profit and loss appropriation statement. Which treatment is correct from the point of view of ITR and Accounting Standard applicable to non-corporate level IV entity?
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Hi,
As per the Accounting Standards (AS) applicable to non-corporate level IV entities in India, remuneration paid to a partner of a firm should be treated as an appropriation of profits and not as an expense. Therefore, it should not be shown as an expense in the Profit and Loss Statement.
However, while filing the Income Tax Return (ITR), it's important to make a distinction between the remuneration paid to partners and the share of profits allocated to them. This is because the remuneration paid to partners is taxable as a deduction from profits, while the share of profits allocated to partners is taxed as their income.
Therefore, the remuneration paid to partners should be shown separately in the ITR under the head "Salaries and Wages" and should be claimed as a deduction from profits, subject to the limits prescribed by the Income Tax Act. The share of profits allocated to partners should be shown separately under the head "Income from Business or Profession" in the ITR and should be taxed as per the applicable tax rates.