New Scheme of Taxation of Firms29/07/2020
Rate of Income tax applicable to Partnership Firm / LLP
Flat rate of 30% on the total income after deduction of interest and remuneration to partners/Designated Partners at the specified rates + Surcharge of 12% if Total Income exceeds 1 Crore and will be further increased by education cess secondary and higher education cess @ 3% on Income-tax (wef A.Y. 2019-20 health and education cess @ 4% shall be levied in lieu of education cess secondary and higher education cess @ 3% )
Income Tax Slabs for Partnership Firm / LLP
|F.Y. 2017-18||F.Y. 2018-19|
|Surcharge||If income is greater than Rs.1,00,00,00 12% of income tax amount. Subject to marginal relief.||If income is greater than Rs.1,00,00,00 12% of income tax amount. Subject to marginal relief.|
|Education Cess||2% extra – charged on the amount of income tax + surcharge being paid.
|Secondary and Higher Education Cess|| 1% extra – charged on the amount of income tax + surcharge being paid.
|Health and Education cess||N.A.||4% extra – charged on the amount of income tax + surcharge being paid.|
Remuneration to Partners/Designated Partners
- Payment of Remuneration to a non-working partner will not be allowed as a deduction
- A ‘working partner’ is an individual who is actively engaged in conducting the affairs of the business or profession of the firm.
- Quantum of allowance is to be determined with reference to ‘book profit’ which is defined to mean an amount computed in accordance with the provisions of sections 28 to 44D of the Income-tax Act, as increased by the amount of remuneration to partners if deducted in determining book profit.
As per section 40(b)(v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder will be disallowed:
Slab of Remuneration to Partners/Designated Partners
|a. On the first 3,00,000 of book profits or in case of a loss||Rs. 1,50,000 or at the rate of 90% of the book profit (whichever is higher)
|b. On the balance of book profits||at the rate of 60%
Explanation 3 to section 40(b) defines “book-profit” as to mean the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.
Conditions for allowance of remuneration and interest to partners
- Remuneration should be to a working partner.
- Payment of remuneration and interest should be authorised by and should be in accordance with the terms of the partnership deed and should relate to any period falling after the date of such partnership deed.
- No deduction u/s. 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration: Circular No. 739 dt. 25-3-1996.
- Conditions for assessment as a firm
- The partnership should be evidenced by an instrument in writing specifying individual shares of the partners.
- A certified copy of the instrument signed by all the partners (not being minors) shall accompany the return of the firm for the first assessment as a ‘firm’.