Change in rates of allocation of remuneration to Partner of Firm under Income tax Act
New provision under income-act for allocation of remuneration amongst partners of the firm from AY 2010-11
Under income tax act income of the firm can be distributed amongst the partners as interest on capital and remuneration to working partners. Balance can be allocated as profit to the partners.
Interest paid to partners on capital (as per instrument of partnership) and remuneration calculated at rates specified in sec 40(b) are allowed as expenditure.
The incident of income tax on firms falls on the amount of income distributed to partners as profit. The firm has to pay income tax @ 30% on total income. Where total income of firm exceeds Rupees one crore surcharge of 10% is payable on income tax. Education cess @3% is payable to Tax and Surcharge.
Up to AY 2009-10, maximum remuneration payable to partners was to be deducted at following rates:
In case of firm carrying on profession:
i) on first Rs.1,00,000/- of the book profit or in case of loss:--- - Rs.50,000/- or @ 90% of book profit whichever is more
ii) on next Rs.1,00,000/- of book profit : ----@ 60% of book profit
iii) on balance of book profit : ------- @ 40% of book profit
In case of other firms:
i) on first Rs.75,000/- of the book profit or in case of loss: -----Rs.50,000/- or @ 90% of book profit,
ii) on next Rs.75,000/- of book profit: -----@ 60% of book profit
iii) on balance of book profit :------- @ 40% of book profit
Form AY 2010-11, maximum remuneration payable to partner is to be deducted at following rates:
i) on first Rs.3,00,000/- of the book profit or in case of loss : -----Rs.1,50,000/- or @ 90% of book profit which ever is more
ii) on balance of book profit :---- @ 60% of book profit
These rates are applicable irrespective the firm is caring on profession or business.
Thus there is substantial benefit to firms under the new provisions
New provision under income-act for allocation of remuneration amongst partners of the firm from AY 2010-11
Under income tax act income of the firm can be distributed amongst the partners as interest on capital and remuneration to working partners. Balance can be allocated as profit to the partners.
Interest paid to partners on capital (as per instrument of partnership) and remuneration calculated at rates specified in sec 40(b) are allowed as expenditure.
The incident of income tax on firms falls on the amount of income distributed to partners as profit. The firm has to pay income tax @ 30% on total income. Where total income of firm exceeds Rupees one crore surcharge of 10% is payable on income tax. Education cess @3% is payable to Tax and Surcharge.
Up to AY 2009-10, maximum remuneration payable to partners was to be deducted at following rates:
In case of firm carrying on profession:
i) on first Rs.1,00,000/- of the book profit or in case of loss:--- - Rs.50,000/- or @ 90% of book profit whichever is more
ii) on next Rs.1,00,000/- of book profit : ----@ 60% of book profit
iii) on balance of book profit : ------- @ 40% of book profit
In case of other firms:
i) on first Rs.75,000/- of the book profit or in case of loss: -----Rs.50,000/- or @ 90% of book profit,
ii) on next Rs.75,000/- of book profit: -----@ 60% of book profit
iii) on balance of book profit :------- @ 40% of book profit
Form AY 2010-11, maximum remuneration payable to partner is to be deducted at following rates:
i) on first Rs.3,00,000/- of the book profit or in case of loss : -----Rs.1,50,000/- or @ 90% of book profit which ever is more
ii) on balance of book profit :---- @ 60% of book profit
These rates are applicable irrespective the firm is caring on profession or business.
Thus there is substantial benefit to firms under the new provisions
