• Section 44AD - Partnership firm

We are a 2 year old partnership firm providing online test for various competitive exams. Its a B2C business. Our total receipts are around 30 lakhs for the current FY (2016-17). Can we use Section 44AD for our firm / line of business? What should be my tax liability? If no and if we have to maintain books then what is the maximum limit on partners salary and withdrawals.
Asked 7 years ago in Income Tax

1 In my view you can show firms income under section 44AD

2 partners salary and interest depends on terms mentioned in partnership deed

But as per income tax

Maximum interest is 12%, on capital

Salary in case of loss is upto 150000

Profit up to 300000 then maximum 90% of such profit

Above 300000 then maximum 60% (after calculating 90% on 300000)

But above salary and interest not allowed if you want to show profit in 44ad

Means in 92% deemed exp all exp are included already

Lalit Bansal
CA, Delhi
773 Answers
61 Consultations

5.0 on 5.0

Hi,

You can claim Section 44AD till your turnover is below Rs. 2 Crores. You have to show 8% of Turnover or higher percentage as you wish as Profit and pay tax at 30.9% on this Deemed Profit.

Pradeep Bhat
CA, Bengaluru
542 Answers
94 Consultations

5.0 on 5.0

Dear Sir,

You can use Section 44AD. Net Profit of the firm 2,40,000/- (8% of 30,00,000/- - it can be 6% for the amount received in cheque) & Tax payable thereon Rs. 74,160/-

If you maintain books than you can draw salary based on the net profit shown.

Vishrut Rajesh Shah
CA, Ahmedabad
928 Answers
38 Consultations

5.0 on 5.0

Dear Sir,

Yes, you can use provision of section 44 AD of Income Tax if you don't maintain Books of Accounts. Your Taxable profit would be 8% of your turnover if you take benefit of section 44AD i.e. Rs. 240000/- and 30.9% tax on the same would be your tax liability.

If, you maintain Books of Accounts then you can take Remuneration in following manner -

1. 90% of first Rs. 3 Lacs profit and

2. 60% of Balance profit subject to minimum of rs. 150000/-

Please feel free to contact in case any further issues.

Thanks

Bhagyashree Kankaria
CA, Pune
41 Answers
11 Consultations

5.0 on 5.0

Hello Sir,

You can very well benefit from Section 44AD and you will not be required to maintain your books of accounts as well.

If your turnover is around 30 Lacs an year, then the tax payable shall be 30.9% on Rs.240,000/-.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

Rohit R Sharma
CA, Mumbai
2104 Answers
95 Consultations

5.0 on 5.0

Dear Sir,

In my opinion you should maintain books of accounts.

The limit of partners salary as per income tax act is as follows:

Remuneration payable to partners shall not exceed the following limit:

On first Rs. 3 Lakhs of book profit or in case of loss - Rs. 1,50,000 or 90% of book profit, whichever is more;

On the balance of the book profit - 60% of book profit.

‘Book profit’ means the net profit computed under the head ‘Business or Profession’ 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

There is no limit on withdrawals, as withdrawals are not tax deductible.

Please feel free to call/revert in case you require our services.

Thanks and Regards,

Abhishek Dugar

CA, CS, B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

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