Assessment of firm

1. Unit- 3
Assessment of Partnership
Firms
Presentation By
MUNIRAJU.G
Assistant Professor of Commerce, GCW KOLAR
Mobile : 9164503489

2. Meaning of Partnership
Section 4 of the Partnership Act, 1932
defines Partnership as “relationship
between persons who have agreed to
share the profits of business carried on
by all or any of them acting for all.”

3. The partnership is an association of two or more persons
There must be an agreement entered into by all partners.
The agreement between the persons can be oral or written.
The liability of the partners is unlimited.
The business can be carried on by all the partners or by any one
of them acting for all.
Features of Partnership

4. The persons who have agreed to do business
together are personally called “Partners” and
collectively called a “Firm”
Meaning of Partner and Firm

5. Kinds of Parntership
1. Eligible firms or Partnership Firms Assessed as Such (PFAS)
2. Other firms or Partnership Firms Assessed as an Association of
Person (PFAOP)

6. Eligible Firms
A firm is considered as a “Eligible Firm” when it fulfills all the following conditions
prescribed under section 184:
1.The Partnership is evidenced by an Instrument. That is, there must be a
partnership deed in writing which should be certified by all partners (not being
minors).
2.The instrument (i.e., the partnership deed) must specify the share of profit (or
loss) of each individual partner.
3.The certified copy of the instrument (i.e., partnership deed) must be submitted
along with return of income for the assessment year in which the firm is assessed
for the first time.
‘Eligible Firm’ includes Limited Liability Partnership Firms. ‘Limited Liability
Partnership’ means a partnership formed and registered under the Limited Liability
Partnership Act, 2008.

7. Other Firms
A firm is considered as a “Other Firms’ in the
following cases-
1.When all or any of the conditions under section
184 are not fulfilled, or
2.When the firm commits any default
leading to ‘Best Judgment Assessment’
under section 144.

8. RESIDENTIAL STATUS
 A firm is said to be ‘resident’ when the control and management of
the affairs of the firm is situated wholly or partly in India.
 A firm is said to be ‘Non-resident’ when the control and management of
the affairs of the firm is situated wholly outside India.

9. CLASSIFICATION OF THE TAXABLE INCOMES UNDER VARIOUS
‘HEADS OF INCOME’
1. Income from House Property
2. Income from Business
3. Capital Gains
4. Income from Other Sources

10. Unit- 3
Assessment of Partnership
Firms
Presentation By
MUNIRAJU.G
Assistant Professor of Commerce, GCW KOLAR
Mobile : 9164503489
Class-2

11. COMPUTATION OF TAXABLE INCOME UNDER EACH HEAD
Computing ‘Income from Business’ for a Firm
A. In Case of ‘Eligible Firms’
1.Computation of ‘Book Profits’.
2.Calculation of ‘Admissible Remuneration’ to Partners.
3.Calculation of Taxable Income fromBusiness or
Profession.

12. STEP-1 COMPUTATION OF BOOK PROFITS
Particulars Rs. Rs.
Net Profits as per Profit and Loss Account
Add:
Inadmissible Expenses debited to P & L A/c
Business incomes not credited to P & L A/c
Over-valuation of opening stock and under-valuation of
closing stock
Less:
Admissible expenses not debited to P & L A/c
Non-business and non-taxable incomes credited to P & L A/c
Under-valuation of opening stock and over-valuation of
closing stock
Book Profits
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX

13. Where all the above conditions are fulfilled, remuneration to partners
is admissible to the following extent:
Actual Remuneration paid or payable
Or
Maximum Limit Whichever is Less.
STEP-2 CALCULATION OF ‘ADMISSIBLE REMUNERATION

14. ADDITIONAL PROVISIONS IN COMPUTING ‘BOOK
PROFITS’ FOR PARTNERSHIP FIRMS
1. Any remuneration to partners (like salary, bonus, commission etc.,) must
be disallowed (i.e., taken as inadmissible). The same will be considered
for deduction later as per provisions and conditions under section 40(b).
2. Any interest payable to a partner must be allowed as deduction if the
payment of interest is authorized by partnership deed. The amount of
interest deductible is least of the following:
a) Amount of Interest authorized by the Deed, or
b)Interest @ 12% simple interest per annum (on the opening capital balance)

15. CALCULATION OF ‘ADMISSIBLE REMUNERATION’
In case of individual assesses, any remuneration paid or payable
is completely inadmissible. However, in case of an ‘Eligible Firm’,
remuneration to partners is admissible on fulfillment of the following
conditions as specified under section 40(b):
1.The remuneration is paid to working partner.
2.Payment of remuneration to working partner is authorized by and is in
accordance with the Partnership Deed.
3.The payment made does not relate to a period prior to the date from
which the Partnership Deed is in effect.

16. Situation Maximum Limit
In case the Book Profit is
‘Negative’
Rs. 1,50,000
In case of ‘Positive’ Book
Profits
On First Rs. 3,00,000 ofBook Profits
On the Balance of Book Profits
Rs. 1,50,000 or 90% of
‘Book Profits’, whichever is higher
60% of Book profits
MAXIMUM LIMIT

17. COMPUATION OF TAXABLE BUSINESS INCOME
PARTICULARS Rs.
Book Profits
Less: Admissible Remuneration
Taxable Income from Business or Profession
XXXX
XXXX
XXXX

18. STEP 3: COMPUTATION OF TAXABLE INCOME
Particulars Rs. Rs.
Income from House Property
Income from Business and Profession
Income from capital gains (other than short-term capital gains
liable for security transaction tax)
Income from other sources
Gross Total Income
Less: Deductions under sections 80G to 80JJAA
Total Taxable Income
XXX
XXX
XXX
XXX
XXX
XXX
XXX

19. TAX ON TOTAL TAXABLE INCOME
Particulars Rs.
Tax on Casual income @ 30%
Tax on Long-term capital gain @ 20%
Tax on Short-term capital gain liable for STT @ 15%
Tax on Long-term capital gain on transactions liable for STT (in excess of Rs. 1,00,000) @
10%
Tax on Other-taxable income @ 30%
Add: Surcharge (if applicable – at rates given below)
Add: Health and Education Cess @ 4%
Tax on Total Taxable Income
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Surcharge
If Total Taxable Income does not exceed Rs. 1 crore -Nil
If Total Taxable Income exceeds Rs. 1 crore – 12%