Taxation of Firms & its Partners - Income Tax - Ready Reckoner - Income Tax

Taxation of Firms its Partners : Provision in brief 1. Rate of Tax for Firms:- On total income ( exclusive of STCG u/s 111A and LTCG) 30% On Long Term Capital Gain (in excess of ₹1,00,000) u/s 112A 10% On Long Term Capital Gain u/s 112 20% On Short Term Capital Gain on sale of shares as per section 111A 15% Surcharge:- The amount of income tax shall be increased by surcharge @ 12% of such income tax in case of a firm having total income exceeding ₹ 1 crore. Cess:- Health Education Cess @ 4% on total tax Shares of partners in the total income of the firm is EXEMPT in the hands of partners under section 10(2A) . Note:- It is clarified that 'total income' of the firm for section 10(2A) of the Act , as interpreted contextually, includes income which is exempt or deductible under various provisions of the Act. It is, therefore, further clarified that the income of a firm is to be taxed in the hands of the firm only and the same can under no circumstances be taxed in the hands of its partners. Accordingly, the entire profit credited to the partners' accounts in the firm would be exempt from tax in the hands of such partners, even if the income chargeable to tax becomes NIL in the hands of the firm on account of any exemption or deduction as per the provisions of the Act. [ CIRCULAR NO. 8/2014 Dated 31.03.2014 ] Remuneration and interest paid to the partners is allowed as deduction to the firm subject to the limits and conditions specified in section 40(b) . Remuneration and interest received by the partners shall be taxed in their hands under PGBP under section 28(v) . However, salaries and interest which have not been allowed under section 40(b) or section 184(5) or section 185 shall not be added to the income of the partners under section 28(v) . Losses of the firm shall be carried forward by the firm and shall not be allocated to the partners. Where a change has been occurred in the constitution of the firm, due to retirement of the partner or death of the partner the firm shall not be entitled to carry forward and set off so much of the loss proportionate to the share of the retired or deceased partner as exceeds his share of his profits, if any, in the firm in respect of the previous year. Unabsorbed depreciation of the firm is not covered u/s 78 and therefore the entire unabsorbed depreciation will be allowed to be carry forward in the hands of the firm, even if there is a change in the constitution of the firm. Due dates for filing of return of Firm a. 30th September, where accounts of the partnership firm are required to be audited under Income- tax Act or under any other law for the time being in force. b. 31st July in any other cases. 9. Due dates for filing of return of Partners a. 30th September in case of a working partner of a firm (whether or not he is entitled to remuneration) where due date for filing return of firm is 30th September. b. 31st July for other partners.