Presumptive Tax

[Ethirajan Parthasarathy]

As per section 44AD, even a partnership firm can avail the benefit of presumptive tax.

In view of omission of proviso to section 44AD(2), 6% or 8% of turnover will be treated as taxable profit after giving effect to remuneration and interest on capital of partners.

Let us assume 6% of turnover of a firm works out to ₹ 10 lakh. In such a situation, whether working partners have to offer salary which is deemed to have been allowed as income in their hands. If yes, how to arrive at the same.

[shwetal oswal]

Yes, we have to distribute salary to the working partners of that much amount, after which net profit of the firm works out to ₹ 10 lakhs.

[ARVIND JAIN]

It is advisable to go for Tax Audit as Book profit before partner remuneration would be too high if we consider NP as per Section 44AD . No Audit is advisable only in case real profit is so high to cover up remuneration and book profit.

AI Summary

Presumptive taxation requires partnership firms to allocate deemed presumptive profits to working partner remuneration and weigh tax audit implications. Presumptive taxation under section 44AD applies to partnership firms and the prescribed percentage of turnover is treated as the firm's taxable profit after accounting for partner remuneration and interest on capital. Where book remuneration would make book profit exceed the presumptive profit, practitioners should assess whether actual accounts and a tax audit are necessary to properly reflect partner remuneration and avoid inconsistencies with presumptive computation.