Computation of firm’s business income
When a partnership firm has not submitted a copy of its partnership deed duly signed by all partners it is assessed u/s 185 in following manner
I. Computation of business income
(i) it is computed in the same manner as under the head ‘Profits and Gains’.
(ii) any payment to a partner under whatsoever name it is disallowed.
(iii) rent paid to a partner for the premises used by firm is allowed.
(iv) partnership deed expenses are disallowed.
(v) in case interest on capital is paid to partners it is fully disallowed. Any interest on drawings received from partners is deemed as income of the firm and is fully taxable
(vi) Remuneration paid to partners u/s 40(b) is not allowed.
II. Computation of total income
(i) Income is to be calculated headwise.
(ii) Firm cannot have any income under the head ‘salaries’.
(iii) Firm can have house property, which is let out but not a self occupied one. For let out house property income is to be computed in the same manner as is given under the head Income from House Property.
(iv) Profits and Gain from business or profession are to be computed in the same manner as given earlier in this chapter.
(v) Capital Gains are to be computed in the same manner as given under the head “Capital Gains” but exemptions u/s 54, 54B and 54F are not allowed.
(vi) Income from other sources is to be computed in the same manner as is given under the head “Income from other sources”.
(vii) (a) Set off of lOsses is to be done as per rules given u/s 70 and 71 of the Act. The carry forward of losses is also to be done in accordance with rules given u/s 72, 73 and
(b) Where a change has occurred in the constitution of a firm, the proportionate share of loss of retired or deceased partner can be set off or carried forward to be set off only up to his share of income in. that firm in respect of that previous year. [Section 78(1)1
(c) To avail the benefit of carry forward of loss it is essential to file return of loss as required u/s l3(3).
(viii) Deductions out of Gross total income : A firm can claim following deductions
u/s 80G for donations
u/s 80 GGA for contribution to certain funds
u/s 80 GGB for donation to political parties
u/s 80 IA for infrastructure projects
u/s 80 JAB for setting up industry in Special Economic Zones
u/s 80 lB for new industrial undertaking
u/s 80 IC for setting up industry in backward states
u/s 80 JJA for use of bio waste, and
Firm is not allowed any other deduction.
III. Computation of firm’s Tax
(a) It pays tax at flat rate of 30% with no exemption limit.
(b) On long term capital gain rate of tax is 20%.
(c) On short term capital gain on securities covered under STY rate of tax is 15%.
(d) On winnings from lotteries, crossword puzzle, races, card games, gambling and betting rate of tax is 30%.
(e) Surcharge is added @ 10% of tax as calculated above only if total income of the firm exceeds Rs. 1 crore. So no surcharge, if total income does not exceed Rs. 1 crore.
(f) It is further increased by education cess @ 2% of tax and surcharge plus Secondary and Higher education cess @ 1%.
IV. Treatment of Share of Income from firm
It is fully exempted from tax u/s l0(2A) and as such is not added in individual income of partners.
V. Treatment of remuneration and interest received from firm
It is not added in individual income of partners.