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How to find out Income and Tax Liability of a Firm

1. How to find out Income of a Firm

First find out the taxable income of a firm under the following steps:

  1. Find out income under the different heads of income (viz., “Income from house property”, “Profits and gains of business or profession”, “Capital gains” and “Income from other sources”) ignoring incomes exempt under sections 10 to 13A.

  2. Make adjustment on account of brought forward losses/disallowances. The total income under the aforesaid heads is gross total income.

  3. From the “gross total income” make deductions under sections 80G, 80GGA, 80GGC, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE, 80JJA and 80JJAA.

    How to find out Income and Tax Liability of a Firm

Other points - The following other points one should also keep in mind—

  1. Where at the time of assessment, it is found that a change has occurred in the constitution of a firm, only one assessment shall be made in respect of the entire previous year in which change in the constitution has occurred. A change in the constitution of a firm is said to take place:

    1. if one or more of the partners cease to be partners or one or more new partners are admitted, provided that at least one of the partners of the firm before the change continues as partners after the change [it does not cover a case where a firm is dissolved on the death of any of its partners];

    2. where all the partners continue with a change in their respective shares or change in the shares of some of them.

  2. Where a firm carrying on a business/profession is succeeded by another firm and the case is not covered by the aforesaid provision, separate assessments shall be made on the predecessor firm and the successor firm.

  3. Every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year.

2. How to find out Tax Liability of a Firm

On the income computed above, tax is payable at the following rates by a firm for the assessment years 2018-19 and 2019-20:

 

Tax rate [surcharge and education cess/secondary and higher education cess or health and education cess, shall be added]

Short-term Capital Gain Under Section 111A 15%
Long-term Capital Gain 20%
Winnings from Lottery 30%
Other income ( not being income which is subject to special Tax Rate) 30%

 

Tax liability shall be calculated as follows—

  1. Find out income-tax on net income.

  2. Add: Surcharge @ 12 %  if total income exceeds Rs. 1 crore.

  3. Find out total of (1) and (2).

  4. Add: Education cess/secondary and higher education cess [3% of (3)] (for the assessment year 2018-19).

  5. Add: Health and education cess [4% of (3)] (for the assessment year 2019-20).

  6. Tax liability is (1) + (2) + (4) or (5)

 

More Topics...on Assessment of 'Firm'

What is Firm & 'Partnership Firm'
Conditions for Claiming Deduction in respect of Remuneration and Interest to Partner in case of Firm (Section 184)
Conditions to obtain Deduction of Interest Paid to Partners in case of Firm [Section 40(b)]
Conditions to obtain Deduction of Remuneration Paid to Partners in case of Firm [Section 40(b)]
How to find out Income and Tax Liability of a Firm
Alternate Minimum Tax (AMT) on all Persons other than Companies [Section 115JC to 115JF]
 

 
 
 
 
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