Assessment of partnership firm in Income Tax Act 2021-22

Assessment of partnership firm in Income Tax Act 2021-22

Assessment of partnership firm  are contain two word assessment and partnership firm.

Assessment mean  an act to determine the income tax amount  payable by an assessee for the relevant assessment year.

Partnership firm mean as per section4 of the partnership Act,1932, Partnership is the relationship between persons who have agreed to share the profit of a business carried on by all or any of them person who have entered into partnership with one another are called partners individually and a firm collectively.

Partnership firm also include limited liability partnership

As per section 2(q) limited liability partnership

agreement mean any  person who become a partner  in the limited liability partnership in accordnce with the limited liablility  partnership with a  written agreement between the partner of the limited liability and its partners which determines the mutual rights and  duties of the partners.

In simple word two or more person come together  to do business and share profit & loss from such business. Each person  who enter into partnership agreement are called partner and all partner together  called a partnership firm.

Partneship firm does not have a separate entity from that of the partners constituting the firm as the partners are the owners of the firm. However a firm is treated as a separate tax entity under the  Income Tax Act,

 The assessment of a firm are as under:

1. A firm is teated as a seprate tax entity.

2. Decuction are allowed under section 30 to 37 from business income. Some additional deduction also allowed such as reumuneration to working partner and interest paid in capital contribution.

3. Partnership firm will be taxed at  flate  rates of tax 30% plus health and education cess@4% after allowing deduction for interest on capital and loan of the partners. If firm income exceeding Rs.1 Crore. in this case surcharge @12% of such income tax.

4 Firm should satisfied conditions mention under section 184. Incase  conditions are not satisified in a particular assessment year the firm will be assessed as firm but no deduction  for remuneration,interest,bonus, commission.

5. Share of profit which a partner receives from the firm shall be fully exemp in the hand of partner. But only remuneration, interest, bonus, commission which received from partnership firm shall be taxable in the hand of the partners in their individual assessment under the head profit and gains of business or profession.

Essential conditions to be satisfied by a firm to be assessed as firm and to be eligible for dedcution of interest, salary to the partners( Section 184)

 

 

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