sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
Direct Tax »
 ITR-4 launched on e-filing portal; total 3 ITRs available now
 CBDT directs income tax department to hold grievance redressal fortnight for taxpayers in June
 Income tax return form-2 in Java format released for e-filing for FY2017-18
 3 ITRs available now ITR-4 launched on e-filing portal
 Businesses, small taxpayers to gain from new direct tax code
 New direct tax code to benefit corporates, income tax payers
 CBDT releases ITR Form-4 for presumptive income from business and profession
 Know how you can save tax through various deductions under Section 80 Income Tax
 CBDT issues notification, seeks suggestions to bring more transparency in cross-national transactions
 CBDT seeks suggestions to bring transparency in cross-national transactions
 What to expect from new direct tax law

Profits can't be taxed in the hands of partners
April, 03rd 2014

In what could bring a major relief to partnership companies, the Income-Tax department is set to clarify that the income of a firm that has been exempted from tax cannot be taxed for its profit in the hands of its partners.

Earlier, even if the income chargeable to tax for a firm was nil due to certain deductions and exemptions, some assessing officers levied tax on the profit credited to its partners. This led to disputes and some taxpayers challenged this in courts.

“After looking into the issue, the Central Board of Direct Taxes (CBDT) has decided to clarify that such income in the hands of partners will be completely exempt,” said a senior finance ministry official.

The official said the partners that had already paid taxes on such income might be allowed to get refunds or adjustments against their future tax liability (but there are only a few such cases).

The move came after CBDT received representations in connections with interpretation of provisions of Section 10 (2A) of the Income-Tax Act. According to this section, inserted by the Finance Act, 1992, a tax partner is not liable to tax again on his share in the total income of the firm.

“The position is clear but the language of the section in the law created difficulty... The ambiguity will be cleared with this clarification. It will certainly provide a lot of relief to promoter companies and others from the consequences of unintended taxation,” said Deloitte Partner N C Hegde.

The profit of a partnership firm is divided among its partners in sync with their partnership deal. For the purpose of computation of income tax, identities of a partner and the firm are co-terminus. This means assets and liabilities are not different. The profits are credited to a partner’s account and he can plough it back into the business. It is more of a book entry, as no cash is generally drawn out of the company. Therefore, the income of partners was made tax exempt in 1993 to avoid double taxation.

As some assessing officers interpreted the section differently and started levying taxes on partners’ profits, clarifications were sought as to what amount would be exempt in the hands of partners in cases where a firm had claimed exemptions or deductions. The firm is taxed at 30 per cent plus surcharge and applicable tax and the partners’ profit is also taxed at the same rate.

“The income of a company is to be taxed in the in the hands of the company alone. This can, under no circumstances, be taxed in the hands of its partner,” says a CBDT circular that is likely to be made public soon.

However, partners’s interest income from capital in account and the remuneration they receive from the company will continue to be taxable according to the provisions of the I-T Act.


* The law

A partner is not liable to be taxed again on its share in a partnership company. Since the income of the firm is already chargeable to tax, taxing again in the hands of partners could lead to double taxation

* The problem

Some tax authorities misinterpreted it and started taxing the profits in the hands of partners where a firm’s tax liability became nil due to certain exemptions and deductions

* The solution

CBDT will clarify that the entire profit credited to partners’ accounts in a firm will be exempt from tax, even if the firm’s taxable income becomes nil on account of exemptions

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Software Work Flow Workflow Software Software Automation Workflow automation Software Design Workflow Design Business Work Flow Workflow automation tools

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions