Category: income tax

How to calculate income tax on partnership firm

Having partnership firm is beneficial in business. Do you have one?  Then you must aware of calculation of income tax on partnership firm. Some provisions should be kept in mind while calculating of tax liability. Let’s see. How to calculate income tax on partnership firm? Calculate total business income of the firm: Business income can be calculated in normal way. Deduct all the allowable expenses for business: Expenses which are allowed for deduction under sections of head “profit and loss from business or profession”. Reduce allowable partner’s salary and interest from that profit. Provisions of partner’s salary and interest in income tax: Conditions to get benefit of interest and salary (section 184): There must be partnership deed or other legal instrument for constitution of partnership. Share of partners are definite. Certified copies of partnership should be held by firm. Revised instrument should be made if there is any change in share or remuneration. No failure as in mentioned in section 144. CA assisted  firm’s return filling   Partner’s salary/remuneration is allowed to reduce net profit if following conditions are satisfied: (section 40b) Remuneration should be paid to working partner. It is authorised by partnership deed. It should not related to period prior to partnership deed. Remuneration should be within permissible limit. Permissible limit for deduction of remuneration of partner: Book profit Amount deductible u/s 40(b) (maximum) If book profit...

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Income tax on partnership income

Are you in partnership? Are you generating good income from partnership business? That’s great. Here I present rules for income tax on partnership income. How to calculate income tax on partnership income?   To calculate and understand income tax provisions for partnership income, we can divide partnership income in following parts: Share from partnership profit Remuneration from partnership Interest from loan given to partnership firm. Capital gain on asset sold to partnership firm. Share in partnership profit: Share in partnership profit is exempt from tax. Reason is simple. The profit is already taxed in the hands of partnership firm. Similarly loss from partnership firm is only loss of firm and partner cannot set off loss from partnership from your personal income. Remuneration from partnership: Some firms give salary or remuneration to partners. Remuneration from partnership is taxable in the hands of partners. He is required to show that income under head of income from business or profession. Similarly partnership firm can claim deduction for salary paid to partners. It is allowable expenses. Interest from loan given to partnership firm: If you have given loan to your partnership firm and receives interest, it is taxable in your hand. You can show it in income from other sources.   Capital gains arisen by transfer of assets to partnership firm: Sometimes partners bring asset instead of cash as capital contribution. In that...

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tax on mutual funds investments in India

  Mutual fund is useful way for saving and generation of income. If you are investing, you like to know rules for tax on mutual funds. Tax on mutual funds: We can divide mutual fund in two categories: Equity oriented mutual fund Non equity oriented mutual fund we can also divide capital gain in two categories: Short term capital gains Long term capital gains Short term capital gains: When units of mutual fund is held for less than 1 year, capital gain arising from sale of mutual fund unit is short term capital gains. Long term capital gains: When units of mutual fund is held for more than 1 year, capital gain arising is long term capital gains.   Tax on Equity oriented mutual fund: Dividend Income: Dividend received is exempt from tax u/s 10 (35) (a). Short term capital gain: Capital gain tax rate is 15% if following conditions are satisfied: Redemption with stock exchange or AMC STT is paid For case other than mentioned above, tax rate is as per income tax slab applicable to person. Long term capital gain: Long term capital gain from equity oriented mutual  fund is exempt from tax u/s 10 (38). Tax on Non equity oriented mutual fund: Dividend income: Dividend income is exempt but dividend distribution tax is deducted by AMC. Read our post on dividend distribution tax to know calculation of...

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TDS on contractors under section 194C

TDS u/s 194C (TDS on contractor) While paying to contractor, you should remember provision for TDS on contractor u/s 194C of income tax act. The provision guides to deduct TDS when there is payment exceeding minimum limit of section 194C. What is work contract for section 194C? advertising broadcasting carriage of goods and passengers by any mode of transport other than railway. catering. labour supply for work contract Manufacturing or supplying a product according to requirement of specification of a customer by using material purchased from customer. Who should deduct TDS  u/s 194C? It is not so that all should deduct TDS while making payment to contractor. But specified person mentioned in section 194C  of income tax act should deduct TDS while paying to contractor. Contractor should be resident of India. Central government or state government Local authority Corporation established by or under central, state or provincial act. Company Cooperative society Housing society Any society registered under the societies registration act, 1860 or any other law in India. Any trust University established by central government, state government or under section 3 of the university grants commission act, 1956. Foreign government, foreign enterprise, any association or body established outside India. Any firm Any individual, HUF whose books of accounts are required to be audited under section 44AB during the immediately preceding financial year. AOP or BOI whose books of accounts...

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Dividend distribution tax (sec115-O and 115R)-new calculation

If you have invested in the shares of company, you may be aware of dividend distribution tax.   What is dividend distribution tax? When domestic company distributes profit by way of dividend, the company has to pay additional tax via dividend distribution tax. This provision is applicable to mutual fund companies too. Company is not paying dividend from own income but deducting it from dividend and distributing remaining amount to shareholders. Necessity of DDT: We all know that dividend is income and it is taxable. Instead of collecting tax on dividend from each person, the government has introduced section 115O. As per section 115O, company deducts tax from dividend income while distributing dividend income and pays remaining amount to shareholders. DDT vs TDS: DDT is not tax deducted at source but it is like advance tax which shareholders deposit through company.   Does dividend income tax again in the hands of shareholder? No, dividend received by shareholders is exempt as it is already taxed before distribution.   Rate of dividend distribution tax: For domestic company:15% (effective rate is 16.995% including surcharge and education cess) Note: new rate 19.994% from 1st october, 2014. Mutual fund to individual and HUF: 28.325% (effective rate) The rates are effective rates for distribution of dividend. It will be calculated on dividend paid amount.     Calculation of dividend distribution tax: Before 1/10/14: Distribution of...

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