What is the tax treatment of salary received by partners of a partnership firm?
What is the tax treatment of salary received by partners of a partnership firm?
Remuneration which is allowed as expenses in the hands of partnership firm will be taxable in the hands of receiving partner as “Income from Business or Profession”. If such remuneration is not allowed as expense in hands of partnership firm then it will not be taxable in the hands of partners.
Is income from partnership firm taxable?
Income Tax at a flat rate of 30\% is levied on Partnership Firms and LLP’s. Moreover, in case the income of the partnership firm is more than Rs. 1 Crore in any financial year, Surcharge @ 10\% would also be payable. Capital Gains arising from the sale of any asset by the partnership firm are taxable under Section 112.
Which business firm is beneficial for income tax purpose?
For the purpose of taxation, an OPC is recognized as a private company under the Income Tax Act and is therefore subject to the same rate of tax as a domestic company….Limited Liability Partnership or Partnership Firm.
| Income | Surcharge |
|---|---|
| More than Rs 1 crore | 12\% |
How is partners salary treated in financial statements?
The salaries or commission to partners is an appropriation of profit rather than charge so it is debited to profit and loss appropriation account and shall be credited to respective partners’ capital accounts if capitals are fluctuating and to be credited to partners current account if capitals are fixed in nature.
What is the treatment of salaries given to a partner?
Salaries and interest paid to partners are considered expenses of the partnership and therefore deducted prior to income distribution. Partners are not considered employees or creditors of the partnership, but these transactions affect their capital accounts and the net income of the partnership.
What do you understand by OPC?
One person company (OPC) means a company formed with only one (single) person as a member, unlike the traditional manner of having at least two members.
How is tax calculated for a partnership firm?
Partnership firms are liable to pay income tax at the rate of 30\% of total income. In addition to the income tax, a partnership firm is liable to pay income tax surcharge on the amount of income tax at the rate of 12\%, when total income exceeds Rs. 1 crores.
How do you treat partners salary in accounting?
b) Remuneration payable to partners shall be in accordance with the terms of the partnership deed, however, it shall not exceed the following limit:
- On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or 90\% of book profit, whichever is more;
- On the balance of the book profit – 60\% of book profit.
How are interest and salary taxed in the hands of partners?
As per Section 40(b) of the Income Tax Act 1961, Interest & Salary paid to the Partners by the Partnership Firm are allowed to be deducted as an expense only in case all the specified conditions are being adhered to.