“Explore the assessment procedures for partnership firms in the upcoming years 2022-2023 to 2024-2025. Understand key provisions under Sections 2(23), 184, and 185 of the Income-tax Act, along with detailed computations for total income and book profit. Stay informed about tax rates, deductions, and amendments introduced by the Finance Act 2023. Keep your partnership firm tax-compliant with this comprehensive guide.”

Assessment of Partnership Firms in the Assessment Year 2022-2023, Assessment Year 2023-2024 and in the Assessment Year 2024-2025

1. Sec 2(23) –Definition of firm.

Firm shall have the meaning assigned to it in the Indian Partnership Act 1932 (9 of 1932) and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 ( 6 of 2009).

2.Sec 184.  (1) A firm shall be assessed as a firm for the purposes of this Act, if—

(i)  the partnership is evidenced by an instrument  ; and

(ii)  the individual shares of the partners are specified in that instrument .

(2) A certified copy of the instrument of partnership referred to in sub-section (1) shall accompany the return of income of the firm of the previous year relevant to the assessment year com­mencing on or after the 1st day of April, 1993 in respect of which assessment as a firm is first sought.

(3) Where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every subsequent year if there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partner­ship on the basis of which the assessment as a firm was first sought.

(4) Where any such change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year and all the provisions of this section shall apply accordingly.

Assessment of Partnership Firms

(5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remunera­tion, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession” and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28.

3. Sec 185. Assessment when section 184 not complied with.—

Notwith­standing anything contained in any other provision of this Act, where a firm does not comply with the provisions of section 184 for any assessment year, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, com­mission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head “Profits and gains of busi­ness or profession” and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28.’.

4. Assessment Year 2022-2023

Computation of Total Income of the Firm

I. Income from House Property

II. Profits and Gains of Business or Profession of the Firm

Book Profit of the Firm

Less: Remuneration paid to working partners

Least of the following two:

a. Actual Remuneration

b. Statutory Limit u/s 40(b)

In Case book profit is positive

On first 3 Lakh of book profit  — 150,000 or 90% of book profit whichever is more

On the balance of book profit  —60% of book profit

If the book Profit is negative  —Rs.150,000.

III. Income from Capital Gains

IV. Income from Other Sources

V. Gross Total Income

VI. Less: Deductions u/s 80 C to 80 U

a. Sec 80 G

b. Sec 80 GGA

c. Sec 80 IA

d. Sec Sec 80 GGC

e. Sec 80 IAB

f. Sec 80IAC

g. Sec 80 IB

h. Sec 80 IBA

i. Sec 80IC

j. Sec 80 IE

k. Sec 80 JJA

l. Sec 80 JJAA

VII. Total Income

Less: Tax payable by the firm

Distributable income to be distributed among the partners according to their profit sharing ratio.

Income Tax Rates are as follows:

Short-term capital gains u/s 111A-15%

Long-term capital gains 10%/20% -(Sec 112)

Long-term capital gains u/s 112 A-10%

Winnings from lotteries, card games, crossword puzzles, horse race etc-30%

Other Income-30%.

Surcharge-12% if total income exceeds Rs 1 crore (Subject to Marginal Relief)

Health and Education Cess@4%

Alternate Minimum Tax is applicable to partnership firms.

Calculation of Book Profit

Net Profit as Per Profit and Loss A/C

Add:

(i)Inadmissible items (not covered u/ss 28 to 44 DB)

(ii)Remuneration to partners, if debited to P/L A/C

(iii) Disallowance of interest in excess of 12% p.a

Less:

(iv) Admissible items which are disallowed in (i) above

(v) Income from all other sources credited to P/L A/C

Book Profit

5. Assessment Year 2023-2024

Computation of Total Income of the Firm

I. Income from House Property

II. Profits and Gains of Business or Profession of the Firm

Book Profit of the Firm

Less: Remuneration paid to working partners

Least of the following two:

a. Actual Remuneration

b. Statutory Limit u/s 40(b)

In Case book profit is positive

On first 3 Lakh of book profit  — 150,000 or 90% of book profit whichever is more

On the balance of book profit  —60% of book profit

If the book Profit is negative —Rs.150,000.

III. Income from Capital Gains

IV. Income from Other Sources

V. Gross Total Income

VI. Less: Deductions u/s 80 C to 80 U

a. Sec 80 G

b. Sec 80 GGA

c. Sec 80 IA

d. Sec Sec 80 GGC

e. Sec 80 IAB

f. Sec 80IAC

g. Sec 80 IB

h. Sec 80 IBA

i. Sec 80IC

j. Sec 80 IE

k. Sec 80 JJA

l. Sec 80 JJAA

VII. Total Income

Less: Tax payable by the firm

Distributable income to be distributed among the partners according to their profit sharing ratio.

Income Tax Rates are as follows:

Short-term capital gains u/s 111A-15%

Long-term capital gains 10%/20% -(Sec 112)

Long-term capital gains u/s 112 A-10%

Winnings from lotteries, card games, crossword puzzles, horse race etc-30%

Other Income-30%.

Surcharge-12% if total income exceeds Rs 1 crore (Subject to Marginal Relief)

Health and Education Cess@4%

Alternate Minimum Tax is applicable to partnership firms.

Calculation of Book Profit

Net Profit as Per Profit and Loss A/C

Add:

(i)Inadmissible items (not covered u/ss 28 to 44 DB)

(ii)Remuneration to partners, if debited to P/L A/C

(iii) Disallowance of interest in excess of 12% p.a

Less:

(iv) Admissible items which are disallowed in (i) above

(v) Income from all other sources credited to P/L A/C

Book Profit

6. Assessment Year 2024-2025(as per Finance Act 2023)

 Computation of Total Income of the Firm

I. Income from House Property

II. Profits and Gains of Business or Profession of the Firm

Book Profit of the Firm

Less: Remuneration paid to working partners

Least of the following two:

a. Actual Remuneration

b. Statutory Limit u/s 40(b)

In Case book profit is positive

On first 3 Lakh of book profit  — 150,000 or 90% of book profit whichever is more

On the balance of book profit  —60% of book profit

If the book Profit is negative  —Rs.150,000.

III. Income from Capital Gains

IV. Income from Other Sources

V. Gross Total Income

VI. Less: Deductions u/s 80 C to 80 U

a. Sec 80 G

b. Sec 80 GGA

c. Sec 80 IA

d. Sec Sec 80 GGC

e. Sec 80 IAB

f. Sec 80IAC

g. Sec 80 IB

h. Sec 80 IBA

i. Sec 80IC

j. Sec 80 IE

k. Sec 80 JJA

l. Sec 80 JJAA

VII. Total Income

Less: Tax payable by the firm

Distributable income to be distributed among the partners according to their profit sharing ratio.

Income Tax Rates are as follows:

Short-term capital gains u/s 111A-15%

Long-term capital gains 10%/20% -(Sec 112)

Long-term capital gains u/s 112 A-10%

Winnings from lotteries, card games, crossword puzzles, horse race etc-30%

Other Income-30%.

Surcharge-12% if total income exceeds Rs 1 crore (Subject to Marginal Relief)

Health and Education Cess@4%

Alternate Minimum Tax is applicable to partnership firms.

Calculation of Book Profit

Net Profit as Per Profit and Loss A/C

Add:

(i)Inadmissible items (not covered u/s 28 to 44 DB)

(ii)Remuneration to partners, if debited to P/L A/C

(iii) Disallowance of interest in excess of 12% p.a

Less:

(iv) Admissible items which are disallowed in (i) above

(v) Income from all other sources credited to P/L A/C

Book Profit

Amendment in the Finance Act 2023.

In section 189 of the Income-tax Act, in sub-section (2), for the words and brackets “the Commissioner (Appeals)”, the words and brackets “the Joint Commissioner (Appeals) or the Commissioner (Appeals)” shall be substituted.

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