CA Sudhir Halakhandi

CA Sudhir HalakhandiA New ITR-5S Is Required For 44AD Firms

The assessment of the Partnership firms under the Income tax Act, 1961 has very specific characteristics and the “Remuneration and interest to partners” are two very specific figures without which one cannot calculate the tax liability of a partnership firm.  

See a very important section 44AD of the income tax Act, 1961 in which in case of assessee (Individual, HUF and Partnership firm) having turnover Rs. 1 Crore or Less then Rs. 1 Crore have to show 8% Net profit and this is a presumptive taxation clause in which these assessees are not required to maintain Books of accounts and get them audit.  For the partnership firms this section 44AD is applicable in a very specific way and interest  and remuneration  to partners as mentioned and allowable under section 40(b) (iv) and 40(b)(v) respectfully  are deductable from the 8% profit of the firm.

See if the turnover of a firm is Rs. 50.00 Lakhs and the interest to partners is Rs. 2.50 Lakhs then the firm can debit Rs. 1.50 Lakhs as remuneration to partners and these two i.e. interest to partners Rs. 2.50 Lakhs and Remuneration to partners Rs. 1.50 Lakhs = Rs. 4.00 is sufficient to show the required profit of 8% and the firm has three benefits (1) . It does not require to pay Income tax i.e. Firm Tax since the profit after interest to partners and remuneration is Zero. (2). Not required to maintain Books of accounts since the total of remuneration and interest paid to partners is equal to 8% of turnover of the firm. (3). Naturally the firm is not required to get it’s account audit.

Now look at the ITR -5 which is the Income tax return form to be filed for the partnership firms. In the Part A P&L i.e. the details of profit and loss there is are no columns to show these two important items of Expenditure i.e. Remuneration to partners and Interest to Partners and both of them have to be shown under the head other expenses.  Up to assessment year 2012-13 the details of other Expenses were not required to be disclosed but in ITR -5 for assessment year 2013-14 slight changes have been made to specify the other expenses but this will not solve the purpose as explained below.

Further there is no mention in the other places for these two amounts and there is a big hurdle for the assessee to file this Form and specially in case of ITR for the firms u/s 44AD the absence of specified filling of  these two figures, which are the basis of the taxability of firms, is a very complex problem and now even when the acknowledgement of the ITR-5 is showing the NIL income but the assessee are receiving the demand notices with respect to tax on interest and remuneration to the partners since the wrong or non filing of information by the assessee.

In case of ITR of the firm the ITR-5 should specifically contained the figures of Interest to partners and remuneration to partners. The ITR -5 was introduced in the year 2006 and containing the same irregularities and  still it is part of the rules with the same problem. In the year 2012 the lawmakers take almost 4 Months to introduce the new ITR-5 and it was introduced on 12/07/2012 with the same problems though the Last date of filing of Income tax return for unaudited partnership firm is 31st. July 2012 and it was later extended to 31st. Aug 2012. Even such a long time was not sufficient for the law makers to solve this simple problem.

In case of Firms covered under section 44AD a new ITR-5S like ITR 4S- Sugam should be introduced to show the turnover of the firm, 8% (or Book profit ) of the turnover of the firm  and net taxable income after deducting remuneration and interest specifically showing the amount of Interest to partners and remuneration to partners. This simple from will serve the purpose and will also solve the problems of the Taxpayer firms or ITR – 4S should be amended suitable to accommodate the Partnership Firms covered under Section 44AD.

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CA Sudhir Halakhandi – CA Abhas Halakhandi

“Halakhandi”, Laxmi Market, Beawar-305901(RAJ)

Cell- 9828067256, E-Mail – sudhir@halakhandi.Com

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0 responses to “A New ITR-5S Is Required For 44AD Firms”

  1. vijaykumar gadhavi says:

    Dear sir

    44AD REGARDING

    EXAMPALE GROS SALE- (WHITH TAX)(2562845), GROS PURCHASE ( WHITH TAX)(3190901)& OPNIG STOCK(1223699) & CLOSING STOCK (2602996 ) 44 AD PROFIT ANSER UNDER TRUE
    1, (2562845*8%) = 205028
    2, (2562845+2602996*8%) = 413267
    3, (2562845+2602996-1223699) = 315371

    PLEASE SIR ABOVE OPSEION WHATIS OPSION IS TRUE ( UPARNA 3 JAVAB MO SACHO JAVAB KAYO

  2. CARTIC says:

    IF PARTNERSHIP FIRM TURNOVER is RS.78,00,000/

    Income @ 8 % is 624000

    Partner 1 Remuneration = RS.75000

    Partner 2 Remuneration = RS.75000

    Questions:

    1. What will be the Taxable income for the Firm?

    2. Which ITR form need to be used by Firm while filing Tax?

    3. Which ITR form need to be used by Partners while filing Tax?

  3. ca satish garg says:

    respected sir,

    I have a question regarding 44AD. As we know that there is no option to fill the interest on partners capital and remuneration to partner in the ITR 4s and 5. So what is the solution. Pls reply me as soon as possible and oblige us

    thanks

    ca satish kumar garg
    panipat

  4. CA Harish Jain says:

    thanx sir

  5. CA Harish Jain says:

    Sir I want one clarification regarding 44AD and ITR 5 Return. I want to ask first if assessee opt 44AD then whether Return Part A-BS complete Balance Sheet items to present or just to fill Part A-BS sub c point is sufficient (no regular books of account maintain).
    Even if Assessee has made proper books of account and showing income under 44AD, under return complete Balance Sheet items to be shown or just detail of sundry debtors, creditors, stock and cash.
    My another question is that if my assessee has opt for 44AD and income is greater then 8% and under return complete information has been shown regarding balance sheet and P&L then it is mandatory under Schedule BP to first deduct under point A 4 to deduct whole profit and then again add the same profit at point no 33.
    Whether if assessee opt 44AD it is compulsory to show just turnover and profit even if assessee has made proper books of accounts.

  6. Advocate,Gourav Mishra says:

    Dear Sirs,
    Your opinion related to filing of ITR5 in connection of 44AD is appreciable.
    and your suggestion for amended in ITR is also very much affirmative.

    we are always in your favour

  7. S PRAKASH says:

    sir, thank you very much for highlighting a practical problem.In spite of these hurdels if we file the Form 4 for firm it is sure that the CPC will not understand the Income Tax law and we should be ready with a bunch of rectification applications, as one rectification application to CPC will not solve the problem.The practicing community at large should make an appeal to the CBDT for this.

  8. harish says:

    Keeping in view rise in turnover for audit cases from 60 lacs to one crore net profit u/s 44AD may also be lowered from 8% to 5%

  9. CA VINOD KUMAR GUPTA says:

    Dear Sirs,
    Your opinion related to filing of ITR5 in connection of 44AD is appreciable.
    and your suggestion for amended in ITR is also very much affirmative.
    vinod kumar gupta

  10. CA AKSHIT MAHAJAN says:

    NICE ARTICLE

  11. Sarjiwan Gupta says:

    Respected Sirs,
    A very good article, you should be part of CBDT team.
    Regards
    Sarjiwan Gupta

  12. ca dilip khetan says:

    Sir,

    The Remuneration to Partner and Interest should be clearly shown under seperate head in ITR-5, to clear any doubts. It is a demand of professional pending since long. If it is incorporated in ITR-5, it would suffice.

  13. Arvind Bhargva says:

    Dear Experts,

    Thanks to CA Halakhandi brothers who have been giving useful information on various topics requiring clarification/simplification in common interest.

    Now coming to section 44AD meant for small businessmen having gross turnover/receipt up to one crore.

    Correctly stated that ITR 4S has its limitation. In case of other income not covered under 4S return, assessee opts for regular ITR-5, It also appears not compatible with 44AD assessee particularly partnership firm. Modification is required to meet the requirement.

    Now in addition to interest and remuneration issue for firm and its proper placement in specified block, there are some more issues such as disclosure of Capital, Sundry debtor, Sundry Creditor, Closing stock Cash in hand. Please clarify whether all these figures are mandatory or one of the figure such as Cash in hand and disclosure of 8% profit on presumptive basis is sufficient to qualify for benefit under section 44AD. Basically the object and scheme of the act extends immunity to small taxpayers from maintaining account books and figure/paper work hazard. What if these figures not provided except disclosure of gross receipt/turnover and 8% presumptive income calculation. Does It imply that at the end of year or closing, there were not sundry debtors/creditors/stock or cash in the even parent act is followed leaving/ignoring the specified block in the return requiring these information.

    Voice should also be raised that returns must be compatible and in harmony with the Scheme of the Act and not de-hors the Provisions.

    Regards

    AK Bhargava
    09425157452

  14. ASHWIN GALA says:

    A very good suggestion. The Income Tax dept. is expending so much on systems.

    Having no columns for remuneration & Interest to partners is realy ridiculous.

    Why the dept. could not recognize such simple but important things ?

    CA ASHWIN GALA

  15. Pradeep Chandra Kesharwani says:

    Thanks Dear for raising the issue which is very very important for all the assessee and also for the professionals.

  16. C A K C AGARWAL says:

    I CONGRATULATE MR.SUDHIR AND MR. ABHAS. IT IS A GREATEST WHERE TO SHOW THE INTEREST AND REMMUNERATION TO PARTNER IN I T R V,IF WE SHOW THE REMMUNERATION TO PARTNER , IN THE SALARY AND WAGES COLOUMN, THE THE AMOUNT OF SALARY SHALL BE VERY MISLEADING.
    C A K C AGARWAL

  17. N.L.NSWAMY says:

    THE INTRODUCTION OF ITR5S ISDEVELOPMENTFOR44ADINTHE PARTNERSHIPFIRMS

  18. Devendra B.S says:

    Good view Sir….

  19. Sanjay Sharma(adv) says:

    I concur with the observations of my esteemed colleagues, who have written this article.

    Sanjay Sharma(adv)
    1/5 GF, Main Rd.
    West Patel Nagar
    New Delhi-8
    9810071545
    adv_sanjay_31@yahoo.co.in

  20. CA SUDHIR HALAKHANDI says:

    THANKS!!!!

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