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A 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.
CA Sudhir Halakhandi

A 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

Categories: Income Tax

View Comments (20)

  • 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.

  • 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

  • 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?

  • 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

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