Computation of book profit for partnership firm

Book profit definition, examples how to calculate book. Book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. There is no difference in calculation for registered firms and unregistered firms. Computation of book profits would be calculated as under a. Computation of taxable income of firm and its partners as per section 223 the terms firm, and partnership have the same meanings respectively, assigned to them in the indian partnership act, 1932 and includes a limited liability partnership as defined in the limited liability partnership act, 2008. In this case, it simply means the profits as computed before remuneration paid to the partner. How do you calculate the remuneration for partnership firms. The tax liability of essem enterprises a partnership firm for the financial year. Mat computation share of profit from the partnership firm was sought to be excluded while computing the book profits u s. Quantification of remuneration to partners in partnership deed is must. Mat computation share of profit from the partnership firm was. Remuneration and interest to partners section 40b taxadda.

But, in respect of booking the expenditures, following points must be kept in mind for calculation of income tax on partnership firm. Explanation 3 to section 40b defines bookprofit as to mean the net. Explanation 3 to section 40b defines book profit as to mean the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in chapter ivd as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit. A partnership firm should submit its partnership deed in the first year of its. Taxation of income of partnership firm learn accounts. Book profit means the net profit of the firm calculated after taking into account all.

We are discussing below the rate of income tax and method of calculation of the profits of a partnership firm. Remuneration in partnership firm is allowed as a deduction if following conditions. Section 40b deduction for salary and interest partnership business. Salary must be related to the period after the partnership deed date. Book profit means the net profit computed under the head business or. Query on calcultion of book profit in partnership firm students. While taxability of partnership firm there is no distinction between registered and unregistered firms. All the expenses relating to the partnership firms are booked within the permission limit of law.

Section 40b determines the maximum amount of remuneration and interest on capital payable to a partner under income tax act. This video describes how to compute book profit and allowable remuneration paid to a partner in case of a partnership firm under the it act. Suppose a partnership firm has business profit of 7 lacs. The amount over the specified limit is not allowed as deduction to partnership firm. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb for computation of book profit, one may proceed as follows. Step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company. Salary allowed under income tax act will be limited to of % of book profit as. The accounts of partnership firm are maintained like other business firms. Calculation of book profits for the purpose of mat. Only while preparing itr the amount of disallowance us 40a2b needs to be.