Tax relief for partnership firms: Profits can’t be taxed in the hands of partners
CBDT has bestowed major relief to partners of a partnership firm by clarifying that the exempted income of a firm cannot be, in any circumstances, taxed for its profit in the hands of its partners.
CBDT has taken this stance after few representations were made in connections with the interpretations of provision of section 10(2A) of the Income-Tax Act.
“Section 10(2A) states that no tax is to be levied on the partner on his share of total income of the firm”.
However, interest on capital in account and the remuneration receive by partner from the firm will continue to be taxable according to the provisions of the Income-Tax Act.
Putting CBDT Circular No. 8/2014, Dated: March 31, 2014 in Order:
* The law
A partner is not liable to be taxed again on its share in a partnership company. Since the income of the firm is already chargeable to tax, taxing again in the hands of partners could lead to double taxation
* The problem
Some tax authorities misinterpreted it and started taxing the profits in the hands of partners where a firm’s tax liability became nil due to certain exemptions and deductions
* The solution
CBDT clarified that the entire profit credited to partners accounts in a firm will be exempt from tax, even if the firm’s taxable income becomes nil due to certain available deductions or exemptions.