Page 303 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes Any salary, bonus, commission, or remuneration (by whatever name called) to a partner
will be allowed as a deduction if it is paid to a working partner who is an individual. The
remuneration paid to such a partner must be authorised by the partnership deed and the
amount of remuneration must not exceed the given limits.

10.3.3 Income Tax Rates for Partnership Firm

Income Tax rates applicable on partnership firm are listed in Table. Basic rates were unchanged
in last four years however effective rates were reduced after removal of surcharge from firm tax.

Table 10.5: Income Tax Rates for Partnership Firm

FIRM 2009-10 2010-11 2011-12 2012-13
Tax Rate 30% 30% 30% 30%
Surcharge e (if net income exceeds 1 Crore) 10% - - -
Edu. Cess & SHE Cess 3% 3% 3% 3%

Source: http://www.itaxindia.org/2011/10/income-tax-rates-for-partnership-firm.html
10.3.4 Advantages of a Partnership

Following are the advantages of a partnership are:
Partnerships are relatively easy to establish; however time should be invested in
developing the partnership agreement.

With more than one owner, the ability to raise funds may be increased.
The profits from the business flow directly through to the partners’ personal tax return.
Prospective employees may be attracted to the business if given the incentive to become
a partner.
The business usually will benefit from partners who have complementary skills.

10.3.5 Disadvantages of a Partnership

Following are the disadvantages of a partnership:
Partners are jointly and individually liable for the actions of the other partners.

Profits must be shared with others.
Since decisions are shared, disagreements can occur.
Some employee benefits are not deductible from business income on tax returns.

The partnership may have a limited life; it may end upon the withdrawal or death of a
partner.

Self Assessment

Fill in the blanks:
9. Partnership firms are governed by the provisions of the…………………..
10. A ………………….is generally carried on through a partnership.

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