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Section 10(2A)


Interpretation of provision of section 10(2A) in cases where income of the firm is exempt- A reference has been received in the Board in connection with the interpretation of provision of section 10(2A) seeking clarification as to what will be the amount exempt in the hands of partners of a partnership firm in cases where the firm has claimed exemption/deduction under chapter III or VI-A of the Act.

It is clarified that ‘Total Income’ of the firm for clause (2A) of section10, as interpreted contextually, includes income which is exempt or deductible under various provision of the Act. It is, therefore, further clarified that the income of a firm is to be taxed in the hands of the firm only and the same can under no circumstances be taxed in the hands of its partners. Accordingly, the entire profit credited to the partner accounts in the firm would be exempt from tax in the hand of such partners, even if the income chargeable to tax becomes nil in the hand of the firm on account of any exemption or deduction as per the provision of the Act. –Circular No.8/2014, dated 31-3-2014.

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