Change in the Tax Law Related to Partnership Firm & the Controversial issues
Amendment in remuneration limit:
1. The Finance (No. 2) Act, 2024 (passed on 16th August 2024) has revised the permissible limit for claim of remuneration.
2. Pre-amendment specified limits for permissible remuneration were
a) on the first, Rs. 3,00,000 of the book-profit or in case of a loss – Rs. 1,50,000 or at the rate of 90 per cent. of the book-profit, whichever is more;
b) on the balance of the book-profit – at the rate of 60 per cent
3. Revised Specified limits for allowable remuneration effective from 01.04.2024:
a) on the first, Rs. 6,00,000 of the book-profit or in case of a loss – Rs. 3,00,000 or at the rate of 90 per cent. of the book-profit, whichever is more;
b) on the balance of the book-profit – at the rate of 60 per cent.
4. The enhance limit was upgraded on 16.08.2024, the date on which budget was passed, making this effective from 1st April 2024.
The Moot questions are now as under:
1. The important question is that can a partnership firm claim the enhance remuneration effective from 1st April 2024, despite having later updation in terms of the partnership deed?
2. There is no proviso, clarificatory circular available till date. So a person has to amend the partnership deed pursuant to this change and he will be allowed remuneration considering old limit for pre-amended period and new limit for post-amendment period.
3. Further, any change in LLP agreement needs timely filing with ROC or any registered partnership firm with registrar of firm will result in time consuming exercise.
4. Whether the amendment would be applicable from FY 2024-25 (AY 2025-26) or FY 2025-26 (AY 2026-27)?
TDS amendment:
Section 194T has been introduced in Budget 2024 to introduce TDS on payment made by partner to a firm. TDS is to be deducted at 10% if the payment exceeds Rs. 20,000 in a financial year.
Impractical consequence:
1. Calculation of remuneration of the partner depends on the book profit of the firm, which in case is practically determined once the books of the firm are closed for the financial year.
2. This means that firm shall be required to close the annual accounts immediately after end of financial year considering the due date for deposition of TDS of March Quarter is the 30th of April.
The copy of the order is as under:
