Business Income-Depreciation & Partnership

8/8/2019 Business Income-Depreciation & Partnership

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DEPRECIATIONDEPRECIATION(SECTION 32)(SECTION 32)

BLOCK OF ASSETS :BLOCK OF ASSETS :--

Tangible Assets (Class I to III types)Tangible Assets (Class I to III types) Intangible Assets (Class IV type)Intangible Assets (Class IV type)


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(Class I to III types)(Class I to III types)

Tangible Assets

Buildings Plant & Machinery Furniture & Fixtures


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INTANGIBLE ASSETSINTANGIBLE ASSETSClass IV type of assetClass IV type of asset

Intangible Assets

Rate:25 %

Patents Copy rights Trademarks


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Tangible Assets

Type I

Buildings

(Incl. Roads)

Type II

Machinery

Type III

Furniture

Block-I

5 %

used for

Residential purpose

Block-II

10 %

Used for other than

Residential purpose

Block-III

Cars &

two wheelers

15 %

Block-IV

Buses, lorries, taxis

used in business

of hire

30 %

Block-III

Plants & Machinery15 %

Block-V

Computers(including software)

60 %

Block-VI

Books

(professional)

100 %

Block VII

Furniture & Elec.

10 %


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CHANGES IN DEPRECIATION RATESCHANGES IN DEPRECIATION RATES

If any new commercial vehicle which isIf any new commercial vehicle which isacquired on or after the 1st day ofacquired on or after the 1st day of

January, 2009 but before the 1st day ofJanuary, 2009 but before the 1st day ofOctober, 2009 and is put to use before theOctober, 2009 and is put to use before the1st day of October, 2009 for the purposes1st day of October, 2009 for the purposes

of business or profession ,of business or profession , will get 50%will get 50%depreciation.depreciation.


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COMPUTATION OF DEPRECIATIONCOMPUTATION OF DEPRECIATION

Form blocksForm blocks -- Aggregate all assets in an individual separate blocks.Aggregate all assets in an individual separate blocks.

W.D.VW.D.V OpeningOpening

AdditionAddition If assets acquired and PUT TO USE during the P.Y.If assets acquired and PUT TO USE during the P.Y.(a) If assets used for more than 180 days during the P.Y. full depreciation allowed.(a) If assets used for more than 180 days during the P.Y. full depreciation allowed.(b) If assets used for less than 180 days during the P.Y. 1/2 depreciation allowed.(b) If assets used for less than 180 days during the P.Y. 1/2 depreciation allowed.

DeletionDeletion If assets sold / discarded / demolished / destroyed, reduce the sumIf assets sold / discarded / demolished / destroyed, reduce the sumreceived/receivable/scrap value.received/receivable/scrap value.

W.D.V.W.D.V. The resultant above figure is WDV on which depreciation allowable.The resultant above figure is WDV on which depreciation allowable.

DepreciationDepreciation Calculate depreciation at rates prescribed (full or half as may be applicable)Calculate depreciation at rates prescribed (full or half as may be applicable)

Closing W.D.V.Closing W.D.V.-- The resultant figure is the opening WDV for the following year.The resultant figure is the opening WDV for the following year.


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IllustrationIllustration

WORKING OF DEPRECIATIONWORKING OF DEPRECIATION ======================================================================================================================================================================================================================================================================================

| Sr.| | || Less--Sold| | Allow | Elegible | NextSold| | Allow | Elegible | Next--Year|Year| Short |Short |

| No.| Block of Assets (Name) | W. D. V. |Upto 30/9 |After 30/9| Deletions| Balance |Deprn.%| Deprecn. | W. D.| No.| Block of Assets (Name) | W. D. V. |Upto 30/9 |After 30/9| Deletions| Balance |Deprn.%| Deprecn. | W. D. V.|V.| Gain |Gain |

|====|====================================|==========|==========|==========|==========|==========|=======|==========|========|====|====================================|==========|==========|==========|==========|==========|=======|==========|==========|==|==========|==========|

| 1 | MACHINERY| 1 | MACHINERY--A | 40000| Nil| Nil| Nil| 40000| 15.00| 6000| 34000| A | 40000| Nil| Nil| Nil| 40000| 15.00| 6000| 34000| Nil|Nil|

| 2 | MACHINERY| 2 | MACHINERY--B | 100000| Nil| Nil| Nil| 100000| 15.00| 15000| 85000|B | 100000| Nil| Nil| Nil| 100000| 15.00| 15000| 85000| Nil|Nil| | 3 | BUS| 3 | BUS--TRANSPORTTRANSPORT--C | 160000| Nil| Nil| Nil| 160000| 30.00| 48000| 112000|C | 160000| Nil| Nil| Nil| 160000| 30.00| 48000| 112000| Nil|Nil|

| 4 | MACHINERY| 4 | MACHINERY--D | 80000| Nil| Nil| Nil| 80000| 15.00| 12000| 68000|D | 80000| Nil| Nil| Nil| 80000| 15.00| 12000| 68000| Nil|Nil|

| 5 | CAR| 5 | CAR--X | 220000| Nil| Nil| Nil| 220000| 15.00| 33000| 187000|X | 220000| Nil| Nil| Nil| 220000| 15.00| 33000| 187000| Nil|Nil|

| 6 | FURNITURE & FIXTURES | 240000| Nil| Nil| Nil| 240000| 10.00| 24000| 2160| 6 | FURNITURE & FIXTURES | 240000| Nil| Nil| Nil| 240000| 10.00| 24000| 216000|00| Nil|Nil|

| 7 | FURNITURE| 7 | FURNITURE--II | 300000| Nil| Nil| Nil| 300000| 10.00| 30000| 270000|II | 300000| Nil| Nil| Nil| 300000| 10.00| 30000| 270000| Nil|Nil|

|____|____________________________________|__________|__________|__________|__________|__________|_______|__________|________|____|____________________________________|__________|__________|__________|__________|__________|_______|__________|__________|__|__________|__________|

| | Total... | 1140000| Nil| Nil| Nil| 1140000| | 168000| 9720| | Total... | 1140000| Nil| Nil| Nil| 1140000| | 168000| 972000|00| Nil|Nil|

|====|====================================|==========|==========|==========|==========|==========|=======|==========|========|====|====================================|==========|==========|==========|==========|==========|=======|==========|==========|==|==========|==========|


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ASSET USED PARTLY FOR BUSINESS ORASSET USED PARTLY FOR BUSINESS OR

PROFESSIONPROFESSION COMPUTATION OF DEPRECIATION WHEN THE ASSET IS NOT EXCLUSIVELY USEDCOMPUTATION OF DEPRECIATION WHEN THE ASSET IS NOT EXCLUSIVELY USED

FOR THE PURPOSE OF BUSINESS OR PROFESSIONFOR THE PURPOSE OF BUSINESS OR PROFESSION

ILLUSTRATIONILLUSTRATIONA.Y. 2008A.Y. 2008--0909

Actual CostActual Cost 5,00,0005,00,000Less: Depreciation @ 15 % of 5,00,000Less: Depreciation @ 15 % of 5,00,000 75,00075,000Less: U/S.38(2) for personal useLess: U/S.38(2) for personal use

@ 30 % of depreciation@ 30 % of depreciation 22,50022,500---------------- 52,50052,500

----------------------4,47,5004,47,500

A.Y. 2009A.Y. 2009--1010W.D.V.W.D.V. 4,47,5004,47,500

Less: Depreciation @ 15 % of 4,47,500Less: Depreciation @ 15 % of 4,47,500 67,12567,125Less: U/S.38(2) for personal useLess: U/S.38(2) for personal use

@ 30 % of depreciation@ 30 % of depreciation 20,13820,138------------------ 46,98746,987

----------------------4,00,5134,00,513============


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PARTNERSHIP FIRMSPARTNERSHIP FIRMS

Meaning of partnershipMeaning of partnership

Section 4 of the Indian Partnership Act, 1932 defines partnership as `relationship between persons whoSection 4 of the Indian Partnership Act, 1932 defines partnership as `relationship between persons whohave agreed to share the profits of business carried on by all or any of them acting for all`.have agreed to share the profits of business carried on by all or any of them acting for all`.

Persons who have entered into partnership with one another are called individually partners andPersons who have entered into partnership with one another are called individually partners and

collectively a firm and the name under which their business is carried on is called the firm name.collectively a firm and the name under which their business is carried on is called the firm name.

Scheme of taxation of firmsScheme of taxation of firms

The firm is taxed as separate entity.The firm is taxed as separate entity.

The share of profit of the partner from the firm is exempt in the hands of the partner.The share of profit of the partner from the firm is exempt in the hands of the partner.

Any salary, bonus, commission or remuneration (by whatever name called), paid/payable to partners isAny salary, bonus, commission or remuneration (by whatever name called), paid/payable to partners isallowed as deduction to the firm, subject to certain restrictions in the hands of the firm. The amount whichallowed as deduction to the firm, subject to certain restrictions in the hands of the firm. The amount which

is allowed as deduction to the firm is taxable in the hands of partners.is allowed as deduction to the firm is taxable in the hands of partners.

Where a firm pays interest to any partner, the firm can claim deduction of such interest from its totalWhere a firm pays interest to any partner, the firm can claim deduction of such interest from its totalincome. However, the maximum rate at which interest can be allowed to a partner is 12 % per annum. Theincome. However, the maximum rate at which interest can be allowed to a partner is 12 % per annum. Theamount which is allowed as deduction to the firm is taxable in the hands of partners.amount which is allowed as deduction to the firm is taxable in the hands of partners.

Union Budget 2009 has proposed to tax L.L.P. in the similar way of partnership firm.Union Budget 2009 has proposed to tax L.L.P. in the similar way of partnership firm.


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CONDITIONS FOR CLAIMING DEDUCTIONSCONDITIONS FOR CLAIMING DEDUCTIONS

OF REMUNERATION TO PARTNERSOF REMUNERATION TO PARTNERS

Remuneration should be paid only toRemuneration should be paid only toworking partnerworking partner

Remuneration must be authorised by theRemuneration must be authorised by thepartnership deedpartnership deed

Remuneration should not exceed theRemuneration should not exceed thepermissible limit.permissible limit.

Remuneration should not pertain to periodRemuneration should not pertain to periodprior to partnership deedprior to partnership deed


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Computation of permissible limit forComputation of permissible limit for

remuneration u/s.40bremuneration u/s.40b In case of firm carrying on a `profession`In case of firm carrying on a `profession`

(Legal, Medical, Engineering, Architectural, accountancy, technical consultancy, interior decoration etc.)(Legal, Medical, Engineering, Architectural, accountancy, technical consultancy, interior decoration etc.)

AA On the first Rs.1,00,000 of the book profitOn the first Rs.1,00,000 of the book profit Rs.50,000 or at the rateRs.50,000 or at the rateor in case of lossor in case of loss of 90 % of the B.P.Whichever is more.of 90 % of the B.P.Whichever is more.

BB On the next Rs.1,00,000 of the book profitOn the next Rs.1,00,000 of the book profit at the rate of 60 %.at the rate of 60 %.

CC On the balance of the book profitOn the balance of the book profit at the rate of 40 %.at the rate of 40 %.

In case of any other firmsIn case of any other firms

AA On the first Rs.75,000 of the book profitOn the first Rs.75,000 of the book profit Rs.50,000 or at the rateRs.50,000 or at the rateor in case of lossor in case of loss of 90 % of the B.P.Whichever is more.of 90 % of the B.P.Whichever is more.

BB On the next Rs.75,000 of the book profitOn the next Rs.75,000 of the book profit at the rate of 60 %.at the rate of 60 %.

CC On the balance of the book profitOn the balance of the book profit at the rate of 40 %.at the rate of 40 %.


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BOOK PROFITBOOK PROFIT

Find out Net ProfitFind out Net Profit Make adjustment as provided by sectionsMake adjustment as provided by sections

28 to 44D.28 to 44D.

Add remuneration to partners if debited toAdd remuneration to partners if debited tothe P & L A/Cthe P & L A/C

The resultant figure is `Book Profit`.The resultant figure is `Book Profit`.


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ILLUSTRATIONILLUSTRATION--BOOK PROFIT ANDBOOK PROFIT AND

DEDUCTION OF REMUNERATIONDEDUCTION OF REMUNERATION If net profit of the firm as per P & L A/C after debiting Rs.3,00,00 remuneration to partners isIf net profit of the firm as per P & L A/C after debiting Rs.3,00,00 remuneration to partners is

Rs.5,00,00.Rs.5,00,00. Firm is not a professional firm.Firm is not a professional firm. Depreciation allowable is Rs.2,00,000Depreciation allowable is Rs.2,00,000

computation of book profitcomputation of book profit

Net ProfitNet Profit Rs. 5,00,000Rs. 5,00,000Add: RemunerationAdd: Remuneration Rs. 3,00,000Rs. 3,00,000

------------------------------Rs. 8,00,000Rs. 8,00,000

Less: Depreciation u/s.32Less: Depreciation u/s.32 Rs. 2,00,000Rs. 2,00,000------------------------------

Book ProfitBook Profit Rs. 6,00,000Rs. 6,00,000

Less: Remuneration deductibleLess: Remuneration deductibleFirstFirst Rs.75,000 @ 90 %Rs.75,000 @ 90 % Rs. 67,500Rs. 67,500SecondSecond Rs. 75,000 @ 60 %Rs. 75,000 @ 60 % Rs. 45,000Rs. 45,000Balance of Rs.4,50,000 @ 40 % Rs.1,80,000Balance of Rs.4,50,000 @ 40 % Rs.1,80,000

------------------------------ Rs. 2,92,500Rs. 2,92,500--------------------------------Rs.3,07,500Rs.3,07,500================


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DEDUCTION OF INTEREST TODEDUCTION OF INTEREST TO

PARTNERSPARTNERS CONDITIONSCONDITIONS

1.1. Payment of interest should be authorised by thePayment of interest should be authorised by thepartnership deed.partnership deed.

2.2. Payment of interest should be pertain to the periodPayment of interest should be pertain to the period

after the partnership deed.after the partnership deed.

3.3. Rate of interest should not exceed 12 % p.a.Rate of interest should not exceed 12 % p.a.


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AMENDMENTS W.E.F. A.Y. 20010AMENDMENTS W.E.F. A.Y. 20010--1111

FOR THE PURPOSE OF CALCULATION OF BOOKFOR THE PURPOSE OF CALCULATION OF BOOKPROFIT DISTINCTION BETWEEN BUSINESSPROFIT DISTINCTION BETWEEN BUSINESSFIRM AND PROFESSIONAL FIRM IS DONEFIRM AND PROFESSIONAL FIRM IS DONE

AWAY.AWAY.

NEW PRESRIBED LEVELS ARE:NEW PRESRIBED LEVELS ARE: (a) First 3,00,000 of book profit or in case of loss:(a) First 3,00,000 of book profit or in case of loss:

** Rs.1,50,000 or @ 90 % of Book profitRs.1,50,000 or @ 90 % of Book profit

whichever is lower.whichever is lower.

-- (b) On the balance of the book profit:(b) On the balance of the book profit:

** @ 60 % of Book profit@ 60 % of Book profit

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Business Income-Depreciation & Partnership