Deduction partner remuneration while declaring income under Presumptive taxation scheme

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Under Income Tax act, a few sections have been added which are known as presumptive taxation section and it includes section 44AD, 44ADA and 44AE.

As the name suggest Income under this section are paid on presumptive basis and hence there is no requirement for maintenance of proper books of accounts.

Section 44AD deals with person engaged in business, 44ADA deals with person engaged in specified profession and 44AE deals with person engaged in hiring and plying of goods carriages.

Now as per different sections different people are eligible assessee for presumptive taxation scheme:

Section 44AD: Resident Individual, HUF and partnership firm but it doesn’t include LLP.

Section 44ADA: Resident Assessee.

Section 44AE: Any Assessee.

Now, if you go through all the sections there is a minimum profit which needs to be declared and if you wish to come under these sections you will have to show this minimum profit.

In all the above sections it has been said that any deduction available under section 30 to 38 shall be deemed to have been given full effect in computing total profit as above.

Also, under section 44AD and 44AE there was a provision which said that salary or interest paid to partner as per provision of section 40(b) shall be available to assessee from the profit declared under this section.

However, after Finance Act, 2016 when section 44ADA was introduced this proviso was removed from section 44AD and it was never there in section 44ADA.

Thus from 01.04.2017 one could not claim deduction of interest or salary of partner separately if it is filing return of income under presumptive taxation and it was deemed that profit shown under 44AD is after giving effect of this salary and interest.

Now since sub-section 2 of section 44AD only covers deduction from 30 to 38 one can argue that even without proviso this deduction should be available. However, on going through the memorandum to Finance Bill, 2016 you will come to know that after removal of this proviso one cannot take deduction of salary or interest of partner which is as under:

“It is also proposed that the expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per clause

(b) of section 40 shall not be deductible while computing the income under section 44AD as the said section 40 does not mandate for allowance of any expenditure but puts restriction on deduction of amounts, otherwise allowable under section 30 to 38.”

However, it is worth noting that such amendment was not done in section 44AE and hence you can still claim deduction of partner interest or salary after showing presumptive income.

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