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CHAPTER -18B:

ASSESSMENT OF TAX FOR FIRMS/ PARTNERSHIP

( BOOK: BANGLADESH INCOME TAX WRITTEN BY NIKHIL CHANDRA SHILL)

Prepared By S.M Shaharia Mojumder Student Of : BIBM ( Bangladesh Institute of Bank Management)
SOME BASIC KNOWLEDGE ABOUT PARTNERSHIP

Partnership firm is not defined explicitly as partnership in Income tax


Ordinance 1984 rather defined as firm
In business sense partners and partnership are totally separate . Where
partnership constitute the business entity and partners constitute the
ownership
This is reason for which both partnership and partners are assessed for
tax purpose
Partnership asses as business entity. Assess income under head of
Income from business and profession.
Partners assessed as individual entity
SPECIAL PROVISION REGARDING THE ASSESSMENT OF A FIRM

Tax payable by the firm determined on the basis of total income of the
firm assessed
Whenever determination of tax is made then deputy commissioner of
tax shall notify the firm
1. The amount of tax to be paid
2. Total income based on which tax had been determined
3. Apportionment of the amount of income between several
partners
PROCEDURE OF ASSESSMENT OF FIRMS AND PARTNERS
Compute total taxable income of the firm and adjust accounting profit to compute tax profit
Following procedure to materialize aforesaid objective need to followed -
1. Start with calibration of accounting profit
2. Adjust accounting profit for tax profit on following area
Add back inadmissible expenses like commission and salary paid to partners , accounting
depreciation , provision for bad debt , legal expense incurred due to breach of law or vandalize other
property , bad debt reported on speculation etc. .
add back tax allowable depreciation
Deduct all income usually in other income head as per IT ordinance 1984 ; like share premium , income
from investments on securities.
3. Profit will be distributed among partners as per their profit and loss sharing ratio .Always consider
residual profit ;profit after deducting all consideration ( salary , commission ) paid to partners; to apportion
among partners
4. Tax will be calculated on income exceeding 2.5 lac or 3 lac ( in case of women or age above 65 years).
RATE OF TAX APPLICABLE TO INDIVIDUALS /PARTNERS ( CONT)

Total Income Slabs Applicable rates


On first 2.5 lac Nil
On next 4 lac 10%
On next 5 lac 15 %
On next 6 lac 20%
On next 30 lac 25%
On balance 30%
*** if income overrun 50 lac then minimum tax rate will be applied @ 0.60%
PROCEDURE OF ASSESSMENT OF FIRMS AND PARTNERS

An individual can claim tax rebate @ 15% on total allowable investment


Partners total taxable income will be sum of
1. Total salary
2. Interest
3. Commission
4. Loss/ profit share from the firm ( income from firm will be exempted
from tax if it had already been paid by the firm)
Partners will get tax rebate at average rate on their partnership income .
Average rate for tax rebate = ( (individual tax liability arise from firms
income / total taxable income of the firm)100)
SET OFF AND CARRY FORWARD OF FIRMS LOSSES
In case of losses ;sustained by the firm under any head of income; shall be set off or compensate only
against the income of the firm under any other head and not against the income of individual partners
Any loss arise under any particular head of income will be set off only from income arise at that head
of income up to 6 consecutive years .
Loss arise from speculation business will be recouped from income from variant type speculation
business. If no income arise under such speculation business then the losses can be carried forward
into next assessment year up to 6 successive years.
Loss procreated under income head Capital Gain ; which is an amount outweighing 5000 taka ; can
be carried forward up to 6 succeeding year to absorb the loss from any capital gains encountered in
these years .
Loss under the head Agricultural Income can be carried forward up to 6 year to set off such loss
from similar incomes
If loss arise due to overhaul in firm's constitution or sudden demise of any partner ; then such loss can
carried forward by the firm into next assessment years.
SHARE OF SPOUSE OR MINOR CHILD AND ASSET TRANSFERRED
If the spouse or minor child hold share in partnership; where assesse is also a partner; then
income of spouse or minor child will be assessed along with the assesse.
If spouse belongs to separate firms they should be assessed separately. Complexity arise if
they has minor offspring who is also a partner. In such case tax assessment of the minor
child will be made congruently with spouse's income.
Consider following procedure while computing total taxable income of any partner(assesse)
in such situation-
1. Consider income of spouse or minor child arise directly or indirectly due to membership in
a firm (where assesse is a partner) , admission of minor child to the benefit of the
firm(where assesse is a partner), asset transferred directly or indirectly to spouse or minor
( by assesse)
2. Consider income yield to any other person or association ; arise due to transfer of assets
to spouse or minor by the assesse.
COMPUTATION OF PARTNERS SHARE IN THE FIRMS PROFIT & LOSS
To compute partner's share in the firms profit or loss ; accountant need to
adjust total taxable income for partners interest , salary, commission or
any other payments made to them by firm.
Residual balance will be apportioned to partners based on corresponding
Profit & loss sharing ratio
LIABILITY OF A FIRM FOR UNRECOVERED TAX DUE FROM PARTNERS

If a partner overdue his individual tax payment which arise


from share of profit from the firm ; then deputy
commissioner will notify the firm about the unpaid tax
amount.
In such case Firm should pay the said amount in lieu of
partner
ASSESSMENT OF FIRM IN SPECIAL CASE

Special cases-
1.Change in constitution
2.Change in succession
3.At the time of dissolution.
CHANGE IN CONSTITUTION

Change in constitution can be defined as


1. Change in profit or loss sharing ratio
2. Cessation of one or more partners or conjoining new partners
SUCCESSION

Requisite of succession as follow


1. Change in ownership
2. Integration of business should be same . Should necessarily
imply devolution of the business as a whole
3. Identity and continuity of the business should be preserved
DISCONTINUATION

Assessment should be made in disbanding year on the basis of


the total income of the period between the end of the previous
income year and the date of such discontinuation.
DCT ( Deputy commissioner of tax ) must be informed 15 days
before of such discontinuation
SPECIMEN FORM OF COMPUTATION OF TAXABLE INCOME OF FIRM
SPECIMEN FORM OF COMPUTATION OF TAXABLE INCOME OF FIRM
SPECIMEN FORM OF COMPUTATION OF TAXABLE INCOME OF FIRM
END OF THE CHAPTER

Thanks For Maintaining Forbearance