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Forms of business organisation

Company
v/s Other taxable entities viz Proprietary firm, partnership firm, LLP

Partnership firms & LLPs


Features : 1.Share of partner in the firm is not taxable 2.Any remuneration paid to partners is allowed as a deduction subject to the limits laid down 3.Interest paid to partners is allowed as a deduction ( maximum 12% )

Determination of maximum remuneration payable to partners

In case of loss In case of profit on first Rs. 3 lacs profit book profit whichever is more on the balance profit

Rs.150000

Rs. 150000 of book or 90% of

60% of book

P/L a/c of XY & Co. is as under :

COGS 405000 Sales 2010000 Rem. to partners 850000 Int. Received 270000 Rem. to staff 170000 Income tax 52500 Interest to partners 120000 ( @ 15% ) Other expenses 60000 Net profit 622500

Features of Pvt Ltd. company


1. Remuneration to Directors fully allowed as

deduction 2. Interest on capital not applicable 3. Perquisites to Directors allowed as deduction

From the following data compute income assuming the business is a) proprietary concern b) firm
Particulars COGS Amt 1000000 Particulars Sales Amt 2500000

Other expenses
Salary to proprietor / partner Interest on capital ( 12%) Net Profit

200000
500000 200000 600000 2500000 2500000

Firm, LLP and Company a comparison


Particulars Tax rates Surcharge MAT Dividend Tax Interest on capital Firm 30% NA 18.5% NA LLP 30% Na 18.5% NA Company 30% Applicable 18.5% 15% NA

Upto 12% Upto allowed 12% allowed Allowed upto given limits Applicabl e Allowed upto given limits NA

Remuneration

No ceiling

Presumptive tax provisions

NA

I.Determine Total Income and tax liability of R & Sons a proprietary concern. R has invested Rs. 25000 in PPF
Particulars Amt Particulars Amt

COGS Salaries to employees Salary to R Interest on Rs capital Depreciation Interest on loans Other office expenses

500000 Sales 200000 Profit on sale of land 300000 Interest on debentures 12000 Dividend from shares of HUL 25000 30000 100000

1200000 200000

100000 50000

Income tax paid

15000

II. Determine Total Income and tax liability of RB & Co a partnership firm with R & B as partners. Both the partners have invested Rs.12500 each in PPF.
Particulars Amt Particulars Amt

COGS Salaries to employees Salary to partners Interest on partners capital @ 12% Depreciation Interest on loans Other office expenses Income tax paid Net Profit

500000 Sales 200000 Profit on sale of land 600000 Interest on debentures 12000 Dividend (shares of HUL) 25000 30000 100000 15000 368000

1500000

200000

100000

50000

III. Determine Total Income and tax liability of RB Pvt. Ltd with R & B as Directors. Both the directors have invested Rs.12500 each in PPF.
Particulars Amt Particulars Amt

COGS Salaries to employees Salary to directors Depreciation Interest on loans Other office expenses

500000 Sales 200000 Profit on sale of land 612000 Interest on debentures 25000 Dividend (shares of HUL) 30000 100000

1500000

200000

100000

50000

Income tax paid


Net Profit

15000
368000

From the following data determine which form of business organisation (i) a partnership firm or (ii) Pvt. Ltd Co is more appropriate from tax liability point of view Firm Number of partners : 4 Taxable income before interest/ remuneration : Rs. 1400000 Interest on total capital @ 12% : Rs. 180000 ( equal capital contribution) Remuneration to partners : Maximum allowable i.e Rs.822000 ( Rs.205500 each ) Private Company Number of Directors : 4 Taxable income before remuneration : Rs. 1400000 Remuneration to Directors : Rs. 1200000 ( Rs. 300000 each ) ( Basic Rs.120000, CEA : Rs.2400 , Transport allowance

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