How to Calculate Book Profit Partnership Firm
For calculation of partners remuneration partnership need to calculate Book form of firm. As a firm partner you must be having question on What is books profit ? How to calculate book profit ? What is relevance of book profit for income tax calculation. Book profit is amount calculated as per Income Tax Act to arrive at amount of maximum allowable deduction of remuneration of partner. In this article we discussion about steps to calculate book profit of Partnership firm to calculate partners remuneration.
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Steps to Calculation Of Book Profit for Remuneration
- Take Net Profit as per Profit and Loss / Income & Expenditure Account
- Add back salary given to partners if debited in Profit and loss account
- Make adjustment for expenses allowed/disallowed as per section 28- 44D.
- If expenses /Income of other head like house property or income from other source,capital gain has been debited /credit then reverse back the such amount from profit & loss account.
- As the depreciation b/f is covered under section 32(2) ,so adjustment should be made for b/f depreciation to calculate the book profit but adjustment can be done only up to maximum of profit of current year before depreciation minus b/f loss of the previous years
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Calculation book profit for Partner’s Remuneration u/s 40(b)
Book profit calculation is simply profit amount before debiting remuneration amount of partner. For Income tax partner remuneration calculation purpose book profit and actual firm profit is different.
| S.No. | Particulars | Amount |
| 1 | Profit as per Profit & Loss a/c | XXX |
| 2 | Add :Remuneration to partners if debited to Profit and loss a/c | XXX |
| 3 | Add : Salary to partners if debited to Profit and loss a/c | XXX |
| 4 | Add : Bonus to partners if debited to Profit and loss a/c | XXX |
| 5 | Add : Commission to partners if debited to Profit and loss a/c | XXX |
| 6 | Add : Brought forward business loss, deduction under section 80C to 80U if debited to profit and loss a/c |
XXX |
| 7 | Less : Income under capital gain, other sources ,house property, if credited to profit and loss a/c | XXX |
Example : Book Profit Partnership Calculation
| S.No. | Particulars | Amount |
| 1 | Profit as per Profit & Loss a/c of firm | 7,00,000 |
| 2 | Add :Remuneration to partners if debited to Profit and loss a/c | 2,00,000 |
| 3 | Add : Salary to partners if debited to Profit and loss a/c | 0 |
| 3 | Add : Bonus to partners if debited to Profit and loss a/c | 0 |
| 4 | Add : Commission to partners if debited to Profit and loss a/c | 0 |
| 3 | Add : Brought forward business loss, deduction under section 80C to 80U if debited to profit and loss a/c |
0 |
| 4 | Less : Income under capital gain, other sources ,house property, if credited to profit and loss a/c | 0 |
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Amount deductible under Income Tax Act
| Book Profit (Rs) | Maximum Deductible Amount (Rs) |
| Loss | 150,000 |
| Up to 3 Lakh | 90% of Book Profit or Rs 150,000; whichever is more |
| More than 3 Lakh | 60% of Book Profit |
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