Jun 272019

Point to be consider while assessing tax of partnership firm

Important points:

1) Some expenses in the hands are firm are taxable in the assessment of their partner. Such expenses are interest on capital of the partners, remuneration etc paid to partners etc. Hence it is important to note and cross verify such expenses before filing return of income of partners.

2) Cross check the expenses claimed by firm with its partnership deed. It is important to note that under income tax act remuneration to non – working partner and remuneration before the date of partnership deed are not allowed under income tax act.

3) In case of allowance of interest on capital in firm’s assessment also maximum rate of interest is 12% pa. One should refer to partnership deed before filing return to verify if interest rate is lesser in deed that that lesser rate will be taken in assessment.

4) Further, methodology of calculating interest should clearly mention in deed and period after the date of partnership deed shall be taken.

5) Method of calculating remuneration to partners should clearly mention in the partnership deed.

6) While calculating book profit for ascertaining maximum amount of remuneration payable of partners one should not consider the income chargeable under the head capital gain, other sources and house property etc.

 7) Compliance of section 184 of income tax is of absolute necessary. 8) Cross check whether remuneration, interest, salary etc is deducted before claiming amount deductible under section 80IA.

8) While claiming carry forward and set off of losses it is important to consider the provision of section 78 of income tax act as to change in constitution of the firm. Firm can not claim carry forward and set off losses if there is complete change in constitution of the firm.

Important point of partnership deed of the firm:

The existence of partnership firm is evident by partnership deed (in writing) only. If there is no partnership deed there could not be assessment as firm but same can be assessed as AOP and / or BOI. The prominent clauses of deed is given below:

  1. Name of the firm
  2. Place of business
  3. Nature of business
  4. Date of commencement of business
  5. Duration of partnership firm
  6. Capital subscribed by firm
  7. Profit sharing ratio
  8. Remuneration payable to partners
  9. Interest payable to partners, arbitrator
  10. Operation of bank account
  11. Method of maintaining books of account
  12. Other provision

Clarification as to remuneration clause in partnership deed:

Section 40(b) uses the term authorize and not quantify. Thus, only requirement as to deductibility of remuneration to partners is same is authorize from partnership deed with exact method of computation of remuneration.

Case 1:

Neither the amount has been qualified not even the limit of total remuneration has been specified – Payment of remuneration can not be allowed

Case 2:

Partnership deed provided that remuneration payable to partners as per the method of quantification given by section 40(b). – payment of remuneration is allowed


Quantum of remuneration or the manner of its computation should be stated in the partnership deed and should not be left undetermined, undecided or to be determined or decided on a future date.

Jun 242019

Treatment of sales promotion scheme under GST

The Central Government vide Circular No. 92/11/2019-GST dated 07th March, 2019 clarified the following issues raised with respect to tax treatment of sales promotion schemes under GST :-

Modes of sales promotion prominent in India are:

  1. Free samples and gifts
  2. Buy one get one free offer
  3. Buy more save more option
  4. Secondary Discount

The treatment of each of above promotional schemes is given below:

Free samples and gifts                                              -> Non GST item

Since the consideration is an important element of the definition supply, therefore the samples which are supplied free of cost, without any consideration, do not qualify as “supply” under GST, except where the activity falls within the ambit of Schedule I of the said Act.

Further, section 17(5)(h) of the said Act clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples.

However, where the activity of distribution of gifts or free samples falls within the scope of “supply” as per Schedule I of the said Act, the supplier would be eligible to avail of the ITC.

Buy one get one free offer                                        -> GST item

Offers like “Buy One, Get One Free”, one item is being “supplied free of cost” without any consideration. In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply.

Taxability of such supply will be dependent upon:

  1. Whether the supply is a composite supply or
  2. Whether the supply is a mixed supply and

The rate of tax shall be determined as per section 8 of the said Act. And, ITC shall be available to the supplier in relation to such supply.

Discounts including ‘Buy more, save more’ offers                          -> Non GST

Discounts offered by the suppliers to customers including staggered discount under „Buy more, save more” scheme and post supply / volume discounts established before or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in section 15(3) of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount. Further, the supplier shall be entitled to avail the  ITC for such inputs, input services and capital goods used in relation to the supply.

Secondary Discounts                                                            -> Non GST

Value of supply shall not include any discount by way of issuance of credit note(s), except in cases where the provisions contained in section 15(3)(b) of the said Act are satisfied. There is no impact on availability or otherwise of ITC in the hands of supplier.


Financial / commercial credit notes are now well understood and permitted except that output tax adjustment is clearly barred if the conditions of section 15(3) are not satisfied.

Although credit to Supplier is not restricted, there seems to be no mention of effect under rule 37 to Recipient when such financial / commercial credit notes are issued.

Where consideration takes ‘non-monetary form’ whether those samples would be free from tax – Care must be taken to the expression ‘except when liable under schedule I’. Please consider which para might cover disposal of samples and gifts under schedule I. Here, even permanent transfer or disposal of business assets is also covered.

And where credit is reversed on gifts given, very subtly a mention is made that credit reversal required includes capital goods credit also, this is a new one as complexity in computing rule 43 in relation to gifts may be a challenge.

Jun 142019

Government Reduces the Rate of ESI Contribution from 6.5% to 4%

The Government of India has taken a historic decision to reduce the rate of contribution under the ESI Act from 6.5% to 4% (employers’ contribution being reduced from 4.75% to 3.25% and employees’ contribution being reduced from 1.75% to 0.75%). Reduced rates will be effective from 01.07.2019.This would benefit 3.6 crore employees and 12.85 lakh employers.

ESIC Contribution
Existing Rate (%)
Revised Rate (%)
Employer’s Share
Employee Share
Total ESI Contribution

The reduced rate of contribution will bring about a substantial relief to workers and it will facilitate further enrollment of workers under the ESI scheme and bring more and more workforce into the formal sector. Similarly, reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments. This shall also lead to enhanced Ease of Doing Business. It is also expected that reduction in rate of ESI contribution shall lead to improved compliance of law.

The Employees’ State Insurance Act 1948 (the ESI Act) provides for medical, cash, maternity, disability and dependent benefits to the Insured Persons under the Act. The ESI Act is administered by Employees’ State Insurance Corporation (ESIC). Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees.  Under the ESI Act, employers and employees both contribute their shares respectively.

The Government of India through Ministry of Labour and Employment decides the rate of contribution under the ESI Act. Presently, the rate of contribution is fixed at 6.5% of the wages with employers’ share being 4.75% and employees’ share being 1.75%. This rate is in vogue since 01.01.1997.

The Government of India in its pursuit of expanding the Social Security Coverage to more and more people started a programme of special registration of employers and employees from December, 2016 to June, 2017 and also decided to extend the coverage of the scheme to all the districts in the country in a phased manner. The wage ceiling of coverage was also enhanced from Rs. 15,000/- per month to Rs. 21,000/- from 01.01.2017.

These efforts resulted insubstantial increase in the number of registered employees i.e. Insured Persons and employers and also a quantum jump in the revenue income of the ESIC.

The Government of India is committed to the cause of welfare of employees as well as employers. It is also committed to improve the quality of medical services & other benefits being provided under the ESI scheme.

Download Circular

Jun 082019

Due dates for the Month of June 2019
Income Tax
– TDS Payment for May
– Return for authorities deducting tax at source – GSTR 7 for May
– Details of supplies effected through e-commerce operator and the amount of tax collected –
GSTR 8 for May.
– Details of outward supplies of taxable goods and/or services effected – GSTR 1 for May
– Return for Input Service Distributor – GSTR 6 for May
Providend Fund
– PF Payment for May
– ESIC Payment for May
Income Tax
– Advance Income Tax – for all assessees.
– Monthly return on the basis of finalisation of details of outward supplies and inward supplies along with the payment of amount of tax – GSTR 3B for May
– Return for Non-Resident foreign taxable person – GSTR 5 for May
– Details of Inward Supplies to be furnished by a person having UIN and claiming refund – GSTR 11 for
Profession Tax
– Monthly Return (covering salary paid for the preceding month) (Tax Rs. 50,000 or more)
Sensys Technologies Pvt. Ltd.
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