Answer :
To compute the taxable income and tax liability for Mishra Traders, we need to adjust the Profit and Loss Account as per the provisions of the Income Tax Act, and then calculate the tax liability.
Step 1: Adjust Net Profit
Given Net Profit: Rs. 41,900
Let's adjust the Net Profit by adding back the disallowed expenses and subtracting the allowable expenses.
- Add back disallowed expenses:
- Salaries to managing partner X: Rs. 12,000 (since partner salary is not an allowable deduction)
- Rent paid to partner: Rs. 6,000
- Municipal taxes paid on partner’s premises: Rs. 1,000
- Legal Expenses on partner's property: Rs. 500
- Donation to charitable institution: Rs. 1,500 (Donation is not fully allowable as a deduction under P&L)
- Diwali Pooja Expenses: Rs. 1,000 (considered personal)
- Subtract refundable and allowable items:
- Refund for excise penalty: Rs. 2,500 (add back this item as it is a recovery)
- Income-tax refund: Rs. 7,700 (not taxable as it is not a business income)
- Surplus on sale of plot: Rs. 15,000 is considered a capital gain (taxed separately), not included in business income calculation.
Step 2: Calculate Adjusted Net Profit
The adjusted net profit would be:
- Adjusted Net Profit = Present Net Profit + (Salaries + Rent + Municipal Tax + Legal Expenses + Donations + Pooja Expenses) - Refunds for penalty - Surplus on sale of plot
= Rs. 41,900 + (Rs. 12,000 + Rs. 6,000 + Rs. 1,000 + Rs. 500 + Rs. 1,500 + Rs. 1,000) - Rs. 2,500
= Rs. 41,900 + Rs. 22,000 - Rs. 2,500
= Rs. 61,400
Step 3: Calculate Taxable Income
- Since Donations of Rs. 1,500 are to the approved charitable institution, they might be eligible for deductions under section 80G, but exact eligibility must be verified.
- Taxable Income (preliminary) = Adjusted Net Profit = Rs. 61,400
Step 4: Calculate Tax Liability
This calculation varies based on the applicability of income slabs and any deductions like Section 80G for charity that might apply.
For simplicity, assuming there are no further deductions:
- Assuming a standard partnership tax rate (based on appropriate laws), usually partnership firms have a flat tax rate of 30% + applicable surcharge and cess.
Concluding Remarks
Please note, tax rates and deductions need to be confirmed with current fiscal year laws as they may change. The deductions for donations, surcharges, and applicability of cess must be verified with the most recent tax provisions.