The remuneration (salary, bonus, commission, etc.) paid to partners in a partnership firm is allowed as a deduction under Section 40(b) of the Income Tax Act, but only within prescribed limits based on the book profit of the firm.

Maximum Allowable Remuneration (as per Section 40(b))

✅ If Book Profit is ₹3 lakh or less → 90% of book profit or ₹1.5 lakh (whichever is higher)

✅ If Book Profit is above ₹3 lakh → 60% of book profit

🔹 Important Conditions:

• The remuneration must be paid only to working partners.
• It must be authorized in the partnership deed.
• The remuneration should be within the prescribed limit; any excess is disallowed as an expense.

📌 Example Calculation:

• If a firm’s book profit is ₹2 lakh, the max allowable partner remuneration = ₹1.5 lakh (since it’s higher than 90% of ₹2 lakh).
• If a firm’s book profit is ₹10 lakh, the max allowable remuneration = (90% of ₹3 lakh) + (60% of ₹7 lakh) = ₹2.7 lakh + ₹4.2 lakh = ₹6.9 lakh.

✅ Conclusion:
Partner remuneration is deductible only if it follows Section 40(b) rules. If it exceeds limits, the extra amount is disallowed for tax purposes.

Under Section 184 of the Income Tax Act, a partnership firm can claim deduction for remuneration and interest paid to partners, but it must fulfill the following conditions:

Conditions for Claiming Deduction under Section 184

1️⃣ The Firm Must Be a Valid Partnership Firm

• The firm must be a genuine partnership as per the Indian Partnership Act, 1932.
• The firm should be assessed as a partnership firm under the Income Tax Act.

2️⃣ Partnership Deed Must Be in Writing

• A written partnership deed must exist.
• It should clearly mention the profit-sharing ratio of partners.
• It must be signed by all partners.

3️⃣ Remuneration & Interest Must Be Authorized in the Partnership Deed

• Partner’s remuneration (salary, bonus, commission, etc.) and interest on capital must be mentioned in the partnership deed.
• If the deed does not specify these payments, the firm cannot claim deductions.

4️⃣ Interest and Remuneration Should Be Within the Prescribed Limits

• Interest on partner’s capital must not exceed 12% per annum (as per Section 40(b)).
• Remuneration paid to partners should not exceed the limits prescribed under Section 40(b) (based on book profit).

5️⃣ The Firm Must File a Valid Income Tax Return

• The firm must file its income tax return on time.
• Delay in filing may lead to disallowance of these deductions.

6️⃣ Changes in the Partnership Deed Must Be Reported

• If there is any change in the partnership deed, the firm must submit a certified copy to the Income Tax Department.

✅ Conclusion:
To claim deductions for remuneration and interest paid to partners, ensure that:
✔️ A valid partnership deed exists and is filed with the Income Tax Department.
✔️ Interest and remuneration are within the prescribed limits of Section 40(b).
✔️ The firm is assessed as a partnership firm and files its return on time.