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CA Vishnu Ram
Enlightened
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  1. CA Manish Kumar Gupta Enlightened

    Section 40b describes the maximum amount of remuneration and interest on capital payable to a partner under Income Tax Act. Excess to this amount will not be allowed as a deduction from the income of the firm. Remuneration in a partnership firm is allowed as a deduction if the following conditions aRead more

    Section 40b describes the maximum amount of remuneration and interest on capital payable to a partner under Income Tax Act. Excess to this amount will not be allowed as a deduction from the income of the firm.

    Remuneration in a partnership firm is allowed as a deduction if the following conditions are satisfied:

    1. Remuneration is allowed only to working partners.
    2. Remuneration must be authorized by the partnership deed and according to the terms of the partnership deed.
    3. Also, the amount of salary or manner of its computation is to be mentioned in the deed. If there is not any such provision in deed then no deduction is allowed. If it is mentioned in the deed that salary is allowed to partners as per the maximum limit defined under this section then this condition is satisfied.
    4. It should be related to the period of the partnership deed.
    5. It is not allowed if the income of the partner ship firm is calculated on the basis of section 44AD or section 44ADA (Presumptive Income).
    6. Remuneration should be within the permissible limits as mentioned below. This limit is for the total salary to all partners and not per partner.
    Book Profit Amount deductible as remuneration under section 40(b)
    If book profit is negative Rs. 1,50,000
    If book profit is positive-   On first Rs. 3 lakh of book profit On the balance of book profit Rs. 1,50,000 or 90% of book profit whichever is more  60% of book profit

    Calculation of book profit

    Profit as per Profit & Loss a/c –                                                                                      xxx
    Add- Remuneration to partners if debited to Profit and loss a/c
    Add- Brought forward business loss, deduction under section 80C
    to 80U if debited to profit and loss a/c
    Less – Income under house property, capital gain, other
    sources if credited to profit and loss a/c
    Book Profits                                                                                                                    xxx

    Such Remuneration will be taxable in the hands of receiving partner as “Income from Business or Profession” but If such remuneration is not allowed as an expense in hands of the partnership firm then it will not be taxable in the hands of partners.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. Advocate Dr Amit Dua Explainer

    Section 40b determines the maximum amount of remuneration and interest on capital payable to a partner under Income Tax Act. The amount over the specified limit is not allowed as a deduction to a partnership firm. Remuneration To Partners Remuneration includes salary, bonus, commission .RemunerationRead more

    Section 40b determines the maximum amount of remuneration and interest on capital payable to a partner under Income Tax Act. The amount over the specified limit is not allowed as a deduction to a partnership firm.

    Remuneration To Partners

    Remuneration includes salary, bonus, commission .Remuneration in partnership firm is allowed as a deduction if following conditions are satisfied

    1. Remuneration is allowed only to working partners.
    2. Remuneration must be authorised by partnership deed and according to the terms of partnership deed. Also the amount of salary or manner of its computation is to be mentioned in the deed. If there is not any such provision in deed then no deduction is allowed. Normally people mentions in deed that salary is allowed to partners as per maximum limit defined under this section. This clause satisfies the condition for quantum of deduction.
    3. It should be related to the period of the partnership deed. If there is another partnership deed for another period then such deed’s provisions will be considered for that period.
    4. It is not allowed if tax is paid on presumptive basis under section 44AD or section 44ADA.
    5. Remuneration should be within the permissible limits as mentioned below. Please note that this limit is for total salary to all partners and not per partner.
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CA Vishnu Ram
Enlightened
Asked: In:

  1. Advocate Dr Amit Dua Explainer

    Section 40b determines the maximum amount of remuneration and interest on capital payable to a partner under Income Tax Act. The amount over the specified limit is not allowed as a deduction to a partnership firm. Remuneration To Partners Remuneration includes salary, bonus, commission .RemunerationRead more

    Section 40b determines the maximum amount of remuneration and interest on capital payable to a partner under Income Tax Act. The amount over the specified limit is not allowed as a deduction to a partnership firm.

    Remuneration To Partners

    Remuneration includes salary, bonus, commission .Remuneration in partnership firm is allowed as a deduction if following conditions are satisfied

    1. Remuneration is allowed only to working partners.
    2. Remuneration must be authorised by partnership deed and according to the terms of partnership deed. Also the amount of salary or manner of its computation is to be mentioned in the deed. If there is not any such provision in deed then no deduction is allowed. Normally people mentions in deed that salary is allowed to partners as per maximum limit defined under this section. This clause satisfies the condition for quantum of deduction.
    3. It should be related to the period of the partnership deed. If there is another partnership deed for another period then such deed’s provisions will be considered for that period.
    4. It is not allowed if tax is paid on presumptive basis under section 44AD or section 44ADA.
    5. Remuneration should be within the permissible limits as mentioned below. Please note that this limit is for total salary to all partners and not per partner.
    Book Profit Amount deductible as remuneration under section 40(b)
    If book profit is negative Rs. 1,50,000
    If book profit is positive-   On first Rs. 3 lakh of book profit On the balance of book profit Rs. 1,50,000 or 90% of book profit whichever is more   60% of book profit

    Calculation of book profit

    Profit as per Profit & Loss a/c –                                                                                      xxx
    Add- Remuneration to partners if debited to Profit and loss a/c
    Add- Brought forward business loss, deduction under section 80C
    to 80U if debited to profit and loss a/c
    Less – Income under house property, capital gain, other
    sources if credited to profit and loss a/c
    Book Profits                                                                                                                    xxx

    Example-

    Book profit = Rs. 9 Lakhs
    Maximum allowed salary = 3,00,000*90% + 6,00,000*60% = Rs. 6.3 lakhs

    Remuneration which is allowed as expenses in the hands of partnership firm will be taxable in the hands of receiving partner as “Income from Business or Profession”.

    If such remuneration is not allowed as expense in hands of partnership firm then it will not be taxable in the hands of partners.

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