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CA Sanjiv Kumar
Enlightened
Asked: In:

  1. Advocate Dr Amit Dua Explainer

    ​​Exemption to a trust Income of a charitable and religious trust is exempt from tax subject to certain conditions. The exemptions are provided to the trusts under various provisions, inter-alia, Section 10, Section 11, etc. Some of the exemptions allowed to a trust are as under: 1) Section 11 proviRead more

    ​​Exemption to a trust
    Income of a charitable and religious trust is exempt from tax subject to certain conditions. The exemptions are provided to the trusts under various provisions, inter-alia, Section 10, Section 11, etc. Some of the exemptions allowed to a trust are as under:

    1) Section 11 provides exemption for income derived from property held under trust wholly for charitable or religious purposes to the extent such income is applied for charitable or religious purpose in India. However, this exemption shall be subject to certain conditions.
    2) In view of Section 12, income in the form of voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes shall also be exempt from tax (subject to certain conditions).
    3) Any voluntary contributions received by an electoral trust shall not be included in its total income (subject to certain conditions).
    4) Income of an educational institute is subject to exemption under Sections 10(23C)(iiiab)/(iiiad)/(vi).
    5) Income of a hospital or other institution shall be eligible for exemption if it satisfies the conditions prescribed under Sections 10(23C)(iiiab)/(iiiad)/(vi).

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CA Sanjiv Kumar
Enlightened
Asked: In:

  1. Advocate Dr Amit Dua Explainer

    A Trust is the obligation or responsibility placed on one in whom confidence or authority is place; it is a confidence reposed in a person by conveying to him the legal title to property which he is to hold for the benefit of others. Therefore, the “Trustee” responsibility includes protection of rigRead more

    A Trust is the obligation or responsibility placed on one in whom confidence or authority is place; it is a confidence reposed in a person by conveying to him the legal title to property which he is to hold for the benefit of others. Therefore, the “Trustee” responsibility includes protection of rightful ownership in the Trust property, the preservation of the Trust property and channelising the income from the Trust property in accordance with the intentions of the creator of the Trust.

     

    For creating a private Trust, the foremost requirement is that the Author must express with reasonable certainty by words or acts, an intention on his part to create a Trust. Thus, a Trust may be declared either by words, spoken or written or by acts. Where a Trust is declared by words, the language used must be clear enough to show an intention to create a Trust. No formal language is required to constitute an effective declaration of Trust, but the language used must make it certain that:

    1. The Author intended to constitute a Trust binding in law on himself or the person to whom the property was given.
    2. The Author intended to bind definite property by the Trust.
    3. The Author intended to benefit a definite person or persons in a definite way.

     

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CA Sanjiv Kumar
Enlightened
Asked: In:

  1. Advocate Dr Amit Dua Explainer

    A Trust is the obligation or responsibility placed on one in whom confidence or authority is place; it is a confidence reposed in a person by conveying to him the legal title to property which he is to hold for the benefit of others. Therefore, the “Trustee” responsibility includes protection of rigRead more

    A Trust is the obligation or responsibility placed on one in whom confidence or authority is place; it is a confidence reposed in a person by conveying to him the legal title to property which he is to hold for the benefit of others. Therefore, the “Trustee” responsibility includes protection of rightful ownership in the Trust property, the preservation of the Trust property and channelising the income from the Trust property in accordance with the intentions of the creator of the Trust.

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CA Sanjiv Kumar
Enlightened
Asked: In:

  1. Advocate Dr Amit Dua Explainer

    Tax liability of AOP/BOI depends on whether or not share of members of AOP/BOI are known.​ 1) Where share of members are known Where individual shares of members in AOP/BOI are known then tax liability of AOP/BOI shall be determined as under: a. Where income of none of the members exceeds the maximuRead more

    Tax liability of AOP/BOI depends on whether or not share of members of AOP/BOI are known.​

    1) Where share of members are known

    Where individual shares of members in AOP/BOI are known then tax liability of AOP/BOI shall be determined as under:

    • a. Where income of none of the members exceeds the maximum amount which is not chargeable to income-tax (i.e., basic exemption limit)In this case income of AOP/BOI shall be taxable at a rate applicable to an individual.But if total income of any member of AOP/BOI is taxable at a rate higher than maximum marginal rate then income of AOP/BOI shall be chargeable to tax as follows:

      • – Portion of income attributable to such member shall be taxable at such high rate as applicable to that member.
      • – Balance portion of income shall be taxable at the maximum marginal rate of tax (i.e., 30% plus surcharge and HEC as applicable) .
    • b. Where income of any member of AOP/BOI exceeds the maximum amount which is not chargeable to income-tax (i.e., basic exemption limit)In this case income of AOP/BOI shall be taxable at maximum marginal rate of tax (i.e., 30% plus surcharge and HEC as applicable).But if total income of any member of AOP/BOI is taxable at a rate higher than maximum marginal rate then income of AOP/BOI shall be chargeable to tax as follows:

      • – Portion of income attributable to such member shall be taxable at such high rate as applicable to that member.
      • – Balance portion of income shall be taxable at the maximum marginal rate of tax (i.e., 30% plus surcharge and HEC as applicable).

    2) Where share of members are not known

    In such a case income of the AOP/BOI shall be taxable at maximum marginal rate (i.e., 30% plus surcharge and HEC as applicable). But if income of any member of AOP/BOI is taxable at a rate higher than maximum marginal rate then total income of AOP/BOI shall be chargeable to tax at such higher rate of tax.

    For the purposes of this section, the individual shares of the members of an AOP or BOI in the income of AOP/BOI shall be deemed to be indeterminate or unknown if such shares are indeterminate or unknown on the date of formation of such AOP or BOI or at any time thereafter.

    B. Alternate Minimum Tax:

    Tax payable by AOP/BOI cannot be less than 18.5 per cent (increased by Surcharge and HEC) of “adjusted total income” as per section 115JC . However, provisions related to alternate minimum tax shall not apply to an AOP or BOI whose adjusted total income does not exceed twenty lakh rupees

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CA Sanjiv Kumar
Enlightened
Asked: In:

  1. CA Manish Kumar Gupta Enlightened

    There is no condition for payment of interest under income tax. You can pay any amount of interest.  However, for getting deduction of this expenditure under income tax, you need to fulfill the following conditions of section 40b of act: Payment of Interest to a partner (working or non-working partnRead more

    There is no condition for payment of interest under income tax. You can pay any amount of interest. 

    However, for getting deduction of this expenditure under income tax, you need to fulfill the following conditions of section 40b of act:

    • Payment of Interest to a partner (working or non-working partner)
    • Interest must be authorized by the partnership deed
    • Only for the period of partnership deed.
    • The rate of interest should not exceed 12%. Excess of this is disallowed.
    • if Income is calculated on a presumptive basis under section 44AD or section 44ADA then it is not allowed.
    • If interest is paid to a partner on behalf or for the benefit of any other person then such interest is not disallowed under this section.
    • If the firm receives interest on drawings from a partner then it is taxable in the hands of the firm.

     

     

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CA Vishnu Ram
Enlightened
Asked: In:

  1. Advocate Dr Amit Dua Explainer

    a) Interest payable to partners shall be in accordance with the terms of the partnership deed, however, it shall not exceed 12% per annum. b) Remuneration payable to partners shall be in accordance with the terms of the partnership deed, however, it shall not exceed the following limit: On first Rs.Read more

    • a) Interest payable to partners shall be in accordance with the terms of the partnership deed, however, it shall not exceed 12% per annum.
    • b) Remuneration payable to partners shall be in accordance with the terms of the partnership deed, however, it shall not exceed the following limit:
      • On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or 90% of book profit, whichever is more;
      • On the balance of the book profit – 60% of book profit.
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CA Vishnu Ram
Enlightened
Asked: In:

  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. CA Manish Kumar Gupta Enlightened

    Section 40(b) specifies that the remuneration to a partner may be allowed as a deduction if: It is provided for in the partnership deed or fixed as per a prior arrangement. It is calculated on a predetermined basis irrespective of the profits or turnover of the firm. The payment is made in advance oRead more

    Section 40(b) specifies that the remuneration to a partner may be allowed as a deduction if:

    • It is provided for in the partnership deed or fixed as per a prior arrangement.

    • It is calculated on a predetermined basis irrespective of the profits or turnover of the firm.

    • The payment is made in advance or sanctioned for the relevant assessment year.

    When Is Salary to a Partner Not Allowed?

    The salary (or any form of remuneration) to a partner will be disallowed as a deduction under the following circumstances:

      1. Not Provided for in the Partnership Deed:
        If the partnership deed does not expressly authorize or specify the payment of salary to the partner, any such payment made by the firm is not in line with the agreed terms and, therefore, will not be treated as an allowable deduction.

      2. Excessive or Arbitrary Payment:
        Even if a salary is mentioned in the partnership deed, if the firm pays an amount that exceeds the rate or limits fixed by the deed (or as per the conditions prescribed under Section 40(b)), the excess portion of the salary will be disallowed. The Act expects the remuneration to be predetermined and not subject to arbitrary increases.

      3. Non-Compliance with the Prescribed Formula:
        The Act mandates that the salary should be computed on a fixed formula (or rate) as stipulated in the deed, without being linked to the fluctuating profits of the firm. If the payment deviates from this method – for example, if it is linked directly to profits, thereby possibly distorting the firm’s taxable income – the deduction may be disallowed to the extent of the deviation.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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 ProfiRead more

    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.

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CA Vishnu Ram
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    Under Section 40(b) of the Income Tax Act, a partnership firm can claim a deduction for remuneration paid to partners, but it must satisfy the following conditions: 1️⃣ Remuneration Must Be Paid to "Working Partners" Only Only working partners (actively engaged in business) are eligible for remuneraRead more

    Under Section 40(b) of the Income Tax Act, a partnership firm can claim a deduction for remuneration paid to partners, but it must satisfy the following conditions:

    1️⃣ Remuneration Must Be Paid to “Working Partners” Only

    • Only working partners (actively engaged in business) are eligible for remuneration.
    • Sleeping (non-working) partners are not entitled to remuneration deduction.

    2️⃣ Must Be Authorized by the Partnership Deed

    • The partnership deed must specify the remuneration amount or the calculation method.
    • If the deed is silent on remuneration, the firm cannot claim a deduction.

    3️⃣ Payment Should Be Within the Prescribed Limits

    • Remuneration should not exceed the maximum limits prescribed under Section 40(b):
      ✅ Book profit ≤ ₹3 lakh → 90% of book profit or ₹1.5 lakh (whichever is higher)
      ✅ Book profit > ₹3 lakh → 60% of book profit

    4️⃣ Remuneration Must Be Paid to an Individual Partner

    • If a partner is a company or LLP, remuneration paid to them is not deductible.

    5️⃣ The Partnership Deed Must Be in Effect

    • The partnership deed should be signed and in force before the end of the financial year.
    • If the deed is amended to change remuneration, the amendment must apply prospectively, not retrospectively.

    6️⃣ Firm Must Be Assessed as a Partnership Firm

    • The firm must be assessed as a partnership firm under the Income Tax Act.
    • Firms taxed under presumptive taxation schemes (Section 44AD/44ADA) cannot claim this deduction.

    ✅ Conclusion:
    To claim a deduction for partner remuneration, ensure it is paid to a working partner, authorized in the deed, within Section 40(b) limits, and in a firm recognized as a partnership under the Income Tax Act.

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