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Partner’s Remuneration Calculator

What is Partner’s Remuneration Under the Income Tax Act?

Section 40(b) allows firms and companies to claim a deduction of interest & remuneration paid to Partners while computing their profits & gains. However, there is a limit on the maximum amount of remuneration and interest paid under Section 40(b).

How to calculate remuneration to partners with example?

Calculating remuneration to partners in a partnership firm involves a predetermined method outlined in the partnership deed or based on the mutual agreement among the partners. The most common methods for calculating partner remuneration are a fixed amount, a percentage of profits, or a combination of both. Here's a step-by-step guide on how to calculate partner remuneration with an example:

Step 1: Review the Partnership Deed: Check the partnership deed to understand the terms and conditions related to partner remuneration. The deed will specify whether the remuneration is a fixed amount or a percentage of profits.

Step 2: Calculate the Profit: Calculate the net profit earned by the partnership firm. This is typically done at the end of the financial year and includes all income and expenses.

Step 3: Determine the Remuneration Method: Based on the partnership deed or the agreement among partners, determine the method for calculating the partner's remuneration. Common methods include:

  • Fixed Amount: If the partnership deed specifies a fixed amount as remuneration, each partner will receive that predetermined sum.
  • Percentage of Profits: If the partnership deed specifies a percentage of profits as remuneration, calculate each partner's share of the profit based on the agreed percentage. The formula for calculating the remuneration is:
    Partner's Remuneration = ( Firm’s Net Profit) x (Agreed Percentage)

Step 4: Example: Let's consider an example to illustrate the calculation of partner remuneration:

  • ABC & Co. is a partnership firm with three partners: A, B, and C.
  • The partnership deed specifies that A is entitled to a fixed annual remuneration of Rs. 50,000, B receives 10% of the net profit, and C receives 15% of the net profit.
  • The firm's net profit for the year is Rs. 2,00,000.
  • A's Fixed Remuneration: Rs. 50,000 (as specified in the partnership deed).
  • B's Remuneration: 10% of Rs. 2,00,000 = Rs. 20,000 (10% of the profit).
  • C's Remuneration: 15% of Rs. 2,00,000 = Rs. 30,000 (15% of the profit).

So, in this example, A receives a fixed remuneration of Rs. 50,000, B's remuneration is Rs. 20,000, and C's remuneration is Rs. 30,000.

What are the Conditions under which Partner’s Remuneration under Section 40(b) is Allowed

1. The Partnership Deed should authorize it

Any payment of salary, bonus, commission, or remuneration to a working partner is not admissible as a deduction if the payment is not authorized by the partnership deed or is not in conformity with the requirements of the partnership deed. The partnership agreement must include specific instructions for the amount of remuneration to be provided to the working partners.

2. It should not apply to a time period prior to the Partnership Deed.

The income paid to the working partners will be permitted as a deduction to the company only from the date of the partnership deed and not from any previous period.

3. It must not exceed the allowable limit.

The total amount of salary, bonus, commission or other remuneration paid to all partners during the previous year shall not exceed the following limits:
On the first three lakhs of book profit or, in the event of a loss, one lakh fifty thousand rupees, or 90 percent of book profit (whichever is higher).
On the balance book profit (after excluding above 3 lakh) it will be 60% of book profit.

4. Should be paid only to the working partner.

Section 40(b) defines a working partner as someone who is actively involved in the business or profession of the firm in which he is a partner. To be a working partner, the partner must be actively involved in the management of the firm's business or profession. A partner might be said to be actively engaged in the firm's business even if he/she just spends a portion of his working hours on it.

How to Calculate Deductions available for Partner’s Remuneration?

Income from PGBP 6,00,000 4,50,000 1,20,000
Add: Remuneration 3,00,000 3,00,000 80,000
Interest paid @ 24% 2,00,000 1,32,000 92,000
Less: Interest paid @ 12% 1,00,000 66,000 46,000
For first 3,00,000 of book profit, it is 90% or 1.5 lakh of book profit whichever is higher 2,70,000
More than 3,00,000, 60% of balance book profit 4,20,000 ((1000000-300000)*60%) 3,09,600 ((816000-300000)*60%) 0
Total 6,90,000 5,79,600 2,21,400

Benefits of Using Partner’s Remuneration Calculator

Partner’s remuneration calculator will help you calculate how much deductions regarding salary to partners and any payment of interest to partners can be availed by firms and companies in just a few clicks.

Eligibility Criteria for Using Partner’s Remuneration Calculator

If you meet the following conditions for claiming deduction of Remuneration paid to Partners then you are eligible to use this calculator.

  • It must be authorized by Partnership Deed.
  • It should be paid to only Working Partners.
  • It should not exceed the maximum permissible limit



What is partner remuneration?

Partners work together in the firm based on their roles and responsibilities. Partners work in the firm in the same manner that employees do, and they want to be compensated for their efforts. Remuneration might take the form of a bonus, a salary, or a commission. The majority of business partners have reached an agreement on a paid sum. The labour, goodwill, capital contribution, and educational background of the partner all have an impact on remuneration.


Is partner remuneration taxable?

Remuneration permitted as an expense in the hands of a partnership business is taxable in the hands of the receiving partner as "Income from Business or Profession." If such payment is not allowed as an expense in the hands of the partnership firm, it is not taxable in the hands of the partners.


Is Tax2win’s Partner’s Remuneration Calculator safe to Use?

Yes, our Partner’s remuneration calculator is totally safe to use. You can use it without worrying about data security as we do not save the data that you enter in this calculator.

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