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Partner’s Remuneration Calculator

What is Partner’s Remuneration Under 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).

What are the Conditions under which Partner’s Remuneration under Section 40(b) is Allowed 1. The Partnership Deed should authorise it

Any payment of salary, bonus, commission, or remuneration to a working partner is not admissible as a deduction if the payment is not authorised 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.1.

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 8,00,000
Interest paid @ 24% 2,00,000 1,32,000 92,000
Less: Interest paid @ 12% 1,00,000 66,000 46,000
Remuneration
For first 3,00,000 of book profit, it is 90% or 1.5 lakh of book profit whichever is higher 2,70,000
(300000*90%)
2,70,000
(300000*90%)
2,21,400
(2,46,000*90%)
More than 3,00,000, 60% of balance book profit 4,20,000 ((1000000-300000)*60%) 3,21,600 ((836000-300000)*60%) 0
Total 6,90,000 5,91,600 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

FAQ

1

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.

2

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.

3

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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