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