This section covers

  1. Remuneration paid to Partners
    (Salary/bonus/commission/any other remuneration)
  2. Interest on Capital paid to partners

 

Remuneration to partners

It is allowed as deduction,only to working partners.

If paid to non working partners,it is completely disallowed

Amount should be specified in Partnership deed,then only avaialble

Limit is as mentioned below

Particulars

Amt

In Case of Loss

or

Profit upto 300000

90% of book profit 

or

150000

which ever is higher

On Balance Profits 60% of Book Profit


Book Profit Means

= Net Profit

+ Remuneration paid to partners

 

Example

Book profit - maximum salary.jpg

 

Interest Paid to Partners

It should not exceed 12% Simple Interest,

Amt exceeding 12% will be disallowed

Interest should be specified in Partnership deed,then only available

  

 

How is tax Computed

Limit of deduction is specified in Section 40 (b)

If deduction available to partnership regarding it,then it is PGBP income of Partners

However if deduction not available to partnership regarding it,then it is not taxable as PGBP of Partners

Question 1

Suppose a Partnership firm has Business Profit of 7 lacs
What is Maximum Salary it can give to 2 Partners as per Section 40(b)?

View Answer

 

Question 2

Suppose a Partnership firm has Net Profit of 1 lacs as calculated below

Particulars Amount
Sales 1000000
Less  
Expenses 300000
Profit 700000
Less  
Salary Paid to Partner A  (Working) 400000
Salary Paid to Partner B (Sleeping Partner) 200000
Net Profit 100000

What is Maximum Salary it can give to 2 Partners as per Section 40(b)?

View Answer

 

Question 3

Suppose a Partnership firm has loss of -180000 as calculated below

Particulars Amount
Sales 1000000
Less  
Expenses 300000
Profit 700000
Less  
Salary Paid to Partner A  (Working) 400000
Salary Paid to Partner B (Sleeping Partner) 200000
Less  
Interest Paid to Partner A (Working) 70000
(500000*14%) Simple Interest  
Interest Paid to Partner A (Working) 210000
(1500000*14%) Simple Interest  
Net Profit/(Loss) -180000

 

Q3 A

What is Maximum Salary it can give to 2 Partners as per Section 40(b)?

View Answer

 

Q3B

What is Maximum Interest which can give to 2 Partners as per Section 40(b)?

View Answer

 

Q3C

What is tax payable by Partnership firm in this case

View Answer

 

Q3D

What is tax payable by Partners in this case

View Answer
  1. Income Tax
  2. PGBP Income

About the Author

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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides GST Training in Delhi. Register now.