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Partner's salary - income tax computation of a firm

N. PRAKASH (PROPRIETOR) (36 Points)

12 December 2015

Dear Experts,

Request to guide me to solve the issue.

My client a partnership firm reported loss for the FY 2014-15. Say Rs.50000/-

They have considered salary for partner which is more than the loss reproted i.e RS.1,00,000/-

While computing Income Tax for AY 2015-16 whether the salary to partner is to be treated as expense and report loss or should the partners salary excluded from expense and report a profit and remit the due tax.

Regards

Prakash - NP

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19 Replies

CA Santosh Dhumal (Practising CA.) (594 Points)
Replied 12 December 2015

Dear Friend Salary to partner is governed by sec 40b r.w. sec.184 in case of loss or profit is less than Rs. 300000( as computed under Inome tax act) you can pay remunaration at 90% of profit or Rs 150000 whicher is higher (provided conditions of sec 184 are fulfiled)

1 Like

CA Prateek Garg (CA in Practice) (1444 Points)
Replied 12 December 2015

In case of loss maximum permissable remuneration to all partner is Rs 150000/- Provided such payment is authorised by partnership deed...

CA Prateek Garg (CA in Practice) (1444 Points)
Replied 12 December 2015

In case of loss maximum permissable remuneration to all partner is Rs 150000/- Provided such payment is authorised by partnership deed...

Ankit Taprania (CA FINAL ) (542 Points)
Replied 12 December 2015

yes in case of loss maximum salary that can be paid to all partners is rs 150000. So you are good to go.

Karthik.V.Kulkarni (Chartered Accountant) (594 Points)
Replied 12 December 2015

As the partners salary is well within the limits of sec 40 (b) nothing need be disallowed while computing pgbp.

govind (auditor assistant) (40 Points)
Replied 13 December 2015

Profit without salary is 50000. Now according to 40b the limit will be 150000. Since actual salary is 1lacs that will be allowed and loss will be 50000. Salary must be authorised by partnership deed.

CA.PRADIPTA KUMAR PANDA (PARTNER) (27 Points)
Replied 13 December 2015

you can claim salary as expenses

Varun (Article Assistant) (56 Points)
Replied 13 December 2015

Salary to partners of Rs. 100000(upto Rs. 150000) can be claimed as expenses and the loss will be incresed which can be carried forward to next eight years.

Tony John (Chartered Accountant) (6085 Points)
Replied 14 December 2015

Rs. 100000 paid as remuneration to working partners and authorized by deed is in line with Section 40b of the Income Tax Act in case of loss.

Mahesh Rajput (Student) (19 Points)
Replied 14 December 2015

salary to partner of Rs. 1,00,000/- is to be treated as expense and report loss. Salary to partner is governed by the limit spelled by section 40(2)(b) which states that in case of loss the maximum allowable salary to the WORKING partner of the partnership firm is Rs. 1,50,000/-

Mahesh Rajput (Student) (19 Points)
Replied 14 December 2015

The above stated section 40(2)(b) is to be read as section 40(b) of the Income Tax Act , 1961

(Guest)

The question is whether the partner can claim only Rs 100000/- (when as per section 40(2)(b) Rs 150000 is allowable.)

I was having problems in filing return using java utility where the partners had claimed less that Rs 1.5 Lakh as salary in case of loss. there were problems in validation.