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Salary of partner

Rajdeep (partner) (37 Points)

25 July 2015

Dear All,

There are two partners in a firm. One is active and the other is inactive. I understand that only the active partner can clain salary but what happens to the others share ?

For example if there is 4 lakh profit, what will be the computation ?

Thanks in advance

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Rajagopalakrishnan R (PARTNER) (1417 Points)
Replied 25 July 2015

Yes as per Income tax act Section 40(b)(v) only working partners can be paid remuneration. First thing to remember is on theory remuneration is not a method to distribute profits. If younwant remuneration as a method to distribute profits you must have a formula arrived at based on what remuenration can be claimed for the working partner, what is the mutual profit sharing ratio and also what is the best tax incidence for the firm. It is too simple a proposition that 4 laksh can be equitably distributed to one working and one non working partner based on remuneration paid to only one of them.