Both remuneration & professional fees to partner allowed

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A partnership firm can indeed pay both partner remuneration under Section 40b and professional fees (subject to TDS 194J) to a partner, provided these are treated as distinct. Professional fees are permissible for explicit services rendered by the partner using their technical know-how, outside their standard duties. However, the firm must be prepared to provide substantial evidence to the tax authorities to justify the validity and reasonableness of these separate payments.

CA Kapil Verma

CA Kapil Verma (Querist)
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16 March 2020 Hello every one,

Can a partnership firm pay professional fees (TDS 194J ) and partner remuneration (sec 40b) in separate heads to its partner.

Regards,
Kapil Verma

CA Kaushal Sharda

CA Kaushal Sharda (Expert)
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16 March 2020 If there is actually an explicit service provided by such partner using his technical know-how, then you can pay him professional fees which will be treated as an expense in the books of the firm. However you would have to prove that such payment relates to the professional service actually provided by the partner and is reasonable in case of a scrutiny.

Partner remuneration subject to section 40b is permissible whether or not you pay professional fees to a partner.

CA Kapil Verma

CA Kapil Verma (Querist)
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16 March 2020 but sec 40b says, any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as "remuneration")

CA Kaushal Sharda

CA Kaushal Sharda (Expert)
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16 March 2020 Yes it does say that. But if the partner is applying his professional skills and technical know-how and providing a service to the firm outside the scope of his duties under the deed, he can charge professional fees and that shall not be included in remuneration. However, this a point of debate and the A.O. may require substantial evidence to accept the fact that the professional fees charged by the partner is valid and reasonable.

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