Regarding Remuneration to partners

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This discussion clarifies the rules around partner remuneration. There are specific limits on the total amount a firm can pay its partners, calculated based on book profits. This remuneration is intended for working partners only and is distributed according to the partnership deed. If the deed needs to be amended for different distribution ratios, this can be done.

Divyesh Ajmera

Divyesh Ajmera (Querist)
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26 December 2024 1. There is maximum limit for remuneration to partners?
2. Then it is any provision to maximum limit of remuneration to each partner?
3. If there is 2 working partners in firm and other 10 is sleeping partners, then remuneration can be distributed among all 12 partners or 2 working partners only?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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26 December 2024 1. The following is the highest amount that can be paid under Section 40(b):
A. First Rs.3,00,000 of book profit or loss ..... Rs.1,50,000 or 90% of the book profit (whichever is higher)
B. Remaining balance of book-profit ........ 60% of the book-profit
Here, The net profit stated in the profit and loss account, calculated by the guidelines in chapters IV–D, plus the amount of compensation paid to partners, which is allowed as a deduction in the profit and loss account, is known as book profit.

2. This limit relates to the total remuneration of all partners, not per partner. The share would be as per partnership deed.
3. The only person who should receive such compensation is the working partner. In above referred case, only two working partners can earn the remuneration.

Divyesh Ajmera

Divyesh Ajmera (Querist)
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26 December 2024 Amount of remuneration is mandatory in accordance to profit sharing ratio as per partnership deed or can be distributed within maximum limit in any ratio?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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27 December 2024 No, it should be as per shares declared in Partnership. Partnership deed can be amended for any such change/s.

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