Remuneration
This query is : Resolved
23 January 2015
Mr X and Mr Y are partner in a firm
in partner ship deed they write like this
Mr X Remuneration 120000 PA & profit ratio 90%
Mr Y Remuneration 90000 PA & profit ratio 10%
and
if deiced or need by the partners then they can reduce or increase the remunerations
now they want file it return U/s 44AD as per calculation U/s 40(b) allowable remuneration is 300000
now can they claim 300000 as remuneration?
and another doubt
if they claim 300000 net profit will be in minus value, but they want to show some profit so i want show remuneration as per deed as a fixed remuneration is it correct
and another doubt
what is remuneration and fixed remuneration as per income U/s 44AD
in partner ship deed they write like this
Mr X Remuneration 120000 PA & profit ratio 90%
Mr Y Remuneration 90000 PA & profit ratio 10%
and
if deiced or need by the partners then they can reduce or increase the remunerations
now they want file it return U/s 44AD as per calculation U/s 40(b) allowable remuneration is 300000
now can they claim 300000 as remuneration?
and another doubt
if they claim 300000 net profit will be in minus value, but they want to show some profit so i want show remuneration as per deed as a fixed remuneration is it correct
and another doubt
what is remuneration and fixed remuneration as per income U/s 44AD
23 January 2015
1. The remuneration can not exceed the amount mentioned in the deed.
.
2. Any change in the fixed amount mentioned in the deed can be made by executing a Revised Partnership Deed.
.
3. Please check the Deed, whether it allows remuneration as per Section 40(b).
.
4. In my view, the situation of loss will not arise, if remuneration of Rs. 300000/-
is being arrived by following S40(b).
.
5. Profit to be declared U/s 44AD in the following manner-
1. Turnover x 8%
2. Less: Interest on capital to partners
3. Less: Remuneration to Partners.
.
.
2. Any change in the fixed amount mentioned in the deed can be made by executing a Revised Partnership Deed.
.
3. Please check the Deed, whether it allows remuneration as per Section 40(b).
.
4. In my view, the situation of loss will not arise, if remuneration of Rs. 300000/-
is being arrived by following S40(b).
.
5. Profit to be declared U/s 44AD in the following manner-
1. Turnover x 8%
2. Less: Interest on capital to partners
3. Less: Remuneration to Partners.
.
23 January 2015
3RD POINT
in deed they also mentioned Allowable remuneration should be as per income tax act
in deed they also mentioned Allowable remuneration should be as per income tax act
21 July 2025
Great, this is a detailed and practical query related to partnership remuneration and taxation under the Income Tax Act, especially Sections 40(b) and 44AD. Let me break down your questions step-by-step.
Background
Partners: Mr X and Mr Y
Partnership deed states:
Mr X remuneration = ₹1.20L p.a., profit sharing = 90%
Mr Y remuneration = ₹90K p.a., profit sharing = 10%
Remunerations can be increased or decreased if partners agree.
They want to file return under Section 44AD (presumptive taxation scheme for small businesses).
Allowable remuneration under Section 40(b) is ₹3L (₹1.20L + ₹90K = ₹2.10L, but here ₹3L is mentioned — maybe for illustration or max limit).
Question 1:
Can they claim ₹3L as remuneration when filing under Section 44AD as per Section 40(b)?
Answer:
Section 40(b) of the Income Tax Act prescribes limits on remuneration and interest payable to partners that are allowed as deductions from firm’s profits.
The maximum allowable remuneration and interest under Section 40(b) depends on the firm’s book profits and is governed by limits in Section 40(b).
The total remuneration allowed under Section 40(b) cannot exceed the limits prescribed — usually capped by either fixed amounts or as a percentage of book profits.
Section 44AD applies presumptive taxation on business income and usually you declare income at a fixed rate (e.g., 8% or 6% of turnover) and pay tax accordingly, without claiming deductions like remuneration or interest explicitly.
If the firm opts for Section 44AD, then detailed expenses including remuneration are not allowed to be claimed separately because income is computed on presumptive basis.
So, if partners file under Section 44AD, remuneration as per Section 40(b) cannot be claimed as deduction separately.
If they want to claim remuneration as a deduction, they need to opt out of Section 44AD and file normal return with detailed profit & loss statement.
Question 2:
If they claim ₹300,000 remuneration and net profit turns negative, but they want to show some profit — can they show remuneration as fixed as per deed?
Answer:
If remuneration claimed reduces the profit to negative (loss), then they cannot show profit as positive by arbitrarily adjusting remuneration.
Under normal provisions (non-presumptive), the remuneration must be allowed only as per Section 40(b) limits.
Showing remuneration as a fixed amount ignoring profit and loss situation may not comply with tax provisions.
Under presumptive taxation (44AD), no such adjustment is allowed; profits are deemed at a fixed percentage of turnover.
If partners want to show profits, either:
File under normal provisions and claim remuneration within limits; or
File under 44AD and accept deemed profits without claiming remuneration separately.
Question 3:
What is “remuneration” and “fixed remuneration” as per Income Tax Act Section 44AD (3rd point)?
Answer:
Section 44AD does not explicitly define “remuneration” or “fixed remuneration”, because under presumptive taxation scheme, detailed expenses, including remuneration, are not separately claimed.
The third proviso of Section 44AD states that if a firm opts for presumptive taxation, it cannot claim any deduction other than those specified in Section 44AD — which excludes remuneration or interest to partners.
The concept of “remuneration” or “fixed remuneration” for partners is governed under Section 40(b) and relevant case law.
In partnership deed, mentioning remuneration “as per Income Tax Act” generally means remuneration must be within the limits allowed under Section 40(b) to be deductible from firm’s profits.
So:
Remuneration = Amount payable to partners for services rendered.
Fixed remuneration = Agreed fixed amount of remuneration, not dependent on profit sharing.
Only remuneration within prescribed limits under Section 40(b) is allowed as a deduction.
Summary:
Issue Explanation
Claiming remuneration under Section 44AD Not allowed. Under presumptive taxation, no separate deduction for partner remuneration is allowed.
Showing fixed remuneration despite loss Not correct under Income Tax. Deduction allowed only as per Section 40(b) and actual profits.
Meaning of remuneration & fixed remuneration Amount payable to partners; allowable only within limits under Section 40(b); no special definition in 44AD.
If the partners want to claim remuneration as a deduction, they should not file under Section 44AD. They must file a normal return with detailed profit & loss account showing remuneration as expense (within Section 40(b) limits).
Background
Partners: Mr X and Mr Y
Partnership deed states:
Mr X remuneration = ₹1.20L p.a., profit sharing = 90%
Mr Y remuneration = ₹90K p.a., profit sharing = 10%
Remunerations can be increased or decreased if partners agree.
They want to file return under Section 44AD (presumptive taxation scheme for small businesses).
Allowable remuneration under Section 40(b) is ₹3L (₹1.20L + ₹90K = ₹2.10L, but here ₹3L is mentioned — maybe for illustration or max limit).
Question 1:
Can they claim ₹3L as remuneration when filing under Section 44AD as per Section 40(b)?
Answer:
Section 40(b) of the Income Tax Act prescribes limits on remuneration and interest payable to partners that are allowed as deductions from firm’s profits.
The maximum allowable remuneration and interest under Section 40(b) depends on the firm’s book profits and is governed by limits in Section 40(b).
The total remuneration allowed under Section 40(b) cannot exceed the limits prescribed — usually capped by either fixed amounts or as a percentage of book profits.
Section 44AD applies presumptive taxation on business income and usually you declare income at a fixed rate (e.g., 8% or 6% of turnover) and pay tax accordingly, without claiming deductions like remuneration or interest explicitly.
If the firm opts for Section 44AD, then detailed expenses including remuneration are not allowed to be claimed separately because income is computed on presumptive basis.
So, if partners file under Section 44AD, remuneration as per Section 40(b) cannot be claimed as deduction separately.
If they want to claim remuneration as a deduction, they need to opt out of Section 44AD and file normal return with detailed profit & loss statement.
Question 2:
If they claim ₹300,000 remuneration and net profit turns negative, but they want to show some profit — can they show remuneration as fixed as per deed?
Answer:
If remuneration claimed reduces the profit to negative (loss), then they cannot show profit as positive by arbitrarily adjusting remuneration.
Under normal provisions (non-presumptive), the remuneration must be allowed only as per Section 40(b) limits.
Showing remuneration as a fixed amount ignoring profit and loss situation may not comply with tax provisions.
Under presumptive taxation (44AD), no such adjustment is allowed; profits are deemed at a fixed percentage of turnover.
If partners want to show profits, either:
File under normal provisions and claim remuneration within limits; or
File under 44AD and accept deemed profits without claiming remuneration separately.
Question 3:
What is “remuneration” and “fixed remuneration” as per Income Tax Act Section 44AD (3rd point)?
Answer:
Section 44AD does not explicitly define “remuneration” or “fixed remuneration”, because under presumptive taxation scheme, detailed expenses, including remuneration, are not separately claimed.
The third proviso of Section 44AD states that if a firm opts for presumptive taxation, it cannot claim any deduction other than those specified in Section 44AD — which excludes remuneration or interest to partners.
The concept of “remuneration” or “fixed remuneration” for partners is governed under Section 40(b) and relevant case law.
In partnership deed, mentioning remuneration “as per Income Tax Act” generally means remuneration must be within the limits allowed under Section 40(b) to be deductible from firm’s profits.
So:
Remuneration = Amount payable to partners for services rendered.
Fixed remuneration = Agreed fixed amount of remuneration, not dependent on profit sharing.
Only remuneration within prescribed limits under Section 40(b) is allowed as a deduction.
Summary:
Issue Explanation
Claiming remuneration under Section 44AD Not allowed. Under presumptive taxation, no separate deduction for partner remuneration is allowed.
Showing fixed remuneration despite loss Not correct under Income Tax. Deduction allowed only as per Section 40(b) and actual profits.
Meaning of remuneration & fixed remuneration Amount payable to partners; allowable only within limits under Section 40(b); no special definition in 44AD.
If the partners want to claim remuneration as a deduction, they should not file under Section 44AD. They must file a normal return with detailed profit & loss account showing remuneration as expense (within Section 40(b) limits).
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